Wednesday, June 23, 2021

    DANGCEM: Analysts Raise Earnings Per Share Estimate by 11.8% to N16.66

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    Equity research analysts have raised Dangote Cement Plc.’s earnings per share (EPS) estimate for the financial year 2021 by 11.8% to N16.66, citing improve earnings, industry’s leadership, efficiency, and capacity among other things.

    Consequently, the investment experts upgraded Dangote Cement (Ticker: DANGCEM) 12-month target price following the company’s impressive run-rate.

    Recall analysts at the firm had painted a constructive view on cement demand in Nigeria in report titled “Export is the New Growth Impetus”, which DANGCEM was looking set to benefit from.

    “While our “tone” at the time was exceptionally optimistic, the turn of event thus far in 2021 suggests that the said “tone” was not positive enough”, Chapel Hill Denham said.

    Analysts stated that beyond the aggressive private demand, which has played out exactly as the investment firm had called, comparatively stronger public finances, with its positive connotation for cement demand, proved supportive, to drive DANGCEM’s Q1-21 volume growth higher by 22% year on year in Nigeria alone.

    “That, together with the strategy to reduce discounts and rebates, supported a 48.1% year on year earnings per share (EPS) growth”, Chapel Hill Denham added.

    Dangote Cement: Analysts Raise EPS Estimate by 11.8% to N16.66
    Dangote Cement: Analysts Raise EPS Estimate by 11.8% to N16.66
    To underscore the scale of things, analysts said the reported Q1-2021 EPS is now ahead of Chapel Hill Denham and Bloomberg consensus estimates by 59% and 65%, respectively.

    “As such, to capture the impressive run rate, we have raised our financial year 2021 earnings per share estimate by 11.8% to N16.66”, analysts said.

    Explaining further, Chapel Hill Denham posits that DANGCEM remains the industry cost leader, owing to its favourable energy mix when compared to its competitors, and relatively new lines, which are cost-efficient.

    In fact, it said faced with the double whammy of exchange rate depreciation and double-digit inflation, the group reported a gross margin of 62% in Q1-2021, the highest since Q2-2015.

    “Against that backdrop, we now expect earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 20.9% year on year, with EBITDA margin printing 45.6% in 2021.

    “We like that DANGCEM is committed to investing in additional capacity to take advantage of the growing market in Nigeria.

    “We understand that a debottlenecking exercise is ongoing at Gboko, its 4.0mmt legacy plant. Management acknowledged that this could potentially unlock up to 1.0mmt in extra installed capacity”, Chapel Hill Denham said.

    Analysts also noted that, together with the new 3.0mmt Okpella plant, which is expected to be launched in Q3-2021, will push its total installed capacity in Nigeria to 36.25mmt in 2021.

    BUA Cement is the second, with an installed capacity expectation of 11.0mmt in 2021, overtaking Lafarge WAPCO Capacity by mile.

    The investment firm expressed view that the return of the share buyback programme could drive another speculative rally of the stock.

    “During our engagement, management acknowledged that it is seeking fresh regulatory and shareholders’ approval for another round of share buyback.

    “We recall that the company bought back 0.24% of its outstanding shares in December 2020, instead of up to 10% that was initially announced.

    “We have raised our 12-month TP to N246.30/share, from N223.24/share, and upgraded our rating to BUY, from HOLD previously”, analysts explained.

    DANGCEM’s share price has fallen by about 12% year to date, especially since the corporate action-induced rally at the twilight of December 2020.

    “For us, this portends an exceptional re-entry opportunity for investors. On our estimates, DANGCEM is currently trading on a 2021 price earnings ratio of 12.7x and enterprise value (EV) EBITDA multiple of 7.4x”, Chapel Hill Denham said.

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