In this report, Coronation Research Group discusses the investment case for Dangote Cement. Spanning 2021, DANGCEM recorded double-digit revenue growth for the second consecutive year (Group: +33.8% y/y) in both Nigeria and its rest of Africa (Pan-African) operations. This translated into EPS growth of 31.6%. This performance was supported by increased demand from the housing sector and commercial construction despite volatility in the landing cost of cement and clinker, especially in its Pan-African operations. We believe opportunities still exist for volume growth in the forecast year 2022F due to strong demand, an evident infrastructure deficit and traction in commercial construction, especially in a pre-election year in Nigeria. We recommend Dangote Cement (DANGCEM) as a BUY with a Target Price (TP) of N328.65/s.
Infrastructure deficit and low cement consumption per capita supports growth. We continue to see potential growth opportunities in the cement market of which Dangote Cement has positioned itself as a market leader accounting for about 60% of the industry in Nigeria. These growth opportunities for Dangote stem from rapid demand growth in the domestic market of Nigeria as well as its Pan-African (Rest of Africa) markets as housing infrastructure, commercial construction, and government projects including major highways, roads, and railways. gain traction.
Aggressive capacity rollout to capture demand opportunities. The company has embarked on an aggressive capacity rollout with an additional 6.0mmt plant in Okpella, Edo State, in 2021. Management has said this was necessary to capture demand opportunities in the future as they arise. Our revenue growth forecast for FY22-25F is set at a CAGR of 13.1%. We expect EBITDA to grow by a CAGR of 13.8% over the forecast period from FY 2022F to FY 2025F. We forecast that that the company will report EPS growth of 11.2% YoY to NGN23.62 in FY22 driven primarily by steady growth in both output and prices, expanding its operating margin and significantly reducing finance costs.
Valuation and Rating. We initiate coverage with Target Price (TP) of N328.65/s and BUY rating, implying potential upside of 20.2% above the current price. According to our estimates, Dangote Cement is trading on a 2022E P/E of 11.6x and EV/EBITDA multiple of 6.9x which is a discount to emerging market peer multiples of 13.6x and 8.7x. We rate the investment case highly, especially considering the company’s strong earnings growth, return on equity and Pan-African diversification benefits. A key catalyst to its share price is the potential for a Tranche III share buyback program, following the success of the first two.
