Weak Performance Ratios: Dangote Cement Plc Posted Low Dividend Yield despite High Payout Ratio

Company: Dangote Cement Plc (DANGCEM)

Rating: Hold

Current Market Price at Earnings Release: N234.70

Intrinsic Value: N182.86

Latest Cash Div: N16.00

By: Jeariogbe Tunde Segun (Equity Analyst)

Financial Highlights

Dividend Information

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.

Corporate Figures

The Turnover figure (TO) for the period grew by 11.87% over the comparable year. The reported TO figure for the year is N901.21 billion against N805.58 billion in 2017
Operating Profit stood smartly above what was reported in 2017 by 11.34%, having grown to N338.69 billion from the previous N304.20 billion
Profit before Tax (PBT) for the year under review is estimated at N300.80 billion as against the N289.59 billion of last year
Enhanced by the N89.51 billion tax credit received through its Obajana Plant, the profit for the year soared over comparable year by 91.10% as the total profit reported for the year stood at N390.32 billion against N204.24 billion
Similarly, the Total Comprehensive Income for the year soared over last financial year by 91.44% to stand at N381.17 billion against N200.67 billion

Retained Earnings improved by 32.72% to stand at N848.69 billion compared to the N639.46 billion reported in 2017
Current Assets grew marginally to N428.83 billion, this is 4.52% above previous year’s estimate
Non Current Assets on the other hand inched north by 0.80% to the current estimate of 265 billion against N1.255 billion
Current Liabilities dipped marginally by 4.80% having moved from the previous N520.47 billion to N495.50 billion
Meanwhile Non Current Liabilities dropped appreciably to N212.34 billion as against the N364.04 billion reported at the end of 2017 financial year
Since liabilities dipped while Assets improved, estimated Net Assets for the year increased by 26.27% to stand at N986.61 billion compared to N781.36 billion reported in 2017

Liquidity/Risk Ratios

At the end of 2018 financial year, it was estimated that the Total Debt reported for the period is same as 71.75% of Equity, implying the higher used of debt above equity through the year under analysis
Trying to test the company’s strength to offset its Current Liabilities as at when due, we estimated the Current Ratio and the Ratio stood below unity implying little challenges in settling its current financial obligations
Confirming the strong patronage of Dangote Cement shares on the floor of the Nigerian Stock Exchange, was 1.15x beta value which above unity and close to industrial average
With the estimated Interest Coverage of 21.73x, one can safely conclude that Dangote Cement can conveniently service its interest yielding liabilities and even assess more if required

Profitability Ratios

Compared to other manufacturing companies, the 42.53% Cost of Sales Margin achieved by Dangote Cement is impressive, making it more interesting is that the current Margin is 2.46% below the estimate from the corresponding year
Profit before Tax Margin estimated for the year is 7.15% below that of 2017.
Return on Average Equity improved over 2017 estimate by 51.35% at the current estimate of 39.56%
Return on Average Equity is good at 23.04%, this is 87.88% above the 12.26% return achieved in 2017

Efficiency Ratios

Total Asset Turnover grew by 9.98% to stand at 53.19%, against the 48.36% of the previous half year
Equity Turnover also dipped by 11.40% as its currently estimated at 91.34% as against 103.1%
Equity was multiplied 1.72 times through 2018 financial year, this is 19.45% below the 2.13 multiple achieved in 2017
Fixed Assets was equally built by 9.98% to 53.19% as against the 48.36% of 2017

Investment Ratios

As in the company’s earnings figures, the estimated Earnings per share (EPS) of Dangote Cement is 91.1% above 2017 estimate. As stated in the table below, EPS is currently N22.91 from N11.99
The above stated EPS generated a yield of 11.90% of the current market price of Dangote Cement share price on the floor of the exchange as at the date this result was released to the market. Please note that the yield in 2017 is 4.52%
The Price to Earnings Ratio was fairly revalued by the investing public as it now stands at 8.40x from the previous estimate of 22.11x
Ordinarily, the very large Price to Book Value ratio (3.32x) and the far gap between the Book Value and the current market price of Dangote Cement should simply imply an overvalued price, but considering the fact that this position had been successfully maintained for years by Dangote Cement, it should academically imply investors’ preference/sentiments on its shares, rather than an overpriced interpretation.
Current Opex Margin is 43.31%, that is, 70.82% above the 25.35% estimated in the corresponding year of 2017. This is a welcome development

Valuation

Although the management of Dangote Cement had released 72.03% of its full year earnings to investors as Cash Dividend, our blend of valuation techniques downgraded the value of its shares from the previous N210.35. One major ratio that accounted for the low valuation is the dividend yield which came out low despite the high payout ratio. We have therefore valued each units of Dangote Cement share price at N182.86.