Despite price erosion, energy challenges, and currency devaluation, BUA Cement has turned in a remarkable performance in the third quarter as it continues to present a riveting tale for local and foreign investors.
The cement maker has been seeing profit margin expansion and increases in return on equity since it went public in January of 2020, and it is one of the most capitalized firms in Africa’s largest economy.
For the first three months through September 2021, BUA Cement’s spiked by 23.20 percent to N65.90 billion from N53.48 billion the previous year.
Operating profit was up 21.50 to N75.69 billion in the period under review from N62.77 billion as at September 2020.
It is generating money from core operations while turning each Naira invested in sales into higher profit.
Earnings before interest and taxation (EBIT) margin increased to 40.50 percent in the period under review from 39.80 percent the previous year.Net margin moved to 35.30 percent in September 2021 from 34.20 percent as at September 2020.
Interestingly, BUA Cement is efficient in generating returns on the investment it receives from its shareholders.
Return on average equity (ROAE) increased to 17.60 percent in September 2021 from 14.30 percent the previous year.
The company has more cash available for sales as a strong free cash flow means it is in an advantageous position to pay dividend to shareholders, settle existing debt and fund future expansion plans.
Its cash margins, a measure of cash availability, rose to 60.71 percent in the period under review from 41.60 percent the previous year. A higher ratio means the company is able to convert more cash to sales.
After the proposed commissioning of its new $450 million 3MMT Sokoto line 11 plant, BUA Cement’s installed capacity to 11 MT/per annum, just a step ahead of peer rival Lafarge Africa’s 10.80 MT.
Cement makers are reeling from currency volatility that is ballooning cost, though they have invested in alternative power sources such as coal and gas with a view to taming cost and maximising profit.
BUA Cement has achieved slight moderation in energy cost, which is attributable to this decline to the company’s commencement of LNG usage in Sokoto.
In a discussion with analysts at Chapel Hill Denham, management of the cement company stressed that LNG usage was strategic and will be used in two phases.
“For one, LNG will replace some portion of the previously used imported coal for Kiln, a move that dovetails neatly with its carbon emission reduction aspirations,” said analysts. Beyond that, it will help reduce the company’s dependence on imported coal, and by extension, limit energy cost exposure to currency shocks.”
Analysts say the company will benefit from the structural demand opportunities in the country’s cement industry.
The Federal Government mulls spending copious amounts on capital projects across the country and an enormous infrastructure deficit that needs to be bridged is a boon for sector players who have the capacity to undertake such capital outlays.
“While we have not explicitly factored this into our valuation, we imagine that these will place the group in a strong position to benefit from the structural demand opportunities in Nigeria,” said analysts at Chapel Hill Denham Limited in a recent note.