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Meristem Sets BUA Cement Bull Case with N81.8bn EBITDA Projection for 2020

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Meristem Securities analysts have set out the bull case for BUA Cement shares with a projected Earnings Before Interest Taxes and Depreciation (EBITDA) of N81.8 billion for Full Year (FY) 2020.

In the third quarter (Q3) of 2020, BUA Cement Plc grew sales volumes by 15.95 percent, from 3,291 kilotons in Q3:2019 to 3,816 kilotons in Q3:2020.

This puts standalone revenue for the quarter at N55.29bn – a 39.72 percent improvement compared to N39.57bn in Q3:2019.

Since the merger, the company has focused on leveraging on its wider geographical footprint to access new markets and claim a stronger market share.

While its efforts have resulted in enhanced brand awareness and a wider distribution chain, performance in Q3:2020 was largely supported by the pickup in economic activities following the easing of lockdowns in Second Quarter (Q2) of 2020 and the relatively short rainy season which aided cement distribution.

Overall, the Nine Months (9M) 2020 financial scorecard showed a revenue growth of 20.95 percent.

“For 2020 FY, we maintain our expectation of a total turnover of N211.65bn by 2020 FY- a growth rate of 20.59 percent when compared to N175.52bn in 2019 FY,” Meristem said.

Summary of Research Note

  • BUACEMENT grew its revenue by 20.95 percent YoY from N129.43bn in 9M:2019 to N156.55bn in 9M:2020. The company also recorded a higher (+23.85%) profit after tax of N53.57bn (vs N43.25bn in (9M:2019).
  • Positives: The company grew sales volumes by 15.95 percent, from 3,291 kilotons in Q3:2019 to 3,816 kilotons in Q3:2020. Finance cost declined by 19.77 percent Year on Year (YoY).
  • Negatives: Cost to sales ratio was higher at 54.18 percent (vs 51.23% in 9M:2019) while operating expenses increased by 15.72 percent.
  • Conclusion: We maintain our EBITDA projection of N81.85bn and an EV/EBITDA of 17.23x for 2020FY.Hence, we retain our 2020FY target price of N42.03.
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