Dangote Cement released its 2012 Audited Accounts with revenues rising 23.6% to N298.4billion. The company also raised its operational profit by 24.4% to N146.5billion (2011: N117.7billion). The company made a pre-tax profit of N135.6billion up 19% from the prior year. Dangote Plc’s earnings per share (EPS) at the end of 2012 was N8.92 (2011: N7.13).
Result overview
Dangote Plc is arguably the most profitable quoted company in Nigeria. They operate in a very competitive market that includes importers, manufacturers and a hybrid of both. However, a lot of the competitiveness in the sector is not very reflective on their financial statements as margins remained considerably flat. A look at their indices shows a flat performance in all aspects. Operational profit margins and profit margins all came out flat. So while the cement industry maybe worried about a clog, which may help crash prices and probably raised operating expenses, this has not happened going by this result.
Despite this, I expect Dangote’s profitability growth to slow in the next 3-5yrs as the effects of the wear and tear of their huge property, plants and equipments (PP&E) starts to add to the expense line. Last year, 57.5% of the PP&E was under construction as such those assets will not be depreciated and not affecting expensed till those projects are completed. Top line revenue may also come under some pressures as government waivers and friendly policies expire. Dangote Cement also carries about N160billion in debt (38% of its equity). However, most of its debts cost about 10% or below, very cheap considering market expectations. In addition, they have a high return on asset of 24.4% giving them enough buffer in the unlikely event that their lending rates start to rise. All in all, the company will still remain hugely profitable considering the much awaited and potential boom in the housing sector.
For now a return on equity of 43% is by all means a fantastic result to any shareholder. It is way above the average returns on the NSEAI last year and twice the government bond yields. The company promised a dividend payment of N3 which some might frown upon considering it is just a yield of about 2%. However, this amounts to 33% distribution of earnings and will gulp about N51billion in cash. But then, what is worrying about the yield when the they can post average ROE of 43%. The point is, if the company can give me a better yield on my investment (ROE) why complain about paltry dividend yield. I will be dully compensated from capital gains on the stock (which even comes tax free).
Any value opportunity yet?
Dangote Cement traded at N160 up 2.56% at the close of business 24/4/2013. The current price provides a multiple of about 18x on the current earnings. Its price to book ratio is about 6.6 as the market places a higher premium on its net assets. Though, this price may seem high on the surface, the company’s size and moat in the industry portends an upside going forward. Besides, going by the dividend thirsty Nigerian bourse, the price may shed some value in the next few days presenting a buying opportunity.
Dangote Cement 2012 Audited Accounts is posted on the website of the NSE
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