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Monday, July 4, 2022

Dangote Cement Generates More Profit than Middle East, North Africa Peers

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Dangote Cement Plc, the largest producer of the building material, is increasing its profit without the need for more capital than peer rivals in the Middle East and North Africa regions.

Across these regions, the most capitalised firm in Africa’s largest economy, has the best return on equity (ROE) among peers, which means its management team is more efficient when it comes to utilizing financing to grow their business.

For instance, its (ROE) that stood at 31.20 percent as at June 2021, according to data gathered by Chapel Hill Denham.

That compares with Tanzania Portland Cement C0’s ROE of 26.20 percent; BUA Cement, (19.10 percent); Ciments Du Maroc, (16.10 percent); Lafargeholcim Maroc Sa, (14.60 percent); Lafarge Africa Plc, (8.80 percent); Misr Beni Suef Cement Co, (3.90 percent); Bamburi Cement Ltd, (3.60 percent); Ppc Ltd, (-3.60 percent), and Arabian Cement Co, (-11.80 percent).

Dangote Cement’s rising ROE validates consistent earnings growth and its ability to take advantage of investment in both the private and public sectors.

Despite the inflationary pressures and currency devaluation, emblematic phenomena of the Nigerian economy, its net income  spiked by 51.90 percent to N91.63  billion as at June 2021.

Its earnings before interest taxation depreciation and amortization (EBITDA) increased to 50.80 percent in June 2021 from 45.70 percent as at June 2020.

Gross margin followed the same growth trajectory as it rose to 60 percent in June 2021 from 57.60 percent the previous year.

The improvement means the cement maker is making profit from its core operations and it is also turning each Naira invested in sales into higher profit while contemporaneously curtailing costs.

Given the impressive results, analysts at Chapel Hill have updated their model post third quarter (H1-21 earnings) as they expect robust HI 2 performance most likely exceeding Bloomberg’s consensus expectation.

Their prognosis is hinged on the constructive view of a continued strong cement demand, compelling case for further price adjustments, and DANGCEM’s exceptional portfolio diversification.

However, they remain cautiously optimistic given currency volatility in Nigeria, together with its negative connotation for energy cost, and Debt challenges in Zambia.

Dangote Cement has been taking advantage of the low yield environment to reduce borrowing cost, which is it lowly geared with a Net Debt to EBITDA of 1.16x vs. MENA average of 2.98x, providing an exceptional leverage opportunity for further expansion, and thus, capture market share across its regions of operation.

Analysts have remained optimistic on the stock of the producer of the building material as they expect it to maintain a consistent profit growth and strong dividend yield.

Of course, Dangote Cement has one of the best dividend yields among the middle east and north African peers, which means it pays a substantial share of its profits to shareholders for investing in it.

While its dividend yield of 7.60 percent is lower than Bamburi Cement Ltd of Kenya’s yield of 10.70 percent, it is higher than Tanzania Portland Cement Co (7.60 percent); Lafarge Africa Plc, (7.40 percent);  Ciments Du Maroc, (4.40 percent); Arabian Cement Co, (3.50 percent); Lafargeholcim Maroc Sa, (3.40 percent); BUA Cement, and (3.30 percent).

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