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DANGCEM published Q2-21 audited financials weekend. The result showed that the company delivered another stellar performance following the solid earnings reported in Q1-21. Q2-21 standalone PAT rose by 55.5% y/y to NGN101.92 billion while EPS grew by 53.9% y/y to NGN5.92, bringing H1-21 EPS to NGN11.18 (+50.2% y/y). On an annualized basis, the company’s H1-21 EPS is 37.7% ahead of the 2020FY EPS of NGN16.24 and 29.6% above our 2021E EPS forecast of NGN17.26. The growth in EPS was driven mainly by an impressive topline growth and higher FX gains, both of which neutered the impact of elevated cost pressures and the surge in tax charge.
The group’s aggregate revenue grew by 57.2% y/y to NGN357.89 billion in Q2-21 (H1-21: +44.8% y/y to NGN690.54 billion), driven by broad-based expansion across its Nigerian (+66.3% y/y) and Pan African (+40.4% y/y) operations. For the Nigerian operations, revenue growth was driven mainly by volumes (+46.3% y/y to 4.96MMT) compared to the price per tonne (+13.7% y/y). We believe the robust sales volume growth in Nigeria was supported by demand from the public sector given the renewed focus of state governments to accelerate activities on construction sites and the low base effect from the prior year. Recall that lockdown rules severely impacted the construction sector in Q2-20. On Pan-African operations, the translation impact arising from the Nigerian naira’s devaluation combined with the expansion in sales volumes (+15.3% y/y to 2.80MMT) drove the increase in the topline. Overall, the group’s sales volume increased by 33.4% y/y to 7.76MMT in Q2-21 (H1-21: 26.1% y/y to 15.28MMT).
Group EBITDA grew strongly by 66.7% y/y to NGN173.09 billion in Q2-21, as the topline growth (57.2% y/y) and an increase in other income (+32.2% y/y) trumped the increases in the cost of sales ex-depreciation (+59.5% y/y) and operating expenses ex-depreciation (+28.9% y/y). Similarly, the EBITDA margin rose by 2.8ppts to 48.4% in Q2-21 but weakened significantly on a q/q basis (down 510bps from 53.5% in Q1-21). As observed with Lafarge, we believe the weaker EBITDA margin on a q/q basis was due to the alignment of the official rate to the I & E window rate, which amplified pressures on energy cost – gas contracts are denominated in USD but settled in naira based on the official exchange rate.
Net finance cost stood at a positive of NGN700.00 million in Q2-21 relative to a negative of NGN6.91 billion in Q2-20, following the more than double-fold increase in finance income (NGN11.43 billion in Q2-21 vs NGN4.94 billion in Q2-20). The strong growth in finance income was driven mainly by the jump in FX gains (+353.7% y/y to NGN5.67 billion) amidst higher interest income (+56.1% y/y).
Overall, PBT grew by 102.1% y/y to NGN151.15 billion in Q2-21, with related PBT margin improving by 9.4ppts to 42.2%. The surge in tax charge (NGN49.23 billion in Q2-21 vs NGN9.24 billion in Q2-20) led to a slower growth in PAT (+55.5% y/y to NGN101.92 billion in Q2-21).
Industry observers say given the high inflationary and exchange rate pressures in the economy, we are impressed that the company delivered another remarkable performance. We also like that the company has completed its 3MTA Okpella plant in Edo State (to be commissioned in Q3-21). We believe economies of scale associated with the additional capacity will help in shielding EBITDA margins in Nigerian operations from cost pressures emanating from the recent alignment of the official rate to the I & E window rate. We expect upward consensus review to forecasts given the impressive run rate as at H1-21.
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