Earnings ReportFeatured

Dangote Cement Half Year Profit Saved by Reduced Deferred Tax Expense

Coy: Dangote Cement Plc (DANGCEM)
Rating: Hold
Current Market Price: N170

Latest Dividend: N6.00
Year High: N215
Year Low: N168
Fair Value: N180.26
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

  • This report observed the half year financial numbers of Dangote Cement for the period ended June 30th 2019, compared with similar numbers released in 2018, so as to establish growth and rightly rate the company

Strength

  • Dangote Cement stands strong as one of the world’s top 20 cement companies by installed capacity. The company has secured clinker sufficiency in Nigeria, and as a low-cost producer, is well positioned to absorb exogenous shocks without incurring material earnings variability.
  • Thanks to rapid fixed capital accumulation, the company conveniently increased its capacity to 46 million tonnes per annum (“mtpa”) up from 8mtpa in 2011.
  • Dangote Cement is Africa’s leading integrated cement group, with plants in 10 countries. In addition, four export markets are served from Nigeria.
  • DCP has 39 subsidiaries 32 of which are directly owned. The remainder comprises;
  • Dangote Cement South Africa (Pty) Limited’s six subsidiaries (mainly engaged in mining and exploration, cement production, and investment property) and
  • Dangote Industries (Zambia) Limited’s limestone mining subsidiary.
DANGOTE CEMENT
Bourse Nigerian Stock Exchange
Code Name DANGCEM
Sector INDUSTRIAL GOODS
Market Classification PREMIUM BOARD
Nature of Business Production and Sale of Portland Cement
Date of Incorporation February 17th 2010
Date Listed  
End of Accounting Year 31st December
Website www.dangotecement.com
Registrar Mainstreet Bank Registrars Limited
Auditor Ahmed Zakari & Co. , Akintola Williams Deloitte
Share Price@Relsd (N)                                                170.17
Earnings per Share                                                    7.00
Intrinsic Value(N)                                                180.26
Share Outstanding 17,040,507,405
Market Capitalisation                             2,899,783,145,109

Company figures

  • Turnover (TO) figure posted at the end of the period is a marginal growth of 1.10% above corresponding quarter of 2018. TO is currently N487.73 billion against N482.43 billion
  • Cost of Sales on the other hand adjusted marginally down from what was reported in similar quarter of 2018’
  • Operating Profit is estimated at N170.49 billion slightly below the N197.59 billion in 2018
  • Nevertheless, Operating Expenses moved up by 21.21% to stand at N105.29 billion compared to the N86.49 billion of 2018 half year
  • Finance Cost is currently estimated at N19.61 billion, same as 8.88% below the N21.53 billion announced in its 2018 half year result
  • Profit before Tax achieved for the period is N155.48 billion, this is 16.20% below the corresponding quarter value
  • Unlike the previous year when the company took care of Deferred Tax expense to the tune of N63.69 billion, Deferred Tax Expense in the just concluded quarter was as low as N2.62 billion, hence the large difference observed between Tax Expense for the two periods compared
  • Due to the low tax expense accounted for at the end of the quarter, the negative status of Profit before Tax was erased. Thus, Total Profit for the period stood above corresponding quarter by marginal 5.37% at the stated N119.24 billion against N113.16 billion
  • Since Exchange difference on Translating Net Investment in foreign operations is a loss of N1.96 billion, compared to the positive N12.27 billion reported in the corresponding period, The reported Total Comprehensive Income stood at 6.51% below 2018 half year figure
DANGOTE CEMENT
Statement of Comprehensive Income
  2019 2018 %CHG
Turnover                487,730            482,439 1.10
Cost of Sales                183,172            197,595 7.30
Operating Profit                170,496            200,517 14.97
OPEX                105,290               86,863 21.21
DEPRECIATION                  47,448               45,490 4.30
FINANCE COST                  19,619               21,530 8.88
NET FINANCE INCOME                  15,008               14,979 0.19
PBT                155,488            185,538 16.20
TAX                  36,248               72,374 49.92
PAT                119,242            113,164 5.37
TOTAL COMP INCOME                117,276            125,438 6.51
Statement of Financial Position
Current Assets                374,602            486,021 22.92
Non Current Assets            1,281,829         1,243,254 3.10
Total Assets            1,656,431         1,729,275 4.21
Current Liabilities                498,646            598,915 16.74
Non Current Liabilities                326,544            402,487 18.87
Total Liabilities                825,190         1,001,402 17.60
Net Assets                831,241            727,873 14.20
Retained Earnings                695,547            573,064 21.37
Shares Outstanding                  17,040,507,405               17,040,507,405  
  • Current Assets is currently valued at N374.60 billion, this is same as 22.92% below the N486.02 billion estimated at the end of the first six months of 2018
  • Non-Current Assets held by the giant leading cement firm is currently valued at N1.65 trillion as against N1.72 trillion in 2018 half year
  • Current-Liabilities stood at N498.64 billion same as 16.74% below the N598.91 billion stated in its 2018 half year result
  • Non-Current Liabilities dropped by 18.87% to stand at N326.54 billion as against N402.48 million
  • Net Assets posted for the period therefore stood at N831.24 billion above the N727.87 billion in 2018
  • Retained Earnings improved by 21.37% to stand at N695.54 billion versus N573.06 billion in 2018

Financial Strength/Solvency Ratios

  • Debt Ratio is currently estimated at 0.50x, 13.97% below the 0.58x estimated in the similar period of 2018. This implies that, Total Liabilities is same as 50% of Total Assets.
  • Total Debt to Equity was equally estimated at 0.99x as against 1.38x estimated in the comparable quarter. This simply implies that both Equity and Debt used to service assets through the year were almost at par; unlike the previous quarter when more Debt were used
  • It was established that Equity is same as 50% of Dangote Cement’s Assets Value, estimate from 2018 half year performance indices yielded 42%
  • Nevertheless, we can conclude that Dangote Cement shares in fairly liquid although the estimated Beta which stood slightly below market beta
Financial Strength/Solvency Ratio
TICKERS 2019 2018 %CHG
Debt Ratio                                        0.50                                    0.58 13.97
Total Debt to Equity Ratio (MRQ)                                        0.99                                    1.38 27.84
Equity Ratio                                        0.50                                    0.42 19.22
TICKERS 2019 Industrial Average %CHG
Beta Value                                        0.98                                    0.70 40.00

Profitability Ratios

  • EBITDA margin estimated for the period stood at 34.96%, lower than the 41.56% estimated from 2018 half year earnings numbers
  • Pre-Tax Margin equally dropped by 17.11% to 31.88% against the 38.46% estimated at the end of 2018 half year
  • Cost of Sales was 37.56% of the Turnover figure this is only 8.30% below the 40.96% estimated in 2018. This is a confirmation of the management effort to control its direct cost
  • Return on Equity stood at 7.20% against 6.54% of 2018
PROFITABILITY RATIOS
TICKERS 2019 2018 %CHG
EBITDA MARGIN 34.96% 41.56% 15.89
PRE-TAX MARGIN 31.88% 38.46% 17.11
CS TO TO 37.56% 40.96% 8.30
ROE 14.35% 15.55% 7.73
ROA 7.20% 6.54% 10.00

Efficiency Ratios

  • Operating Expenses to Turnover value is same as 21.59%, this is 19.90% efficiency improvement from the 18% estimated from 2018 half year financial indices
  • Turnover to Total Assets Ratios stood at 29.44% against 27.90% a 5.54% efficiency growth when compared to estimate from 2018 half year performance indices
  • Working Capital Ratio a ratio that indicates a company’s effectiveness in using its working capital was estimated at -3.93x a 7.99% drop from the -4.27x estimated in similar period of 2018
  • Further testing the management efficiency, we tested the Working Capital Ratio, which confirmed that Current Assets is lower than the current liabilities at the end of the period.
EFFICIENCY RATIOS
  2019 2018  
OPEX TO TO 21.59% 18.00% 19.90
TO TO TA 29.44% 27.90% 5.54
Working Capital Turnover                                     (3.93)                                  (4.27) 7.99
Working Capital Ratio                                        0.75                                    0.81 7.43

Investment/Valuation Ratios

  • At the end of 2019 half year business cycle, the management achieved earnings per share growth to the tune of 5.37% from the previously estimated N6.64 to N7.00
  • P/E-Ratio slipped by 31.19% having moved to 24.32x from 35.34x, please understand that the high P/E-Ratio is an indication of positive investors’ sentiments in the shares of Nigerian Breweries
  • The said Earnings per Share is yielded 411% of the current market price of Dangote Cemnet 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 N48.78 this is 14.20% far below the market value of the Coy on the floor of the exchange
  • Confirming and over-priced status of Dangote Cement shares on the floor of the exchange is the Price to Book Value which stood far above unity (3.49x)
Investment/Valuation Ratios
Tickers 2019 2018 %Chg
Price at Released 170.17 234.70 27.49
EPS 7.00 6.64 5.37
TCIP/SHARE 6.88 7.36 6.51
P/E-Ratio 24.32 35.34 31.19
Earnings Yield 4.11% 2.83% 45.33
BV/Share 48.78 42.71 14.20
PBV 3.49 5.49 36.51
CAPEX/SHARE 72.30 48.78 48.22

Valuation

Our blend of valuation techniques maintained our previously estimated fair value of its shares. Thus we have valued each unit of Dangote Cement’s shares at N180.26 and have rated it a Hold.

Comment here

Earnings ReportFeatured

Dangote Cement Half Year Profit Saved by Reduced Deferred Tax Expense

Coy: Dangote Cement Plc (DANGCEM)
Rating: Hold
Current Market Price: N170

Latest Dividend: N6.00
Year High: N215
Year Low: N168
Fair Value: N180.26
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

  • This report observed the half year financial numbers of Dangote Cement for the period ended June 30th 2019, compared with similar numbers released in 2018, so as to establish growth and rightly rate the company

Strength

  • Dangote Cement stands strong as one of the world’s top 20 cement companies by installed capacity. The company has secured clinker sufficiency in Nigeria, and as a low-cost producer, is well positioned to absorb exogenous shocks without incurring material earnings variability.
  • Thanks to rapid fixed capital accumulation, the company conveniently increased its capacity to 46 million tonnes per annum (“mtpa”) up from 8mtpa in 2011.
  • Dangote Cement is Africa’s leading integrated cement group, with plants in 10 countries. In addition, four export markets are served from Nigeria.
  • DCP has 39 subsidiaries 32 of which are directly owned. The remainder comprises;
  • Dangote Cement South Africa (Pty) Limited’s six subsidiaries (mainly engaged in mining and exploration, cement production, and investment property) and
  • Dangote Industries (Zambia) Limited’s limestone mining subsidiary.
DANGOTE CEMENT
Bourse Nigerian Stock Exchange
Code Name DANGCEM
Sector INDUSTRIAL GOODS
Market Classification PREMIUM BOARD
Nature of Business Production and Sale of Portland Cement
Date of Incorporation February 17th 2010
Date Listed  
End of Accounting Year 31st December
Website www.dangotecement.com
Registrar Mainstreet Bank Registrars Limited
Auditor Ahmed Zakari & Co. , Akintola Williams Deloitte
Share Price@Relsd (N)                                                170.17
Earnings per Share                                                    7.00
Intrinsic Value(N)                                                180.26
Share Outstanding 17,040,507,405
Market Capitalisation                             2,899,783,145,109

Company figures

  • Turnover (TO) figure posted at the end of the period is a marginal growth of 1.10% above corresponding quarter of 2018. TO is currently N487.73 billion against N482.43 billion
  • Cost of Sales on the other hand adjusted marginally down from what was reported in similar quarter of 2018’
  • Operating Profit is estimated at N170.49 billion slightly below the N197.59 billion in 2018
  • Nevertheless, Operating Expenses moved up by 21.21% to stand at N105.29 billion compared to the N86.49 billion of 2018 half year
  • Finance Cost is currently estimated at N19.61 billion, same as 8.88% below the N21.53 billion announced in its 2018 half year result
  • Profit before Tax achieved for the period is N155.48 billion, this is 16.20% below the corresponding quarter value
  • Unlike the previous year when the company took care of Deferred Tax expense to the tune of N63.69 billion, Deferred Tax Expense in the just concluded quarter was as low as N2.62 billion, hence the large difference observed between Tax Expense for the two periods compared
  • Due to the low tax expense accounted for at the end of the quarter, the negative status of Profit before Tax was erased. Thus, Total Profit for the period stood above corresponding quarter by marginal 5.37% at the stated N119.24 billion against N113.16 billion
  • Since Exchange difference on Translating Net Investment in foreign operations is a loss of N1.96 billion, compared to the positive N12.27 billion reported in the corresponding period, The reported Total Comprehensive Income stood at 6.51% below 2018 half year figure
DANGOTE CEMENT
Statement of Comprehensive Income
  2019 2018 %CHG
Turnover                487,730            482,439 1.10
Cost of Sales                183,172            197,595 7.30
Operating Profit                170,496            200,517 14.97
OPEX                105,290               86,863 21.21
DEPRECIATION                  47,448               45,490 4.30
FINANCE COST                  19,619               21,530 8.88
NET FINANCE INCOME                  15,008               14,979 0.19
PBT                155,488            185,538 16.20
TAX                  36,248               72,374 49.92
PAT                119,242            113,164 5.37
TOTAL COMP INCOME                117,276            125,438 6.51
Statement of Financial Position
Current Assets                374,602            486,021 22.92
Non Current Assets            1,281,829         1,243,254 3.10
Total Assets            1,656,431         1,729,275 4.21
Current Liabilities                498,646            598,915 16.74
Non Current Liabilities                326,544            402,487 18.87
Total Liabilities                825,190         1,001,402 17.60
Net Assets                831,241            727,873 14.20
Retained Earnings                695,547            573,064 21.37
Shares Outstanding                  17,040,507,405               17,040,507,405  
  • Current Assets is currently valued at N374.60 billion, this is same as 22.92% below the N486.02 billion estimated at the end of the first six months of 2018
  • Non-Current Assets held by the giant leading cement firm is currently valued at N1.65 trillion as against N1.72 trillion in 2018 half year
  • Current-Liabilities stood at N498.64 billion same as 16.74% below the N598.91 billion stated in its 2018 half year result
  • Non-Current Liabilities dropped by 18.87% to stand at N326.54 billion as against N402.48 million
  • Net Assets posted for the period therefore stood at N831.24 billion above the N727.87 billion in 2018
  • Retained Earnings improved by 21.37% to stand at N695.54 billion versus N573.06 billion in 2018

Financial Strength/Solvency Ratios

  • Debt Ratio is currently estimated at 0.50x, 13.97% below the 0.58x estimated in the similar period of 2018. This implies that, Total Liabilities is same as 50% of Total Assets.
  • Total Debt to Equity was equally estimated at 0.99x as against 1.38x estimated in the comparable quarter. This simply implies that both Equity and Debt used to service assets through the year were almost at par; unlike the previous quarter when more Debt were used
  • It was established that Equity is same as 50% of Dangote Cement’s Assets Value, estimate from 2018 half year performance indices yielded 42%
  • Nevertheless, we can conclude that Dangote Cement shares in fairly liquid although the estimated Beta which stood slightly below market beta
Financial Strength/Solvency Ratio
TICKERS 2019 2018 %CHG
Debt Ratio                                        0.50                                    0.58 13.97
Total Debt to Equity Ratio (MRQ)                                        0.99                                    1.38 27.84
Equity Ratio                                        0.50                                    0.42 19.22
TICKERS 2019 Industrial Average %CHG
Beta Value                                        0.98                                    0.70 40.00

Profitability Ratios

  • EBITDA margin estimated for the period stood at 34.96%, lower than the 41.56% estimated from 2018 half year earnings numbers
  • Pre-Tax Margin equally dropped by 17.11% to 31.88% against the 38.46% estimated at the end of 2018 half year
  • Cost of Sales was 37.56% of the Turnover figure this is only 8.30% below the 40.96% estimated in 2018. This is a confirmation of the management effort to control its direct cost
  • Return on Equity stood at 7.20% against 6.54% of 2018
PROFITABILITY RATIOS
TICKERS 2019 2018 %CHG
EBITDA MARGIN 34.96% 41.56% 15.89
PRE-TAX MARGIN 31.88% 38.46% 17.11
CS TO TO 37.56% 40.96% 8.30
ROE 14.35% 15.55% 7.73
ROA 7.20% 6.54% 10.00

Efficiency Ratios

  • Operating Expenses to Turnover value is same as 21.59%, this is 19.90% efficiency improvement from the 18% estimated from 2018 half year financial indices
  • Turnover to Total Assets Ratios stood at 29.44% against 27.90% a 5.54% efficiency growth when compared to estimate from 2018 half year performance indices
  • Working Capital Ratio a ratio that indicates a company’s effectiveness in using its working capital was estimated at -3.93x a 7.99% drop from the -4.27x estimated in similar period of 2018
  • Further testing the management efficiency, we tested the Working Capital Ratio, which confirmed that Current Assets is lower than the current liabilities at the end of the period.
EFFICIENCY RATIOS
  2019 2018  
OPEX TO TO 21.59% 18.00% 19.90
TO TO TA 29.44% 27.90% 5.54
Working Capital Turnover                                     (3.93)                                  (4.27) 7.99
Working Capital Ratio                                        0.75                                    0.81 7.43

Investment/Valuation Ratios

  • At the end of 2019 half year business cycle, the management achieved earnings per share growth to the tune of 5.37% from the previously estimated N6.64 to N7.00
  • P/E-Ratio slipped by 31.19% having moved to 24.32x from 35.34x, please understand that the high P/E-Ratio is an indication of positive investors’ sentiments in the shares of Nigerian Breweries
  • The said Earnings per Share is yielded 411% of the current market price of Dangote Cemnet 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 N48.78 this is 14.20% far below the market value of the Coy on the floor of the exchange
  • Confirming and over-priced status of Dangote Cement shares on the floor of the exchange is the Price to Book Value which stood far above unity (3.49x)
Investment/Valuation Ratios
Tickers 2019 2018 %Chg
Price at Released 170.17 234.70 27.49
EPS 7.00 6.64 5.37
TCIP/SHARE 6.88 7.36 6.51
P/E-Ratio 24.32 35.34 31.19
Earnings Yield 4.11% 2.83% 45.33
BV/Share 48.78 42.71 14.20
PBV 3.49 5.49 36.51
CAPEX/SHARE 72.30 48.78 48.22

Valuation

Our blend of valuation techniques maintained our previously estimated fair value of its shares. Thus we have valued each unit of Dangote Cement’s shares at N180.26 and have rated it a Hold.

Comment here