Dangote Cement is the most capitalized stock in Nigeria and with a market cap of over N2 trillion, 25% of the total capitalization of the NSE. It’s 9months to September results for 2012 saw revenue increase 20% to N208.2billion. In 9months the company has already achieved 88% of its trailing one year audited accounts for 2011. Gross Profit also increased 22% to N130billion representing an improved gross profit margin of 61%. Operating profit was N115b a 24% increase from the same period last year.
Operating profit as a percentage of revenue was a massive 55% of turnover, even better than last years 52%. In an economy where companies with an operating profit margin of about 35% ,regardless of the industry, is considered impressive, one has to wonder how this company does it. A look at the operating expenses reveals much. At 16.5% of Gross Profit it’s not hard for any company to hit such high margins. Much of this points to the companies dominance in the cement industry with over 60% market share.
My review on Dangote Cement some months ago and not much has changed since then in terms of profitability. Its basically following the trend of prior years. One thing that has changed though is loans. The company has taken on about N11b more loans taking its external loans to about N72billion, which is about 19% of Net Assets. However, if you add the company’s inter-company loans of about N81.2b that takes total loans as a percentage of equity to 40%. Net finance cost of N9b is only 8% of Operating profit,a level that is about half of the 15% I believe is acceptable for companies. Kudos most go to the company’s CFO who have kept all loans at an average rate of 10%, 50% less than return on asset of 20%. As a marker, companies who borrow at rates less than return on assets mostly see higher return on equity. ROE for Dangote is a whopping 33%.
Dangote Cement currently trades at a market price of N121 compared to N100 a year ago. The price is 19x current earnings per share. It’s price but still within reach. Its P.E ratio is achievable if it continues to grow revenues and profits at double digits.
Dangote Cement 2012 9 months unaudited accounts is posted on the website of the NSE.