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Buy Dangote Cement Shares Else the Train Leaves You!

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You will be left out of the share of the big cake if you do not Buy Dangote Cement’s shares now that it is hot!

Arguably the most successful company in Nigeria, the grandiose results of the largest producer of the building material has been eliciting buy recommendations from sundry investment houses who are upbeat that the firm will maintain the growth momentum in the foreseeable future.

Of course, investors like entities that minimise cost and maximise the value of stakeholders no matter the challenges they are confronted with, and the country’s huge infrastructure deficit and expected investment in the real estate sector is a boon for the cement marker.

Despite inflationary pressures and incessant devaluation of the currency by the central banks to stabilise an economy beset by the vagaries of crude oil price, Dangote Cement remains the industry cost leader.

In economics a firm breaks even when marginal costs equals marginal revenue, but the producer of the building material has been effortlessly exceeding the cost line and it is delivering higher returns to shareholders in the form of bumper dividend and attractive valuations.

As a result of favorable energy mix and relative energy mix, Its first quarter cost per ton stood at N4,888, according to data from Chapel Hill Denham.

That compares with peer rivals Lafarge Africa, (N6,752), and BUA Cement, (N8,666).

Despite the coronavirus induced headwinds, the most capitalized company in Africa’s largest economy  reported a gross margin of 62 percent in the first quarter of (Q1) 2021, the highest since the second quarter (Q2) 2015.

Analysts at Chapel Hill Denham expect earnings before interest taxation and amortisation (EBITDA) growth of 20.9 percent year on year (yoy), with EBITDA margin printing at 45.6 percent as at full year 2021.

The company is committed to investing in additional capacity to take advantage of the growing market in Nigeria.

Its installed capacity is expected to hit 36.26 million metric tons by the end of 2020, from the current utilization of 29.25 million metric tons, which means it will continue to have the largest market share.

 “We understand that a debottlenecking exercise is ongoing at Gboko, its 4.0mmt legacy plant. Management acknowledged that this could potentially unlock up to 1.0mmt in extra installed capacity,” said analysts at Chapel Hill Denham.

“That, together with the new 3.0mmt Okpella plant, which is expected to be launched in Q3-21, will push its total installed capacity in Nigeria to 36.25mmt in 2021E,” said the analysts.

There are indications that the return of the share buyback programme could drive stock rally that was seen last year when the cement maker bought back 0.24 percent of its outstanding shares.

“During our engagement, management acknowledged that it is seeking fresh regulatory and shareholders’ approval for another round of share buyback,” said analysts at Chapel Hill Denham.

Dangote Cement is a growth stock as it is expected to outperform the overall market over time because of their future potential earnings, and the optimism hinges on improving macro conditions coupled with additional capacity to buoy earnings.

It is the most profitable company in the country as it posted net income of N89.71 billion in the first quarter of 2021.

That compares with telecoms giant MTN Nigeria’s (N73.74 billion); Zenith, (N53.06 billion); Access Bank, (N52.54 billion); Guaranty Trust Bank, (N45.54 billion); BUA Cement, (N22.26 billion);  FBN Holdings, N15.62 billion, and Four Mills, (N15.59 billion).

Interestingly, Dangote Cement’s earnings per share (EPS) of N21.12 (as at March 2020), beats Bloomberg estimates of N12.80 and N13.30 Chapel Hill Denham.

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