Dangote Cement: Growing Dividend, Despite Challenging Business Environment

Dangote Cement Plc, Nigeria’s net exporter of cement, released its 2016 full year earnings report for the period ended December 31, 2016 to the investing community earlier than the release date of its 2015 numbers, to foster its belief in high quality corporate governance in creating value for shareholders and consistently keeping to its post-listing obligation that helps investors forecast and plan their investment.
The company continued its investment in capacity expansion and widening its distribution network to many Africa countries and beyond, which has sustained the growing sales revenue that has equally impacted the profitability ratios on yearly basis. This is regardless of the huge cost of operation and challenging economies in many African countries as a result of the fall in commodity price, particularly crude oil in 2016 before the rebound that is bringing hope again to the region and security problem in some countries in the region.
Dangote Cement delivered an impressive full-year result, at a time when others in the nation’s manufacturing sector are bedeviled by huge loss positions and declining earnings to reflect the recessive economy and high cost of production resulting from FX shortage, huge cost in energy and power to provide independent power to sustain production as gas supply remains a problem due the Niger Delta restiveness. In all these, the company’s market dominance as a result of relatively low price regime helps to keep patronage, despite upward adjustment in price during the year under review, factoring in the increasing cost of production which we believe will drop in this current financial year.
The 2016 numbers showed improved performances, compared to the previous year, as the top and bottom line were up, as sales turnover rose above that of the corresponding period by 25% to N615.1bn from N491.73bn in 2015. Growth in profitability for the year was marginal at 3% from N181.32 billion in 2015 to N186.62bn owing to such challenges as high financing, sales and operational costs, which increased by 36%, 60.46% and 39% to N45.38bn, N323.82bn and N119.34bn respectively. This hampered profit for the year, despite tax credit that supported the bottom line.
Shareholders fund soared as a result of increasing investment assets to N797.35 billion from N644.72bn in 2015, representing 24% growth. Its earnings per share for the period grew to N10.95 from N10.64 in the previous year. The EPS for the full year is a replica of price at 15.43x, which has extended investors waiting period but it is still okay, especially considering the fact that it is higher than the 13.94x recorded in 2015. The Book Value per share for the period stood at N46.79 from N37.83 in 2015. Profit Margin of 30.34% is an indication of management efficiency in cutting cost. The strong retained earnings position of N677.48bn is good to support expansion and dividend payment.
Dangote
Source: Company Financial & Investdata Research
The company remains an influence on the market which is noticeable, being the most capitalised stock that stands out in revenue and profit. It has gained the interest of traders and institutional investors who use the stock to manage risk in their portfolio because it carries the market along with its trending pattern.
The N8.50 dividend reward is relatively okay, representing about 5% of its share price as at released date, which supports investors’ confidence and sentiments for the equity considering the nature of it product and infrastructural gap that need to be bridged to grow the economy and drive economic diversification.
Technical View
Dangote Cement has been one of the main drivers in the markets since the beginning of the year. The price action recently formed a symmetrical triangle chart pattern that supports trend reversal and continuation but we have noticed that the stock price has been declining since Q2 of 2016 to reflect the market and economic situation. Breakout of the triangle and downtrend resistance line is imminent as it appears to be finding buying support around the N165 level. The shares could be in the process of bottoming out and on that basis is worth buying for the medium to long term with a stop below the lows.
Dangote2
Dangote Cement’s trending momentum and direction is weak as ADX is currently below 20 at 17.11, MACD is bullish and MFI is looking up to indicate that funds are entering the stock, while RSI is reading 52.72 to show relative strong. However, a breakout of downtrend line is near, as other indicators like RSI and MACD are signaling buy, while SO and CCI are indicating sell.
Recommendation /Analyst Opinion
The company’s cost management supported its position in 2016, but in this current financial year we see a better improvement in government expenditure and increasing partnership with FG on concrete road construction as central to further earnings growth of the company. Also, with plan by government to accelerate infrastructure development in the current year, in partnership with the private sector, DANGCEM will be a net beneficial and better positioned to sufficiently drive growth in 2017. Before now, the company has successfully signed agreement with the FG for construction of the Lokoja-Obajana-Kabba-Ilorin road, using concrete.
According to the plan, Dangote would embark on the road construction in exchange for some tax remissions of N5.7bn which we noticed in 2016 just for one year.
We have recommended hold before now, but based on the expectations, among others, we upgrade to BUY position for new entrants with long term investment goals.
Dangote3
Source: Company Financial & Investdata Research
Five-Year Financial Analysis
Looking at the company’s financials for a five-year period, the continued investment in capacity building by the board to meet demand for cement for development of critical infrastructure has turned Nigerian to a exporter of the commodity.
Today, the African continent has boosted revenue as a result of the increasing quantity of cement produced per annum. The company’s corporate governance which is the driver and sustenance of performance that create value for shareholders have supported it share price and helped investors project and forecast with some measure of certainty.
In the five years under review, sales revenue grew consistently from N298.45 billion in 2012 to N615.10 billion, representing an increase of 106.1%, just as profit rose by 29% from N145.02bn in 2012 to N186.62bn after it hit a peak of N200 billion in 2013.
Net asset for the period was up by 97% to N797.35bn from N404.54bn in 2012.
Within the period, the company has consistently rewarded shareholders with dividend, supported by improving numbers. The company has so far paid a total dividend of N32.50 per share to shareholders.
dangote4
Estimated Performance Ratios
Earnings power for the five-year period grew by 17% to N10.95 from N9.36 in 2012, after it had recorded an all-time high of N12.99 in 2013, following which a dividend of N7 was paid per unit. The company had up and down trend in earnings for the period due to increased investment in its capacity building and harsh business environment.

Price Earnings Ratio for the period moved from 122.45x in 2012 to 15.43x in 2016 to elongate investors waiting period, but down from all-time high of 17.71x in 2013 and 16.30x in 2014 respectively. This was attributed to different prices as at the released date.
The book value as at the last financial year was N46.79, the highest so far in the company’s history represent 79.2% from N26.11 in 2012. However, this is relatively low, compared to its share price. The growing net assets and robust retained earnings would further boost the company’s business to earn more and grow shareholders’ funds.
The estimated ratio also reveals that Dangote Cement’s profit margin for the period has consistently been above the benchmark internationally but on a downtrend in the past four years from 52.10% in 2013 to 30.34%. This is healthy and shows the commitment of management to reduce cost and support profit line and create value.
On the strength of the numbers posted and expectation of better financial in 2017, the stock is fairly priced at N210 each, considering fund managers and investor’s preference for consistent dividend, competent management to drive profitability and a clear business model of the company to give insight.
dangote5
Source: Company Financial & Investdata Research

OMORDION AMBROSE
CHIEF OPERATING OFFICER,
INVESTDATA LIMITED,
Email: ambroseconsultants@yahoo.com
TEL:01-4724645,08028164085,07028061501

Sign In

Register

Reset Password

Please enter your username or email address, you will receive a link to create a new password via email.