Company Update

Dangote Cement Plc

Equity Research

12 February 2016

Dangcem Initiated a 28% price cut in Nigeria

Rolling out additional 9 million MT capacity across Nigeria
TP revised lower at N192.52 (Previous: N201.36), still a BUY

Increased contribution from non-Nigerian operations, forerunners to price cut

On 9 February, DANGCEM announced a company update involving a 28% price cut in
Nigeria and additional 9.0 million MT capacity expansion in Nigeria. Whilst not much
information accompanied the announcement, we think increasing contribution from
its non-Nigerian operations (contribution to revenue from Non-Nigerian operations
increased to 19% from 3% in 9M14) may have partly engendered the decision to
crash prices further. With infrastructure certain to receive a boost this year, we
believe this price cut would imminently play a massive role in positioning the Group
in such a way to efficiently capture the anticipated surge in demand.
On capacity expansion
The new cement plants would be situated in Okpella, Edo State, with 3mtpa capacity
plant and another 6mpta capacity plant in Itori, Ogun State. This will raise the
Groups domestic cement capacity to 38.25 mtpa by 2019 and push it into the list of
the top 20 global cement producing companies, and the only cement company from
Africa. Management says that the strategic thrust behind this expansion is aimed at
expanding the spread of its manufacturing outfits, thereby reducing the
transportation cost component of operations. The Group also provided updates on
its other expansion projects, stating that it had received all regulatory approvals to
start building its 3mpta plant in Nepal and that mining studies had commenced. The
Group further disclosed that a cement plant in the Republic of Congo and an import
terminal in Sierra Leone will also be commissioned this year.
Tight FX supply a worry
In line with other manufacturers, the Group complained that it is struggling with a
constricted supply of foreign exchange. According to management, 60% - 70% of its
operating expenses are exposed to foreign exchange risk. To combat this, the Group
is relying on FX from its non-Nigerian operations and has entered into financing
arrangements with export-credit agencies. An export-credit agency is a financial
institution that provides trade financing to domestic companies for their
international activities. The currency situation continues to be a sword of
Damocles over domestic companies. A devaluation will lead to margin pressures
and the Group will probably make an upward adjustment to its cement prices, a
similar response to the devaluation that happened in 2014.
TP revised lower to N192.53, shares remain a BUY
Notwithstanding the price cuts, we have left our DANGCEMs 2016E Nigerian volume
forecast unchanged at 14.6 MT as we think that consumption has not necessarily
been constrained by price but more by overall macro sentiment. However, earnings
have been revised lower to reflect the price cut. We lower our TP to N192.53
(Previous: N201.36) following earnings revision. Note however that volumes from
the proposed expansion projects have been excluded from our valuation. We would
like to see traction in these projects and include when we are comfortable on the
project delivery.

Analyst:
Damilola Lawal*
Damilola.Lawal@cardinalstone.com

BUY

TP: N192.52

Stock Data
Bloomberg Ticker:

DANGCEM:NL

Market Price (N)

145.00

Shares Outs (Mn)

17,041

Market cap (NBn)

2,471

Price
Performance

DANGCEM

NSE

12-month (%)

-4.6

-14.1

3-month (%)

-11.0

-15.0

YTD (%)

-14.7

-13.9

2014A

2015E

2016F

15.5

12.3

11.9

3.8

3.4

3.3

4.1%

5.7%

7.6%

Valuation
P/E (x)
P/BV (x)
Div. Yield (%)

YTD Price Performance (rebased)

1.2

ASI

DANGCEM

1
0.8
Source: NSE

0.6
0.4

Contact Information

research@cardinalstone.com
+234 809 0415 178

sales@cardinalstone.com
+234 809 945 3062

Company Update
Dangote Cement Plc

Equity Research

Financial Statement and Ratios

Income Statement
Revenue
Cost of Sales
Gross Profit
Distri. And Admin Expenses
EBITDA
Depreciation and Amortisation
Other Income
EBIT/Operating profit
Interest Expense/Income
Pre-tax earnings
Taxation
Profit after tax

Balance Sheet
Assets
Fixed Assets
Investments
Inventories
Trade Debtors
Bank and Cash Balances
Other current assets
Total Assets
Liabilities
Trade Creditors
Other Creditors
Taxation
Short term loan
Other current liabilities
Long term loans
Retirement Benefit Obligation
Deferred taxation
Other long-term liabilities
Total Liabilities
Capital and Reserves
Share capital
Share Premium
Retained Earnings
Other component of equity
Shareholders' funds
Total liabilities and equity

Key Ratios
Profitability
Return on Average Equity
Return on Average Assets
EBITDA Margin
EBIT Margin
Pretax Profit Margin
Net Profit Margin
Valuation Multiples
P/E (x)
P/B (x)
Dividend Yield (%)

2013A
386,177
(108,961)
277,216
(49,502)
227,714
(33,556)
1,724
195,882
(5,121)
190,761
10,437
201,198

2014A

2015E

(N'Mn)
391,639
484,507
(121,411)
(141,030)
270,228
343,477
(65,088)
(96,901)
205,140
246,575
(21,647)
(43,446)
3,609
31,000
187,102
234,129
(2,413)
(10,145)
184,689
223,984
(25,187)
(22,398)
159,501
201,586

2016F

2013A

550,822
(171,517)
379,305
(99,148)
280,157
(45,098)
2,754
237,813
(7,306)
230,507
(23,051)
207,456

2,424
(684)
1,740
(311)
1,430
(211)
11
1,230
(32)
1,198
66
1,263

2014A
(US$'Mn)
2,371
(735)
1,636
(394)
1,242
(131)
22
1,133
(15)
1,118
(153)
966

2015E

2016F

2,432
(708)
1,724
(486)
1,238
(218)
156
1,175
(51)
1,124
(112)
1,012

2,633
(820)
1,813
(474)
1,339
(216)
13
1,137
(35)
1,102
(110)
992

2013A

2014A

2015E

2016F

2013

2014A

2015E

2016F

603,407
91,716
27,667
10,266
70,502
39,646
843,203

768,126
79,491
42,688
15,640
20,593
58,183
984,721

845,806
79,491
26,889
13,336
15,000
41,150
1,021,672

833,757
79,491
34,416
14,523
19,734
46,782
1,028,703

3,744
569
172
64
437
246
5,232

4,660
482
259
95
125
353
5,974

4,262
401
136
67
76
207
5,149

4,002
382
165
70
95
225
4,937

22,211
60,546
566
55,434
24,788
124,850
1,963
507
2,245
293,110

34,535
66,395
2,481
106,450
23,087
131,942
2,069
20,473
5,401
392,834

32,456
74,572
15,811
69,812
44,411
104,718
1,656
20,473
5,401
369,311

40,412
90,692
24,697
49,866
47,931
74,799
1,324
20,473
5,401
355,595

138
376
4
344
154
775
12
3
14
1,819

210
403
15
646
140
800
13
124
33
2,383

164
376
80
352
224
528
8
103
27
1,861

194
435
119
239
230
359
6
98
26
1,707

8,520
42,430
496,456
2,687
550,093
843,203

8,520
42,430
537,751
3,185
591,886
984,721

8,520
42,430
597,325
4,086
652,362
1,021,672

8,520
42,430
617,143
5,014
673,107
1,028,703

53
263
3,081
17
3,414
5,232

52
257
3,262
19
3,591
5,974

43
214
3,010
21
3,288
5,149

41
204
2,962
24
3,231
4,937

2013

2014A

2015F

2016F

2013

2014A

2015F

2016F

41.5%
26.5%
59.0%
50.7%
49.4%
52.1%

27.9%
17.5%
52.4%
47.8%
47.2%
40.7%

32.4%
20.1%
50.9%
48.3%
46.2%
41.6%

31.3%
20.2%
50.9%
43.2%
41.8%
37.7%

41.5%
26.5%
59.0%
50.7%
49.4%
52.1%

27.9%
17.5%
52.4%
47.8%
47.2%
40.7%

32.4%
20.1%
50.9%
48.3%
46.2%
41.6%

31.3%
20.2%
50.9%
43.2%
41.8%
37.7%

12.3
4.1
4.8%

15.5
3.8
4.1%

12.3
3.4
5.7%

11.9
3.3
7.6%

12.3
4.1
4.8%

15.5
3.8
4.1%

12.3
3.4
5.7%

11.9
3.3
7.6%

Company Update
Dangote Cement Plc

Equity Research

Disclosure
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this report, the research analysts denoted by an * on the cover or within the document individually certifies, with respect to each security or
issuer that the research analyst(s) cover in this research) that: (1) all of the views expressed in this report accurately articulate the research
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Investment Ratings
CardinalStone employs a 3-step rating system for equities under coverage: Buy, Hold, and Sell.
Buy +15.00% expected share price performance
Hold +0.00% to +14.99% expected share price performance
Sell < 0.00% expected share price performance
A BUY rating is given to equities with strong fundamentals, which have the potential to rise by at least +15.00% between the current price and the
analysts target price.
An HOLD rating is given to equities with good fundamentals, which have upside potential within a range of +0.00% and +14.99%,
A SELL rating is given to equities that are highly overvalued or with weak fundamentals, where potential returns of less than 0.00% is expected,
between the current price and analysts target price.
CardinalStone Research distribution of ratings/Investment banking relationships as of August 25, 2015

Rating

Buy

% of total recommendations

56%

19%

19%

6%

% with investment banking

relationships

50%

0%

33%

17%

Sell

Hold

Negative Watch

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Company Update
Dangote Cement Plc

Equity Research

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Company

Disclosure

Dangote Cement Plc

a.
The analyst holds personal positions (directly or indirectly) in a class of the common equity securities of the company
b.
The analyst responsible for this report as indicated on the front page is a board member, officer or director of the Company
c.
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d.
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e.
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f.
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g.
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h.
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i.
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j.
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k.
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l.
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