Company: Dangote Cement Plc
Rating: Hold
Current Market Price: N255
Fair Value: N182.86
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Financial Tickers:
• This analysis of Dangote Cement is mainly based on the year ended December, 31st 2017 financials. Although few comparisons were made using the quarterly results, while trying to establish trend and project few income statement elements for the three months ended 30th March, 2018.
• The management of Dangote Cement announced N10.50k final cash dividend for the year ended 31st December, 2017.
• Closure of shareholders’ register for the said dividend is 16th April, 2018 while the qualification date is 13th April, 2018.
• The electronic payment of the dividend will be effected 21st June, 2018. Since the Annual General Meeting of the company is scheduled to hold on 20th June, 2018 at Civic Center Victoria Island Lagos.

Strength
• Dangote Cement is the largest company traded on Nigerian Stock Exchange
• It is Nigeria’s largest producer of cement
• It has a huge production capacity of around 20mmtpa
• It has its self owned over 3000 trucks for cement distribution
• It also owns world’s largest cement factory in Obajana, Kogi State, Nigeria
• The company has approximately 3500 employees

Corporate Figures

• Safe the Total Comprehensive Income of Dangote Cement that dropped below comparable year of 2016 due to Exchange differences on translating net investments in foreign operations, all other income statement items stood above their respective comparable period’s figures.
• Turnover grew by 30.97% above what was stated in the 2016 financials, moving from N115.69 billion to N168.38 billion
• Operating Income stood above last year’s by 66.70%, standing at N304.20 billion, as against the N182.49 billion reported in 2016.
• Both Profit before and after Tax respectively improved above comparable year by 60.06% and 42.97%. Profit before Tax is currently N289.59 billion against N180.92 billion, while Profit after Tax is valued at N204.24 billion from N142.85 billion.
• Other compared financial items are as stated in the below table.

Liquidity/Risk Ratios
• Dangote Cement’s Debt to Equity Ratio stood at 14.53%, 7.69% below the industrial average of 15.74%
• **Current Ratio on the other hand is unfavorably below the industrial average, an indication that the company may not be able to readily settle its debt due within one year from its current assets.
• Despite the high market price tagged on Dangote Cement’s share price, it is still very liquid, though slightly below industry peers.

Profitability Ratios
• Good enough management was able to cut down the cost of sale by 17.17% below what was used in 2016
• Nevertheless, Profit before Tax Margin stood below that of 2016 as the ratio is currently measured at 35.95% as against 29.41%. Meanwhile Profit after Tax Margin grew marginally by 9.17%
• Both return on Average Equity and Return on Average Assets equally looked better than previous year’s estimates. See below table for details.

Efficiency Ratios
• Generally, Dangote Cement’s management efficiency can be rated above previous year, as all observed ratios stood above 2016 estimates.
• Total Assets Turnover increased to 48.36% from 40.23% achieving 20.21% growth
• Equity Turnover equally builds by 21.61% at 103.10%, against 84.78% achieved last year
• The company used debts corresponding to 2.13 times of equity in achieving its financial targets through the year under reviewed . This is further plus to the management’s effectiveness
• Similarly, fixed Assets Turnover increased by 27.87% at 64.16%. See the table below for details

Investment Ratios
• The amount earned per unit share of Dangote Cement is currently estimated at N11.99 which is 42.97% above the N8.38 earned in the last financial year
• As a result of the growth, it was able to achieve 5% yield over the current market price as at the date the result was released. The yield is same as last year
• The PE/Ratio increased to 22.11x above the 20.16x last year. This revealed investors’ preference for the shares of Dangote Cement
• Nevertheless, the Book Value is N45.85, that is, far below the current market price and our estimated fair value of N182.86. We are of the opinion that the difference can be ascribed to the company’s patent.
• Having reported N10.50 cash dividend, the company is paying out 87.60% of its earnings as dividend, thus, we have 3.24% as the sustainable growth rate of the firm’s dividend.

First though Third Quarter-2017 Compared
• All income elements ranging from the operating profit to total comprehensive income are on the rise QoQ.
• Nevertheless, the growth rate of the said figures reduced from the half year performance to the third quarter.

FIRST QUARTER 2018 FORECAST
• We have estimated the company’s Turnover for the three months ended 30th March, 2018 at N312.24 billion as against the N208.16 billion in the comparable period of 2017
• Profit before Tax was estimated at N129.27 billion against N77.31 billion
• Thus, Profit for the first quarter has been estimated at N105.85 billion.

FIRST QUARTER 2018 FORCECAST

Valuation/Recommendation
Our valuation explored the constant perpetual growth rate model where we used 11.4% with the growth rate of 9.91% in an average of five years dividend growth rate. Thus we arrived at a fair value of N182.86 for each unit of Dangote Cement share price.
On the strength of the above, we conclude that positioning in the share of Dangote Cement below our estimated fair value carries reduced risk. In other words, positions taken at the moment carries higher risk.