# Dangote Cement: When Driving Down OPEX Becomes imperative

**Rating**: Hold**Current Market Price**: N150

**Latest Dividend**: N16.00**Year High**: N180.40**Year Low**: N116.00**Fair Value**: N163.40*Equity Analyst*: **Tunde Segun Jeariogbe**

**Key Investment Ratios**

- In this report, we take a review the three-month financials of Dangote Cement Plc for the period ended 31
^{st}March, 2020, and compared same with similar numbers released at the end of 2019 first quarter, to establish growth. The full-year numbers were, nonetheless, explored for the purpose of arriving at a valuation and to make informed recommendation. - Generally, the income statement is a marginal improvement over the numbers released in the comparable quarter of 2018.

**Company figures**

- Turnover for the first three months of 2020 is estimated at N249.18 billion, the same as 3.76% above the N240.15 billion posted in the corresponding quarter of last year.
- Similarly, the Cost of Sales inched up by 4.87% to N104.32 billion, versus N99.47 billion in the comparable period of 2019.
- Operating Profit for the period was valued at N91.77 billion, the same as 3.84% above the N88.38 billion estimate in the 2019 first quarter.
- Finance Cost used through the period stood at N9.01 billion, representing a 23.03% drop from the N11.70 billion stated at the end of 2019Q1.
- Profit before Tax was estimated at N88.05 billion, up from the N78.96 billion achieved at the end of the first three months of 2019.
- Tax Expense allowance for the period grew by 47.36% to N27.56 billion, versus the N18.70 billion of the corresponding quarter.
- Thus, a total of N60.59 billion was reported at Profit for the period, a marginal growth over the N60.25 billion earned at the end of the previous Q1.
- Due to the loss recorded on Exchange differences on translating net investments in foreign operations, the Total Comprehensive Income for the period stood at N50.55bn, 15.87% below the N60.09 billion of the similar quarter of 2019.

- Current Assets as at the end of 2020 first quarter was valued at N434.42 billion, 5.87% below the N461.51 billion of the corresponding quarter.
- Non-Current Assets stood at N1.36 trillion, a marginal 6.45% improvement over the N1.28 trillion of 2019.
- Current-Liabilities was valued for N667.88 billion, compared to N518.19 billion in the corresponding quarter of last year.
- Non-Current Liabilities equally inched up by marginal 2.30% to N181.23 billion compared to N177.15 billion in the comparable quarter.
- Net Assets of Dangote Cement equally dropped by a marginal 9.38% at the current estimate of N948.49 billion, as against N1.04 trillion in the prior Q1.
- Retained Earnings reduced by 7.90% to N837.20 billion, from N909.00 billion in the 2019 first quarter.

**Financial Strength/Solvency Ratios**

- Debt Ratio is currently estimated at 0.47x, 18.34% above the 0.40x estimated in the corresponding quarter of 2019. This implies that, Total Liabilities is the same as 47% of Total Assets.
- Total Debt to Equity was equally estimated at 0.90x, up from the 0.66x estimated in the comparable Q1, which simply implies that more debt was used through the just-concluded quarter.
- It was established that Equity is the same as 53% of Dangote Cement’s Assets Value, estimate from the 2019 first-quarter performance indices, yielded 60%, a marginal drop in investors’ interest within the two quarters under comparison.
- Nevertheless, going by the estimated beta value, we can conclude that Dangote Cement shares are more liquid than industry peers on the floor of the exchange.

**Profitability Ratios**

- EBITDA margin estimated for the quarter stood at 36.83%, a marginal improvement over the 36.80% estimated from the 2019 first-quarter earnings numbers.
- Pre-Tax Margin is valued at 35.34%, a slight increase over the 32.88% estimate in 2019.
- Cost of Sales was 41.87% of the Turnover figure, which is only 1.07% above the 41.42% estimated in 2019. This is a confirmation of the management’s effort at controlling direct cost components.
- Return on Equity stood at 6.39%, as against the 5.76% achieved in 2019.
- See below for details.

**Efficiency Ratios**

- Operating Expenses to Turnover value is the same as 21.75%, which is a 1.13% improvement in management efficiency, from the 22.00% estimated from the 2019 first-quarter financial indices.
- Turnover to Total Assets Ratios stood at 13.88% against 13.79%, a marginal improvement in management efficiency within the two compared periods.
- Working Capital Ratio, a ratio that indicates a company’s effectiveness in the use of working capital was estimated at -1.07x a 744.81% drop from the -4.24x estimated in 2019
- See below for details.

**Investment/Valuation Ratios**

- At the end of the 2020Q1 operating period, the earnings per share of Dangote Cement inched up by 0.56% to N3.56 from the previously estimated N3.54.
- Our three-month adjusted P/E-Ratio dipped by 19.80%, after rising to 42.19x from 52.60x. Please note that the high P/E-Ratio is an indication of positive investors’ sentiments for Dangote Cement shares.
- The said Earnings per Share yielded 2.37% of the current market price of Dangote Cement shares on the exchange as at the time the result was made available.
- The Book Value of Dangote Cement shares is currently estimated at N55.66, which is far below the market value of the Company on the floor of the exchange. This excess is generated by investors’ sentiments/preferences for the company as noted above.
- Confirming the seemingly over-priced status of Dangote Cement shares on the exchange is the Price to Book Value at far above unity (2.69x).

**Valuation**

Considering the marginal improvement observed on the performance indices of Dangote Cement’s, we maintain our conservative 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 **N163.40 **and rated it a **Hold**.