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Saturday, July 2, 2022

Dangote Cement Shields Itself From Downturn, Returns Wealth to Shareholders

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It is not hubris to say that Dangote Cement has returned wealth to shareholders more than any firm in Nigeria.

And the largest producer of the building materials in Africa’s most populous nation is able to magnify the earnings of its owners because it has solid liquid assets that shields it from market turmoil, macroeconomic headwinds, and the coronavirus pandemic.

Dangote Cement declared a dividend of N20 per share for the financial year 2021 (which represents a 25 percent increase  from N16 in 2020 ) that translates to total dividend payment of N272.0  billion.

That compares with the largest telecoms firm MTN Nigeria’s dividend per share (DPS) of N13 or N174.53 billion total payments.

While banks make money from both short and long term government securities on top of interest income that they earn on their lending activities, Dangote Cement rewards its shareholders from distributable profit more than them.

Zenith Bank paid N2.80 per share or N87.91 billion to shareholders; Access Bank, N0.70 or N24.88 billion; United Bank for Africa, N0.80 or N27.53 billion; Guaranty Trust Holding Company, N2.70 or N79.46 billion.

Unlike banks that have a cap imposed on them by the regulator on the amount they can distribute out of profit, consumer goods firms adopt an aggressive dividend policy where they can pay all earnings a dividend.

Despite flexibility in delivering returns to shareholders, consumer goods firms lag the producer of the building materials in rewarding owners.

BUA Foods who listed on the NGX ASI early this year paid N3.50 DPS or N63 billion to owners; Nestle Nigeria, Dangote Sugar N25.50 or N20.21 billion; Nigerian Breweries, N1.20 or N9.69 billion, and Flour Mills, N2.15 or N8.81 billion.

Whoever has not bought Dangote Cement shares yet is missing out from a share of the corporate cake.

With a market capitalization of N4.72 trillion, the company remains the most capitalised firm in Nigeria. It is trading at a price to earnings multiples of 12.52 times.

Shareholders to benefit from Dangote Cement’s cash pile

Without a robust cash generating efficiency, Dangote Cement would not have been able to meet obligations, pay dividend, and fund future expansion plans across the continent.

The cement maker saw net cash flow from operating activity rose by 47.70 percent to N186.05 billion as at March 2021 from N125.93 billion the previous year.

Similarly, free cash flow from operating activity surged by 530.0 percent to N144.94 billion in March 2022 from N23.0 billion as at March 2021.

It is worth noting that the company efficiently converts sales to cash, a sign of earnings quality, as cash margin increased to 44.92 percent in the period under review from 9.23 percent the previous year.

Strong margins expansion amid energy crisis

From an Earnings Before Interest, taxation, depreciation, and amortization (EBITDA) margin perspective, Dangote Cement remains the most profitable cement company in Nigeria.

Although the company’s  EBITDA margin of 51.0 percent  generated in the first quarter (Q1) of 22 is lower than 53.5 percent achieved corresponding period of Q1 21, it is still 40bps ahead of the last 10-year average, portending that the cement makers EBITDA margin remains healthy and ranks favourably when compared with its Africa and MENA peers.

Despite the energy crisis that undermines manufactures, Dangote Cement is spending less to produce each unit of products.

Dangote Cement spent N0.37 to produce every N1  unit of products, and that compares with peer rival BUA Cement’s N0.50, and Lafarge Africa, N53.45, according to MoneyCentral calculations.

Across all Dangote Cement’s locations, total energy consumption in  2021  was 101,355,380 GJ, an increase of 9.55 percent year on year, relative  to 2020.

This rise was basically due to a significant increase in total production output compared to 2020, the resumption of production from its Gboko plant, and increased output from Obajana and Tanzania.

With 68.51% of the total, the cement maker’s Nigeria operations which host the larger part of our total cement production was the highest energy consumer in the year under review.

Dangote Cement records highest ROE among global/emerging market peers

Dangote Cement has used shareholders’ resources in generating higher profit than than global and emerging market peers, which means it is a global brand.

It generated a return on equity of 31.20 percent in December 2021, according to Chapel Hill Denham Limited.

That compares with BUA Cement Nigeria’s (19.10 percent); LafargeHolcim MOROC SA of Morocco (14.60 percent); Ciment Du MOROC or Morocco, (16.10 percent0); Lafarge Africa of Nigeria, (8.8o percent); Tanzania Portland Cement, (26.20 percent); MISR Beni Sef Cement of Egypt, (3.90 percent).

Dangote Cement outperformed Middle East peers like: Saudi Cement, 16.90 percent; Quassim/Cement of Saudi Arabia, 23.40 percent; Yamama Cement, 9.70 percent.

It beat global majors such as Heidelbergcement AG of Germany, (14.40 percent); Siam Cement PCL/THE of Thailand, 13.70 percent, Shree Cement of India, 16.0 percent; Taiwan Cement, 12.80 percent; China Resources Cement of Hong Kong, and Asia Cement Corp, (10 percent).

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