Dangote Cement Plc: Towering Stature, But Can Be More Cost-Efficient

Period Estimated: Quarter Ended 30th June, 2020
Rating: Hold
Current Market Price: N134.2

Latest Dividend: N16.00
Year High: N180.40
Year Low: N116.00
Fair Value: N169.72
Equity AnalystTunde Segun Jeariogbe

Key Investment Ratios

  • In this report, we look into the six months financial statistics of Dangote Cement representing the period ended 30thJune, 2020, compared same with similar numbers released at the end of 2019second quarter, to establish growth, while the full-year numbers were explored to achieve valuation and recommendation.
  • Generally, the income statement is a marginal improvement over the numbers released in the comparable quarter of 2019
DANGOTE CEMENT
BourseNigerian Stock Exchange
Code NameDANGCEM
SectorINDUSTRIAL GOODS
Market ClassificationPREMIUM BOARD
Nature of BusinessProduction and Sale of Cement
Date of IncorporationNovember 4th 1992
Date ListedOctober 26th 2010
End of Accounting Year31ST DECEMBER
Websitewww.dangotecement.com
RegistrarUnited Securities Limited
AuditorAhmed Zakari& Co. , Deloitte Nigeria
Share Price@Relsd (N)                                                     134.20
Earnings per Share                                                         7.40
Intrinsic Value(N)                          169.72
Share Outstanding17,040,507,405
Market Capitalisation                                  2,286,836,093,751

Company figures

  • The turnover reported for the first period is estimated at N476.85 billion, same as 1.95% above the N467.73 billion posted in the corresponding quarter of last year.
  • Similarly, Cost of Sales inched up by 4.79% to N202.42 billion, versus N193.17 billion in the comparable quarter.
  • Operating Profit for the period was valued at N173.49 billion, same as 1.75% above the N170.49 billion estimate in 2019 half-year.
  • Finance Cost used through the period stood at N20.85 billion, 6.29% above the N19.61 billion stated at the end of 2019 second quarter.
  • Profit Before Tax was estimated at N162.85 billion, as against N155.48 billion achieved at the end of the first six months of 2019 business session.
  • Tax Expense allowance grew by 1.27% to N36.70 billion, versus N36.24 billion in the corresponding quarter.
  • Thus, a total of N126.14 billion was reported as Profit for the period, a marginal growth over the N119.24 billion earned at the end of the 2019 second quarter.
DANGOTE CEMENT
Statement of Comprehensive Income
 2020(Mill)2019(Mill)%CHG
Turnover               476,852           467,7301.95
Cost of Sales               202,420           193,1724.79
Operating Profit               173,479           170,4961.75
OPEX               103,693           105,290-1.52
DEPRECIATION                 44,592              47,448-6.02
FINANCE COST                 20,854              19,6196.29
NET FINANCE INCOME(10,628)           (14,958)-28.95
PBT               162,851           155,4884.74
TAX                 36,708              36,2481.27
PAT126,143           119,2425.79
TOTAL COMP INCOME               114,078           117,276-2.73
Statement of Financial Position
Current Assets               435,500374,60216.26
Non-Current Assets           1,369,698        1,281,8296.85
Total Assets           1,805,198        1,656,4318.98
Current Liabilities796,579           498,64659.75
Non-Current Liabilities               269,252           326,544-17.54
Total Liabilities           1,065,831           825,19029.16
Net Assets               739,367           831,241-11.05
Retained Earnings               631,091           695,547-9.27
Shares Outstanding                 17,040,507,405              17,040,507,405 
  • Current Assets as at the end of 2020 Q2 is valued at N435.50 billion, which is 16.26% below the N374.60 billion in the corresponding quarter.
  • Non-Current Assets stood at N1.36 trillion, a marginal improvement of 6.85% over the N1.28 trillion in 2019.
  • Current-Liabilities was valued for N796.57 billion, as against N498.64 billion in the corresponding quarter.
  • Non-Current Liabilities equally dipped by 17.54% to N269.25 billion, as against N326.54 billion in the comparable quarter.
  • Net Assets of Dangote Cement equally dropped by marginal 11.05% at the current estimate of N739.36 billion, as against the N831.24 billion in the comparable quarter.
  • Retained Earnings reduced by 9.27% as it is currently valued for N631.09 billion against N695.54 billion in 2019 second quarter business session.

Financial Strength/Solvency Ratios

  • Debt Ratio is currently estimated at 59.04, same as 18.52% above the 49.82% estimated in the corresponding quarter of 2019, which implies that Total Liabilities is same as 59.04% of Total Assets at the end of the quarter.
  • Total Debt to Equity was equally estimated at 144.15% as against 99.27% estimated in the comparable quarter. This simply implies that more debt was used through the just concluded period.
  • It was established that Equity is same as 40.96% of Dangote Cement’s Assets Value, estimate from 2019 second quarter performance indices yielded 50.18%, which is an 18.38% drop in investors’ interest within the two quarters compared.
  • Nevertheless, going by the estimated beta value, we can conclude that Dangote Cement is more liquid than its industry peers on the floor of the exchange.
Financial Strength/Solvency Ratio
TICKERS20202019%CHG
Debt Ratio59.04%49.82%18.52
Total Debt to Equity Ratio (MRQ)144.15%99.27%45.21
Equity Ratio40.96%50.18%-18.38
TICKERS2020Industrial Average%CHG
Beta Value                                       1.00                                   0.982.04

Profitability Ratios

  • EBITDA margin estimated for the quarter stood at 36.38%, a marginal drop from the 36.45% estimated from 2019 second quarter earnings numbers.
  • Pre-Tax Margin is valued at 34.15%, a marginal improvement above the 33.24% estimate in 2019.
  • Cost of Sales was 42.45% of the Turnover figure, this is only 2.78% above the 41.30% estimated in 2019. This is a confirmation of the management’s effort at controlling its direct cost.
  • Return on Equity stood at 17.06%, as against the 14.35% achieved in 2019.
  • See below for details:
PROFITABILITY RATIOS
TICKERS20202019%CHG
EBITDA MARGIN36.38%36.45%-0.20
PRE-TAX MARGIN34.15%33.24%2.73
EFFECTIVE TAX RATE29.10%30.40%-4.27
CS TO TO42.45%41.30%2.78
ROE17.06%14.35%18.93
ROA6.99%7.20%-2.93

Efficiency Ratios

  • Operating Expenses to Turnover value is same as 21.75%, this is a 3.40% improvement in management efficiency from the 22.51% estimated from the 2019 second quarter’s financial indices.
  • Turnover to Total Assets Ratios stood at 26.42%, as against the 28.24% marginal improvement in management efficiency within the two compared periods.
  • Working Capital Ratio, a ratio that  indicates a company’s effectiveness in using its working capital, was estimated at -1.32x a 64.98% drop from the -3.77x estimated in 2019.
  • See below for details.
EFFICIENCY RATIOS
 20202019%Chg
OPEX TO TO21.75%22.51%-3.40
TO TO TA26.42%28.24%-6.45
Working Capital Turnover                                    (1.32)                                 (3.77)-64.98
Working Capital Ratio                                       0.55                                   0.75-27.23

Investment/Valuation Ratios

  • At the end of the 2020 second quarter business cycle, the earnings per share of Dangote Cement inched up by 5.79%% to N7.40 from the previously estimated N7.00.
  • Our six months adjusted P/E-Ratio dipped by 25.45% having moved to 18.13x from 24.32x. It is important to note that the high P/E-Ratio is an indication of positive investors’ sentiments for Dangote Cement shares.
  • The said Earnings per Share yielded 5.52% of the current market price of Dangote Cement shares on the floor of the exchange as at the time the result was made available to the investing public.
  • The Book Value of Dangote Cement shares is currently estimated at N43.39, which is far below the market value of the Coy on the floor of the exchange. This excess is generated by investors’ sentiments/preference for the company as noted above.
  • Confirming the seemingly over-priced status of Dangote Cement shares on the floor of the exchange is the Price to Book Value which stood far above unity (3.09x).
Investment/Valuation Ratios
Tickers20202019%Chg
Price at Released134.20170.17-21.14
EPS7.407.005.79
TCIP/SHARE6.696.88-2.73
P/E-Ratio18.1324.32-25.45
Earnings Yield5.52%4.11%34.14
BV/Share43.3948.78-11.05
PBV3.093.49-11.34

Valuation

Considering the marginal improvement observed on the performance indices of Dangote Cement’s, we maintain our preservative valuation approach while placing a fair value on each unit of its shares. Also, we lowered our growth expectations to accommodate the expected drop from the general risk suffered by most manufacturing companies from the COVID-19 pandemic. Thus, we have valued each unit of Dangote Cement’s share price at N169.72 and rated it a Hold.

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