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24/07/2021
Posted 4 months ago

Dangote Cement: Improved Earnings, Maintains Dividend Status

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Coy: Dangote Cement Plc (DANGCEM)

Period Estimated: Full Year Ended 31st December, 2020
Rating: Hold
Current Market Price: N225.00

Latest Dividend: N16.00
Year High: N244.90
Year Low: N198.10
Fair Value: N202.12
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

  • In this report, we observed the full year financial numbers of Dangote Cement Plc for the year ended 31st December, 2020, compare same with figures released at the end of 2019 financial year to establish growth, projection, valuation and recommendation accordingly
  • Unlike the previous year where it earned lower than the dividend paid, the management of Dangote achieved a per share earnings of N16.20 as against N11.77 in the corresponding year.
  • Placing the current numbers side by side the immediate corresponding year, one could conclude that performance is impressive, as virtually all financial indices stood at appreciable points above the corresponding year
  • See below for detailed analysis

Dividend Information

  • At the end of the 2020 financial year, Dangote Cement shareholders will be rewarded N16.00 per every unit of Dangote share held
  • According to the information released through Nigerian Stock Exchange platform, the closure date for the said dividend is 28th April, 2021, in other words, the qualification date is 27th April, 2021, while the payment date is scheduled for 27th May, 2021
  • The said dividend is same as 98.76% of the total amount earned per unit share of Dangote Cement through the 2020 financial year. In our opinion, this is rather a very high payout ratio
  • Nevertheless, the N16.00 dividend is only 7.27% of the price of Dangote Cement shares on the floor of the exchange as at the time the result was released to the investing public.
  • Unlike the previous year where the sustainable growth rate slid because the company paid far higher that it earned, the sustainable growth rate is currently positive but low at 0.38%

Company figures

  • The Turnover reported for the year’s operations is estimated at N1.03 trillion, same as 15.98% above the N891.67 billion posted in the corresponding year
  • Similarly, Cost of Sales grew by 15.26% to stand at N437.97 billion versus N379.98 billion in the comparable year
  • Operating Profit for the year was valued at N366.73 billion, same as 22.29% above the N299.89 billion estimate at the end of 2019 business session
  • Finance Cost used through the year stood at N43.98 billion, this is 23.73% lower than the N57.67 billion stated at the end of 2019 financial year
  • Profit before Tax is estimated at N373.31 billion against N250.49 billion achieved at the end of 2019 business session
  • Tax Expense allowance grew by 94.65% to stand at N97.24 billion versus N49.95 billion in the corresponding year
  • Thus, a total of N276.08 billion was reported at Profit for the year, this is same as 37.68% growth over the N200.52 billion earned at the end of 2019 financial year

  • Current Assets as at the end of 2020 financial year is valued at N550.13 billion, this is 35.26% above the N406.73 billion in the corresponding year
  • Non-Current Assets stood at N1.47 trillion, a marginal improvement of 10.32% over the N1.33 trillion in 2019
  • Current-Liabilities was valued for N829.81 billion against N630.79 billion in the corresponding year
  • Non-Current Liabilities equally grew by 41.88% to stand at N301.66 billion against N212.62 billion in the comparable year
  • Net Assets of Dangote Cement dipped by marginal 0.78% at the current estimate of N890.97 billion against N897.93 billion in the comparable year
  • Retained Earnings inched up by 0.31% as it is currently valued for N779.27 billion against N776.83 billion in 2019 business session

Financial Strength/Solvency Ratios

  • Debt Ratio is currently estimated at 55.95%, same as 15.51% above the 48.43% estimated in the corresponding year of 2019. This implies that, Total Liabilities is same as 55.95% of Total Assets at the end of 2020.
  • Total Debt to Equity was equally estimated at 126.99% as against 93.93% estimated in the comparable year. This simply implies that more debt was used through the just concluded period
  • It was established that Equity is same as 44.05% of Dangote Cement’s Assets Value. Estimate from 2019 full year performance indices yielded 51.57%, this is 14.57% drop in investors’ interest within the year under comparison
  • Nevertheless, going by the estimated beta value, we can conclude that Dangote Cement shares is less liquid than its industrial peers on the floor of the exchange

Profitability Ratios

  • EBITDA margin estimated for the quarter stood at 35.46%, marginal drop from the 33.63% estimated from 2019 full year earnings numbers
  • Pre-Tax Margin is valued at 36.10%, a 28.50% improvement over the 28.09% estimate in 2019
  • Cost of Sales was 42.35% of the Turnover figure, this is only 0.63% below the 42.62% estimated in 2019. This is a confirmation of the management effort to control its direct cost.
  • Return on Equity stood at 30.99% against 22.33% achieved in 2019.
  • See below for details

Efficiency Ratios

  • Operating Expenses to Turnover value is same as 20.70%, this is 13.95% improvement in management efficiency from the 24.05% estimated from 2019 financial indices
  • Turnover to Total Assets Ratios stood at 51.14% against 51.21% a marginal improvement in management efficiency within the two compared years
  • Working Capital Ratio a ratio that indicates a company’s effectiveness in using its working capital was estimated at -3.7x a 7.08% down from the -3.98x estimated in 2019
  • See below for details.

Investment/Valuation Ratios

  • At the end of 2020 business cycle, the earnings per share of Dangote Cement improved by 37.68%% to N16.20 from the previously earned N11.77
  • P/E-Ratio dipped by 6.00% having moved to 13.58x from 14.45x, please understand that the high P/E-Ratio is an indication of positive investors’ sentiments for Dangote Cement shares
  • The said Earnings per Share is yielded 7.36% of the current market price of Dangote Cement shares on the floor of the exchange as at the time the result was made available to the investing public
  • The Book Value of Dangote Cement shares is currently estimated at N52.29 this is far below the market value of the Coy on the floor of the exchange. This excess is generated by investors’ sentiments/preference for the company as noted above
  • Confirming the seemingly over-priced status of Dangote Cement shares on the floor of the exchange is the Price to Book Value which stood far above unity (4.21x)

Valuation

Considering the outstanding improvement observed on the performance indices of Dangote Cement’s, we maintained our preservative valuation approach while placing a fair value on each unit of its shares. Also, we increased our growth expectations in anticipation of continuous growth in the corresponding year. Thus, we have valued each units of Dangote Cement’s share price at N202.12 and Rated it a Hold.

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