CardinalStone Earnings Update - Dangote Cement Plc Q1'24 Unaudited results - DANGCEM: Nigerian operation rebound supports Q1'24 earnings

CardinalStone Earnings Update - Dangote Cement Plc Q1'24 Unaudited results - DANGCEM: Nigerian operation rebound supports Q1'24 earnings
(Source: CardinalStone Research, Date: 26-Apr-2024)

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DANGCEM: Nigerian operation rebound supports Q1'24 earnings

Dangote Cement's (NGSE: DANGCEM) Q1'24 unaudited results showed earnings growth of 2.9% YoY, driven primarily by a strong recovery in Nigerian volumes, high prices across Nigerian and Pan-African markets, and sustained positive foreign currency translation effects following weakness in the reporting currency during the period.

The company recorded a triple-digit growth (+101.1% YoY) in topline for the period, driven by price increases (+28.1% YoY) in Nigerian operations and the sustained benefits of the positive currency translation effect on Pan-African earnings, evinced by the 192.5% YoY surge in Revenue per tonne arising from weakness in the reporting currency. The company also noted price increases in some select countries.

On volumes, group output expanded by 12.3% YoY to 7.04 Mt, following the 26.1% YoY recovery in Nigerian output (4.6 Mt) and steady performance in Pan-African output (+3.1% YoY) to 2.7 Mt. For Nigeria, Management noted that the strong rebound was supported by an uptick in business activities, followQ1'23he low base of Q1'23, which was characterised by the dual effect of election uncertainties and currency crunch. Historical data suggest that H1s tend to be the better-performing half for cement producers, driven by seasonal factors encouraging building and construction activities. Nevertheless, this performance still trails Q1'22 (4.83 Mt) and Q1'21 (4.91 Mt) output levels. In addition, the company reported an 87.2% YoY jump in Nigerian exports of clinker (178Kt) and cement (86Kt) to Cameroon and Ghana. Management cited the impact of geopolitical concerns in Niger on the lower cement export volumes.

For Pan-Africa, the company alluded to robust demand, especially in Congo and Zambia, while Ethiopia gradually made significant contributions to the overall performance. Notably, the company is operating at full capacity in Senegal and Ethiopia, while Cameroon is close to full capacity.

Cost pressures also prevailed, with COS surging by 143.3% YoY, owing to the steep Naira devaluation impacting cash costs. A major driver of the increase was fuel & power consumed, which rose by 220.9% YoY to N181.9 billion. This led to an 8.5ppts contraction in gross margin to 51.3%.

Similarly, OPEX increased by 118.4% YoY, driven by the 115.4% increase in haulage expenses due to the significant rise in AGO costs. Inflationary pressure and the devaluation of foreign currencies also contributed materially, leading to a 7.3ppts EBIT margin contraction to 31.2%.

Elsewhere, net finance costs surged by 407.3% YoY, following a rise in bank borrowings for the period, as well as an increase in the balance of a related party USD-denominated loan. In addition, the company recorded a material net foreign exchange loss of N63.8 billion from foreign currency obligations, reflecting the devaluation of the Naira from N951.8/$ as of FY'23 to N1,328.5/$ at the end of March 2024.

However, PBT was supported by a 91.1% YoY increase in net gain on monetary assets, owing to the restatement of assets and liabilities in hyperinflationary economies in line with the provisions of the IFRS standard, IAS 29 (Financial Reporting in Hyperinflationary Economies). Consequently, PBT grew by 13.3% YoY. However, the PBT margin declined by 15.7ppts to 20.4%.

The company recorded a 44.0% YoY jump in tax expense following the expiration of pioneer tax incentives on some Nigerian operations, notably the Obajana Line V, which expired as of 31 December 2023. Consequently, net income grew by 2.9% YoY, cascading to a 3.7%% YoY growth in EPS to N6.7 (vs N6.4 in Q1'23).