Earnings Analysis 2013 H1: Ashaka Cement Hit By Rising Cost Of Sale

[upme_private]Ashaka Cement released its 2013 H1 results showing revenue dropped 3.7% to N11.8billion (2012 H1: N12.2billion). Gross Profit also dropped by 47% to N2.3billion when compared to the same period last year. Pre-tax profits for the company was N1.1billion, a 58% drop compared to the same period last year.

key Highlights

Ashaka Cement’s drop in revenue is largely attributed to the instability in the North as well as increased competition from the likes of Dangote Cement who have since increased capacity and expanded to the North East of the country.
Despite the drop in revenue not being significant in terms of numbers, the company was hurt badly by the 21% rise in Cost of Sales.
The 40% drop in inventory between December 2012 and June 2013 buttresses the rise in cost of sale during the period especially as revenue remained low.
The drop in operating expenses had a zero impact on efficiency as it still chalked off 50% of Gross profit compared to 36% the year before.
Ashaka Cement has no external debt as the company prefers to finance its operations internally. They still have a healthy working capital of N11billion and had about N15.8billion as cash in the bank.
Remarkably N49billion of its N50.6billion in shareholders funds is made of retained earnings which it has accumulated over the years (it was about N12billion in 2009).
Whilst this result maybe considered disappointing for most, it makes me wonder how possible it is for Dangote Cement to continue to churn in Profit Margins of about 50%!!
Investors off course did not like this result. Ashaka Cement currently trades at N24.49 and a P.E ratio of 19x.
Ashaka Cement is in my radar and I have a buy for it for N22-N25.