Investors who have not bought BUA Cement’s stock are inadvertently shooting themselves in the foot as the producer of the building material has been magnifying earnings since it listed on the stock exchange on January 10 2020.
While most companies were hard hit by the coronavirus pandemic that tipped the country into recession last year, the cement maker was thriving as it continues to deliver higher returns in form of share appreciation and bumper dividend.
BUA Cement-the largest cement producer in North-West, South-South, and South-East- just released its half-year financial statement that showed significant improvement in key financial metrics.
Robust revenue, strong margins validate management’s focus and market penetration strategies
For the first six months through June 2021, the producer of the building material saw revenue increase by 22.40 percent to N124.27 billion from N101.26 billion the previous year.
The cement maker is efficient at using its labor and supplies in producing goods or services as gross profit grew by 27.10 percent to N58.12 billion in June 2021 from N42.72 billion as at June 2020.
Earnings Before Interest Taxation Depreciation and Amortization (EBITDA) was up 3.90 percent to N58.50 billion in the period under review from N45.72 billion as at June 2020.
The company expects EBITDA to further increase with the commissioning of its 3mmtpa line at Sokoto, arising from the increased supply of cement to the Nigerian market. A priority aimed at addressing cement demand pressures.
Operating profit followed the same growth trajectory as it spiked by 23.80 percent to N50.52 billion in June 2021 from N40.80 percent the previous year.
Profit before tax rose by 26.90 percent to N49.70 billion in June 2021 from N39.16 billion the previous year.
Net income grew by 24.60 percent to N43.39 billion in the period under review from 34.82 billion the previous year.
The producer of the building materials saw gross profit rise by 27.10 percent to N58.12 billion in June 2021, which means it is efficient in using its labor and supplies in producing goods and services.
EBIT margin increased to 40.70 percent in June 2021 from 40.30 percent the previous year; 2 driven by a combination of increased volume dispatched, lifting bonus adjustment and cost containment measures
Interestingly, BUA Cement is generating enough profit from its operations as net margins increased to 34.90 percent in the period under review as against 34.40 percent the previous year.
Also, the company has been able to deploy shareholder resources in generating higher profit as return on average equity increased to 12 percent in June 2021 from 9.60 percent the previous year.
Its cash margins rose to 91.30 percent in June 2021 from 64.29 percent the previous year; this means it is efficient in converting sales that are realized into cash.
BUA Cement is efficient in the use of its fixed assets to generate sales as fixed asset turnover ratio grew to 22.29 percent from 19.34 percent the previous year.
Generally, a higher fixed asset ratio implies more effective utilization of investments in fixed assets to generate revenue.
Leverage ratio improves as liquidity gets stronger
There are no threats to BUA Cement’s going concern status as it is not susceptible to financial distress because it has an efficient mix of debt and equity. What this means is the company is not beleaguered by huge liabilities that it cannot meet as at when due.
Total debt fell by 56.01 percent to N196.20 billion in June 2021 from N446.02 billion the previous year.
Debt to equity ratio reduced to 22 percent in the period under review as against 51 percent the previous year.
The debt to equity ratio is a financial, liquidity ratio that compares a company’s total debt to total equity. The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders).
In order to finance new projects across the country, BUA Cement issued N115 billion corporate bonds, the largest issuance in the history of the debt capital market.
BUA Plans massive expansion in Nigeria
In December 23, 2020, BUA Cement signed an agreement with Sinoma CBMI of China for the construction of three new cement plants of three million tons each per annum, a project valued at $1.05 billion.
The cement maker said the plants would be located in Edo, Sokoto and Adamawa states and were billed for completion by the end of 2022.
Upon completion, it said its cement’s capacity would increase to 20 million metric tons by 2022 in the statement titled ‘BUA to construct 3 cement plants of 9mmtpa in Sokoto, Edo and Adamawa’.
At nine million tons combined capacity, this is the single largest contract ever awarded in the Nigerian cement industry for the construction of new cement plants at the same time and by a single company, the company said.
According to the company, the three new plants are in addition to BUA Cement’s already existing 6 mmtpa plants in Edo State, 2 mmtpa plants in Sokoto State and another 3mmtpa BUA Cement plant in Sokoto, which will be commissioned in the second quarter of 2021.
Abdul Rabiu, Chairman of BUA Cement said the expansion decision aimed to transform the manufacturing industry and increase Nigeria’s cement production capacity.
“Nigeria and the surrounding region are still home to huge opportunities in construction, housing, infrastructure, and allied industries,” said Rabiu.
“Despite these opportunities, there is no doubt that there is still a huge deficit in supply whilst demand continues to increase in Nigeria. This situation has led to an increase in the retail prices of cement despite ex-factory prices remaining partially unchanged,” he summed.
The future is bright for BUA Cement
The coronavirus pandemic forced the government to impose lockdown measures that crippled construction activities across the country.
However, the relaxation of the social distancing measures was a boon for cement makers because the construction activities accelerated and public/private sector spending spur demand for cement.
It is noteworthy that the industry will benefit from government proposed capital expenditure spending, while the low yield environment will continue to drive real estate investment.
The 2021 budget submitted to the National assembly showed that the government plans to spend N3.60 trillion on capital projects, an increase of 45 percent from the revised capital expenditure for 2020 N2.49 trillion.
The recent establishment of an infrastructure company by the federal government, which will be funded mainly by the CBN and NSIA, shows the industry is on a growth spurt.