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Wednesday, March 29, 2023

Large Caps Outperform as MTN, Dangote, Seplat See Strong Q1 Profit Growth

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Large cap Nigerian industrial, energy and telecommunications firms have seen a strong beginning to 2021, with analysts expecting profit growth in the sector to continue as the negative effects of the coronavirus lockdowns that disrupted economic activities in 2021, begins to fade.

To be sure most of the firms enacted policies to diversify their earnings, shield their balance sheets and cut costs through refinancing of debt, amid the depths of the recession last year, which are all beginning to pay off.

Dangote Cement the largest maker of the building material in Sub-Saharan Africa got off to a great 2021 with first quarter (Q1) sales (value) up 33.5 percent to N332.6 billion helping to push profits up 48 percent in the quarter.

The strong Q1 2021 results for Dangote Cement reflects the growth in overall volume sales, which were up 18.74 percent to 7.52 million metric tons (mmt) across its Nigerian and Pan-African market.

While Nigerian sales were up 22.15 percent to 4.91mmt, Pan-African volumes increased by 12.82 percent to 2.61 mmt.

For Nigeria, the strong demand growth during the first quarter of 2021 is a continuation of the strong recovery from the middle of last year, fostered by construction activities as well as government capital expenditure.

Dangote Cement paused its clinker exports (through its ports) to meet rapidly growing demand in the Nigerian market, however, road cement export continued.

In its Pan-African markets, the cement producer enjoyed increased cement demand on the back of increase in government infrastructure expenditure and housing construction in Senegal, Cameroon and Ghana.

Analysts expect the company’s topline performance to remain strong for the rest of 2021 as the overall Nigerian economy continues to recover.

“We opine that its export strategy should bode well for topline performance in the medium and long term, given the existing demand for cement and clinker in West Africa,” Investment One analysts said in a note to clients.

The largest telecommunications firm in the country MTN Nigeria also saw a major jump in first quarter profits even as the ban on sale of sim cards over the past 6 months failed to a dent on its Teflon like earnings.

MTN gross earnings increased by 17 percent to N385.32 billion, leading to a 42.53 percent rise in after-tax profits to N73.75 billion in the Q1, 2021 period.

The growth in data revenues for MTN was particularly telling as it rose by 42.77 percent to N105.7 billion in the period. Data revenues now make up 27.4 percent of MTN Nigeria’s total revenues in Q1, 2021, up from 22.48 percent in Q1, 2020.

Seplat Petroleum Development Company, another large cap firm saw revenues rise by 36.6 percent in the first quarter (Q1) of 2021, leading to a 127.29 percent increase in profits.

Seplat benefited from the rebound in global oil prices relative to the same period in 2020. Accordingly, the oil and gas producer’s average oil price realised in Q1 2021 was $60.8 per barrel, compared to $49.9 per barrel in Q1, 2020.

The oil producer also has some interesting projects in the pipeline that are expected to bode positively for its overall performance.

Management indicated that its capital expenditure for 2021 is set to the tune of $150million.

The Amukpe to Escravos pipeline construction that faced some delays due to COVID-19 is expected to provide a third export option for liquids production from OMLs 4, 38 and 41 in the second half of 2021.

In addition, the company plans to drill one oil well at Ohaji (OML 53) and it is expected that this well has a capacity of 2,000 barrel of oil equivalent per day.

While the oil producer has budgeted to drill two more gas wells at Oben – further strengthening its diversification strategy, the company expects the new Sapele Gas plant output to be at around 75 million standard cubic feet (scf) by the second half of 2022.

Seplat meanwhile, has adopted the payment of quarterly dividends after it got board approval, commencing with an interim dividend of US2.5 cents for Q1, 2021. This is a change to Seplat’s previous policy of declaring dividends twice a year in the Q3 results and the full-year results.

The change in policy is intended to provide more frequent returns to shareholders. Seplat also proposes to change its name to Seplat Energy PLC.

“We are seeking shareholder approval to change our name to Seplat Energy PLC to reflect the future direction of the Company. The change of name will be accompanied by a new corporate brand identity that we plan to unveil at the Seplat Energy Summit in September. Before that, we intend to host a Capital Markets Day on 29 July 2021 to outline the Company’s strategic direction and its plans to develop its New Energy business,” Seplat said.

Seplat has also approved a $5 million funding of a share repurchase programme, by Trustee, for Seplat Long Term Incentive Plan (LTIP), that began in March 2021.

At MoneyCentral we believe investors should buy into these names due to prospects for solid earnings and capital gains in 2021 for shareholders.

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