Dangote Cement Beats Market Expectation, Maintains Leadership With Higher Payout

By Kanayo John, Imperial Assets

Dangote Cement Plc (DANGCEM) on Tuesday, 01 March 2022 released its audited statements for the financial year ended (FYE) 31 December 2021 (FY ’21). A close analysis of the results showed that both Revenue and Net Income (PAT) expanded by 33.8% and 32.0% to settle at ₦1.38 trillion and ₦364.44 billion respectively compared to FY ‘20 records.

The company’s topline growth was bolstered by strong performance recorded in the standalone Q4 ’21, where revenue leaped by 32.5% to ₦361.45bn (26.1% of the FY-21 revenue). Notably, sales from Nigeria operations (units) contributed 71.2% (2020: 69.6%) to the revenue, while Pan-Africa operations(units) contributed the rest of 28.8% (2020: 30.3%). From the 71.2% contributed by Nigeria units, 3.7% (2020: 1.5%) came in for income realized from abroad sales (export), as the Nigeria units continues to support demands and operations of Pan-Africa units.      

Cost elements reflects challenging business environment

As the Group’s business lines continues to witness expansion, cost lines equally rose. However, the sales’ (revenue) growth rate was faster than the rate of cost-line items. While Cost-of-Sales and OPEX rose by 25.8% and 8.1% respectively in the period (due to capital intensive nature of the business), sales rose by 33.8%. Again, cost-line items appeared to be better managed, as Cost-to-Sales (CoS) and OPEX-to-Sales dropped from 42.3% and 20.6% in FY-20 to 39.8% and 18.4% respectively. Due to devaluation and variability of Naira exchange rate to Dollar and other Pan-Africa currencies, Finance cost rose by 49.4% to ₦65.7bn. The management noted that amid the challenged business environment, the average effective interest rate on funds borrowed per annum was 10.75% (2020: 9.67%) and 11.3% (2020: 8.52%) for Group and Company respectively.

Bottom-line looks up amid subdued cost lines

Notwithstanding increase in tax obligations by 78.9%, Net Income for the period rose by 32.0% to settle at ₦364.35 billion, ably aided by subdued cost-line items. Notably, both PBT and PAT margins rose by 38.9% and 26.3% (vs 36.1% and 25.7% in FY-20) respectively. Return-on-Average-Equity employed (RoAE) rose to 37.1% compared to 30.9% in FY-2020.

Dividend yield to brighten shareholders’ lot 

With the improved performance, the Board of Directors has proposed to reward shareholders with a dividend of ₦20.00 per share, higher than ₦16.00 per share paid in FY-20. At the closing market price of ₦273.50 per share as of Thursday, 3 March 2022, the Company’s Dividend Yield currently stands at 7.3%.

Compared to returns provided by other assets class, especially Treasury Bills, the dividend yield of 7.37% is currently higher than the yield on the 1-year T-bill (+5.04%) and ranks closely with 2-year TTM Bond (+8.17%) that matures in April 2024.

Our current recommendation on DANGCEM

We currently have an estimated (valuation) target price of ₦320.00 per share for DANGCEM. It represents an upside potential of 17.0% from the current market price of ₦273.50. Therefore, we maintain a BUY recommendation on the Company’s shares.

DANGCEM Business Profile

Dangote Cement Plc (“the Company”) was incorporated in Nigeria as a public limited liability company on 4 November 1992 and commenced operations in January 2007 under the name Obajana Cement Plc. The name was changed on 14 July 2010 to Dangote Cement Plc. The principal activity of the Company and its subsidiaries (together referred to as “the Group”) is to operate plants for the preparation, manufacture and distribution of cement and related products. The Company’s production activities are currently undertaken at Obajana town in Kogi State, Gboko in Benue State, Ibese in Ogun State; all in Nigeria, and facilities across 24 Africa countries.

The company corporate action for 2021 is as follow

Dividend of N20 per share, with qualification date of May, 30, 2022 and closure of register May 31, 2022 and payment date after the AGM is slated for June 15, 2022.  The table below is the highlight of the 2021 financial year numbers.