Despite Mixed Performance, DANCEM Robust Balance Sheet & Capacity Expansion Support Future Rally

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Rating: Hold

Current Market Price: N170

Latest Dividend: N16.00

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Year High: N180.40

Year Low: N142.00

Fair Value: N145.52

Key Investment Ratios
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• In this report, we take a brief look into the full year financial statistics of Dangote Cement representing the year ended December 31, 2019, compare same with sim­ilar numbers released at the end of 2018 financial year, to establish growth, valuation and recommendation ac­cordingly.

• In the said result, the management of Dangote Cement had proposed a N16.00 cash dividend, same as what was paid in 2018.

Meanwhile, the total amount earned per unit shares of Dangote Cement is currently estimated at N11.77, this simply implies that it will have to balance the proposed dividend by dipping hands into its reserve.

• Going by the released numbers, it was also noticed that Retained Earnings dropped by marginal 8.99% within the two financial years under comparison in this report.

• Generally, the income statement revealed a lower per­formance as against the comparable year
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• Please note that the company registrar will close its shareholders’ book May 26, 2020 so as to determine the qualified shareholders, that is, the qualification date shall be May 25, 2020

• Similarly both Annual General Meeting and Payment Date were both slated for June 15-16, 2020 respectively

Company figures

• The Turnover figure for the year was estimated for N891.67 billion same as 1.06% below the N901.21 billion posted in the corresponding year

• In the same trend, the Cost of Sales dipped by margin­al 0.87% to stand at N379.98 billion against N383.31 billion in the comparable year

• Operating Profit reduced by 11.46% from the previ­ously reported N338.69 billion to N299.89 billion in the year under analysis

• Finance Cost for the year was valued at N57.67 billion same as 15.86% above what was used in the correspond­ing year

• In the prior year, it reported a Tax Credit of N89.51 billion as against the Tax Expense of N49.95 billion at the end of this year, this partially contributed to the large difference between the amount earned within the two financial years compared in this report

• Thus, it reported a lower profit for the just concluded year as against the previous financial year. According to the released document, the management of Dangote Cement achieved N200.53 billion profit, 48.63% below the N390.32 billion earned in 2018

• The result was further downed by loss recorded on Exchange differences on translating net investments in foreign operations; which amount to N16.41 billion. Last year it lost N6.14 billion on the same item

• Current Assets as at the end of 2019 financial year is valued at N4006.73 billion, this is 5.15% below the N428.83 billion in the corresponding year

• Non-Current Assets stood at NN1.33 trillion, a mar­ginal improvement of 5.45% over the N1.26 trillion in 2018

• Current Liabilities was valued for N630.79 billion against N495.50 billion in the corresponding year

• Non-Current Liabilities on the other hand inched up by marginal 0.13% to stand at N212.62 billion against N212.34 billion in the comparable year

• Net Assets of Dangote Cement equally dropped by marginal 8.99% at the current value of N897.93 billion against N986.61 billion in 2018 financial year

• Retained Earnings reduced by 8.47% as it is currently valued for N776.83 billion against N848.69 billion in the corresponding year

Financial Strength/Solvency Ratios

• Debt Ratio is currently estimated at 0.48x, 15.94% below the 0.42x estimated in the corresponding year of 2018. This implies that, Total Liabilities is same as 48% of Total Assets.

• Total Debt to Equity was equally estimated at 0.94x as against 0.72x estimated in the comparable quarter. This simply implies that both more debt was used through the just concluded year

• It was established that Equity is same as 52% of Dan­gote Cement’s Assets Value, estimate from 2018 full year performance indices yielded 58%, this is a marginal drop in investors’ interest within the two years under com­parison

• Nevertheless, we can conclude that Dangote Cement shares is liquid although standing slightly below the mar­ket beta

Profitability Ratios

• EBITDA margin estimated for the year stood at 33.63%, lower than the 37.58% estimated from 2018 full year earnings numbers

• Cost of Sales was 42.62% of the Turnover figure this is only 0.19% above the 42.53% estimated in 2018. This is a confirmation of the management effort to control its direct cost.

Please note that it achieved this control through the four quarters in 2019 business session

• Return on Equity stood at 22.33% against 399.56% achieved in 2018. Although this is a drop in its profitability strength, in our opinion, it is a commendable achievement

Efficiency Ratios

• Operating Expenses to Turnover value is same as 24.05%, this is 14.13% drop in management efficiency from the 21.02% estimated from 2018 full year financial indices

• Turnover to Total Assets Ratios stood at 51.29% against 53.19% a 3.72% drop in efficiency over the com­parable year

• Working Capital Ratio a ratio that indicates a compa­ny’s effectiveness in using its working capital was estimat­ed at -3.98x a 70.56% drop from the -13.52x estimated in 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.

Investment/Valuation Ratios

• At the end of 2019 full year business cycle, the earn­ings per share of Dangote Cement dropped 48.63% from the previously estimated N22.91 to N11.77

• Our full year P/E-Ratio grew by 71.90% having moved to 14.45x from 8.40x, please understand that the high P/E-Ratio is an indication of positive investors’ senti­ments in the shares of Dangote Cement

• The said Earnings per Share is yielded 6.92% 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 share is currently estimated at N52.69 this is far below the market value of the Coy on the floor of the exchange. This excess is generated by investors’ sentiments/preference for the company as noted above

• Confirming the seemingly over-priced status of Dan­gote Cement shares on the floor of the exchange is the Price to Book Value which stood far above unity (3.23x)

Valuation

Our blend of valuation techniques adjusted down our previously estimated fair value of the coy’s share price. This is our preservative approach to the dropping finan­cial indices of Dangote Cement. Thus we have valued each unit of Dangote Cement’s shares at N145.52 and have rated it a Hol

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