Stock picking is not an easy science or art, though it is not rocket science either. It requires methodical calculations and analysis. Some of the calculations are simple while some are more involving. Professional analysts undertake their stock-picking by estimating the intrinsic value of a company of interest. Estimating the intrinsic value entails forecasting a company’s sales, costs, earnings and financial conditions, among others.
Equipped with the intrinsic value of a company, an analyst can identify if a stock is overvalued, undervalued, or fairly valued in relation to their current market value. It is this relationship between the estimated intrinsic value and the current market price that informs a buy, sell or hold decision.
Though the professional analysts, who make a living from financial analysis and stock picking and trading use a wide range of robust analysis or algorithms and engage in painstaking and time-consuming research, there are a few basic financial ratios that the not too sophisticated lay stock market investor can use in making investment decisions. Just like financial statements come in sub-reports, financial statement analysis by way of ratio analysis follows each of the subreports. Here are some of them.
Profitability ratios track the financial performance of a company over a period of time. Among the profitability ratios that analysts use include, gross profit margin, operating margin, net profit margin, return on assets employed, return on equity, and earnings per share, among others. Gross margin measures the margin available to cover a company’s operating expenses. It is measured as gross profit divided by net sales and expressed in percentage terms. On the other hand, operating margin measures a company’s profitability from the main business of the company.
It is measured as operating profit divided by net sales expressed in percentage terms. Net profit margin measures the same profitability after accounting for taxes. It is measured as net profit after taxes divided by net sales. Return on equity measures the return on investments made by shareholders through their equity holdings in a company. It is measured as net income after taxes divided by total owners’ equity. Return on assets is a measure of the return to shareholders and creditors of a company. It is measured as net income after taxes divided by total assets of a company.
These ratios measure the extent to which a company’s cash or short-term assets are able to cover its current or short-term liabilities. While current assets are expected to outweigh current liabilities, a liquidity ratio that is too high could signify that a company is not utilizing its current assets well and may be sacrificing profitability. When liquidity ratio is too low, it is an indication that a company may not be able to meet its short-term financial obligations when due. So, investors and analysts look for a middle-of-the-road liquidity ratio. The liquidity ratios that are in use include current ratio, quick ratio, and working capital.
The current ratio as a liquidity ratio measures the ability of a company to pay back its current or short-term liabilities. The higher the ratio, the higher the ability of a company to meet its short-term debt obligations. It is calculated as Current Assets divided by Current Liabilities. The information or data for this calculation is obtainable from the current asset/liability section of the balance sheet of a company.
The quick ratio, otherwise known as acid test ratio, is very much like the current ratio and measures basically the same thing. However, certain current assets that may not be easily realizable in cash, such as inventory, that are included in the calculation of current ratio, are excluded from quick ratio calculation. Like current ratio, a higher quick ratio indicates a higher ability of a company to meet its short-term financial liabilities. The quick ratio is calculated as (Current Assets less Inventory) divided by current liabilities.
Working capital is current assets minus current liabilities. It measures the extent to which current resources of a company exceed its current financial obligations. The greater the number, the greater the comfort level that a company has to meet any unforeseen cash requirements.
Solvency ratios are those ratios that reflect a company’s ability to meet its financial long-term obligations. It also points to how a company finances its operations. Again, a middle-of-the-road ratio is desirable, as too high solvency ratio portends a company that may be struggling with meeting its long-term financial obligations, while too low solvency ratio could indicate a company that is not taking advantage of long-term borrowing opportunities. Among solvency ratios that analysts use, include debt to assets, debt to equity, long term debt to equity and interest coverage ratios.
Debt to Equity Ratio is a ratio that indicates how much a company is in debt in relation to the stake that shareholders have in the company, otherwise called shareholders’ equity. The higher the ratio, the worse the situation. The ratio is calculated as Total Liabilities divided by Shareholders Equity. The information on the total liabilities and shareholders’ equity are readily available from a company’s financial statements, notably, the balance sheet.
Debt to Asset Ratio
This ratio measures the extent to which a company borrows money to finance its operations. It is calculated as total debt divided by total assets. The higher the ratio, the worse the financial state of a company.
Interest coverage ratio measures the extent to which operating profit exceeds the fixed interest expenses that a company must pay. The higher the ratio, the less the likelihood that the company would be unable to meet its fixed interest expense when due.
Using Financial Ratios
Financial ratios are not just calculated for the fun of it. They are used to compare a company’s current performance with its prior years’ performance to know if its financial circumstances are improving, deteriorating, or the same. They are used to also compare similar companies (peer comparison) so as to know which to invest in.
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Limitations of Financial Ratios
Financial ratios are not perfect; they are only surrogates to the real numbers and should, therefore, be interpreted and used as such. Financial ratios are based on numbers from the financial statement, such that, where the financial statement is doctored or window dressed, the resulting ratios will follow suit. However, analysts have designed ways and means to uncover financial shenanigans when analyzing financial ratios. In my next article on this topic, I will take a look at how to watch for and detect financial shenanigans.
List of Dividends announced so far in 2020 (June)
List of Dividends announced so far in 2020 (June)
As audited accounts start to trickle in, companies will propose dividend payments to their shareholders as recommended by their respective boards of directors. It is also important to track these announcements to know who is eligible to collect the dividend, when it will be approved and when it will be paid. Dividend payment also affects share prices.
This page will be updated from time to time.
Date Announced – The date the company announced dividends evidenced by a corporate action published on the website of the NSE.
Qualification date – Shareholders who own shares as of this date will receive dividends. If you buy shares and want to receive dividends make sure it is at least three days before this date. Shares get transferred to you on the basis of the T+3 rule (the date you bought plus 3 working days).
Payment date – This is when the dividend will be paid to you, either via post (dividend warrants) or direct credit to your bank accounts (e-dividend).
Closure of Register – Only shareholders who own shares listed in their register before this date will be paid dividends.
You can also scroll sideways to view the rest of the columns if using a mobile phone.
READ MORE: How to read stock market tables
2020 Dividends from companies quoted on the Nigerian Stock Exchange
|Company||DPS||Date Announced||Bonus||Closure of Register||AGM Date||Payment Date||Qualification date|
|Prestige Assurance Plc||Nil||4th June 2020||2 New shares for every 11 existing shares||22nd - 26th June 2020||30th June 2020||N/A||19th June 2020|
|Presco Plc||N2.00k||3rd June 2020||Nil||20th - 22nd July 2020||5th August 2020||7th August 2020||17th July 2020|
|Trans-Nationwide Express Plc||N0.03k||1st June 2020||Nil||6th - 10th July 2020||16th July 2020||20th July 2020||3rd July 2020|
|Nigeria Aviation Handling Company PLC||N0.30k||28th May 2020||Nil||1st - 3rd July 2020||16th July 2020||16th July 2020||30th June 2020|
|Skyway Aviation Handling Co. Plc||N0.16k||1st June 2020||Nil||17th - 23rd June 2020||30th June 2020||30th June 2020||16th June 2020|
|11 Plc||N8.25||28th May 2020||Nil||30th Sept - 5th Oct 2020||to be announced||to be announced||29th Sept 2020|
|Glaxo SmithKilne Consumer Nig. Plc||N0.55k||22nd May 2020||Nil||23rd June - 2nd July 2020||23rd July 2020||24th July 2020||22nd June 2020|
|Airtel Africa||0.03||13th May 2020||Nil||6th July 2020||Not applicable||24th July 2020||NA|
|Caverton Offshore Support Group Plc||N0.20k||22nd May 2020||Nil||16th June 2020||25th June 2020||25th June 2020||15th June 2020|
|Nigerian Breweries Plc (Revised)||N1.51k||20th May 2020||Nil||5th-11th March 2020||23rd June 2020||24th June 2020||4th March 2020|
|BUA Cement||N1.75k||19th May 2020||Nil||28th Sept - 2nd Oct 2020||22nd October 2020||23rd October 2020||25th September 2020|
|NASCON Allied Industries Plc||N0.40k||13th May 2020||Nil||15th - 16th July 2020||27th July 2020||29th July 2020||14th July 2020|
|Total Nigeria Plc||N6.71||13th May 2020||Nil||5th - 11th June 2020||to be announced||24hrs after meeting||4th June 2020|
|Cadbury Nigeria Plc||N0.49k||13th May 2020||Nil||25th - 29th May 2020||24th June 2020||25th June 2020||22nd May 2020|
|May and Baker Plc||N0.25k||13th May 2020||Nil||27th - 29th May 2020||4th June 2020||8th June 2020||26th May 2020|
|NPF Microfinance Bank Plc||N0.20k||11th May 2020||Nil||17th - 22nd June 2020||30th June 2020||30th June 2020||16th June 2020|
|Okomu Oil Palm Plc||N2.00||23rd April2020||Nil||19th - 22nd May 2020||28th May 2020||29th May 2020||18th May 2020|
|Lafarge Africa Plc||N1||27th April 2020||Nil||4th - 8th May 2020||3rd June 2020||3rd June 2020||30th April 2020|
|Wema Bank Plc||N0.04k||23rd April 2020||Nil||7th - 12th May 2020||18th May 2020||18th May 2020||6th May 2020|
|UAC of Nigeria Plc||N0.10k||20th April 2020||Nil||19th - 22nd May 2020||to be announced||to be announced||18th May 2020|
|Union bank of Nigeria||N0.25k||13th April 2020||Nil||27th - 30th April 2020||6th May 2020||6th May 2020||24th April 2020|
|FBN Holdings||N0.38k||6th April 2020||Nil||21st - 22nd April 2020||27th April 2020||28th April 2020||20th April 2020|
|Lafarge Africa Plc||N1.00k||6th April 2020||Nil||4th - 8th May 2020||26th May 2020||26th May 2020||30th April 2020|
|Ikeja Hotel Plc||N0.02||3rd April 2020||Nil||2nd - 8th July 2020||30th July 2020||7th August 2020||1st July 2020|
|McNichols Consolidated Plc||N0.03k||1st April 2020||Nil||2nd - 8th July 2020||30th July 2020||7th August 2020||1st July 2020|
|NEM Insurance||N0.15k||1st April 2020||Nil||4th - 8th May 2020||to be announced||to be announced||30th April 2020|
|FCMB Group Plc||N0.14k||31st March 2020||Nil||15th - 17th April 2020||28th April 2020||28th April 2020||14th April 2020|
|Beta Glass Nigeria Plc||N1.67k||30th March 2020||Nil||15th - 19th June 2020||2nd July 2020||3rd July 2020||11th June 2020|
|Capital Hotel Plc||N0.05k||26th March 2020||Nil||20th - 24th April 2020||27th May 2020||3rd June 2020||17th April 2020|
|Sterling bank Plc||N0.03k||26th March 2020||Nil||5th - 8th May 2020||20th May 2020||20th May 2020||4th May 2020|
|Boc Gases||N0.30k||26th March 2020||Nil||8th - 10th June 2020||25th June 2020||26th June 2020||5th June 2020|
|Fidelity Bank Plc||N0.20k||23rd March 2020||Nil||20th - 24th April 2020||30th April 2020||30th April 2020||17th April 2020|
|Seplat Petroleum Dev. Company Plc||0.05||23rd March 2020||Nil||13th May 2020||28th May 2020||4th June 2020||12th May 2020|
|Julius Berger Nig. Plc||N2.75k||13th March 2020||0.002||1st to 3rd June 2020||18th June 2020||19th June 2020||29th May 2020|
|Nigeria Energy Sector Fund (NESF)||N75.00||10th March 2020||Nil||20th March 2020||6th April 2020||19th March 2020|
|Access Bank Plc||N0.40k||6th March 2020||Nil||15th April 2020||30th April 2020||30th April 2020||14th April 2020|
|Nestle Nig Plc||N45.00k||28th February 2020||Nil||18th - 22nd May 2020||2nd June 2020||2nd July 2020||15th May 2020|
|Stanbic IBTC Holdings Plc||N2.00||5th March 2020||Nil||19th - 26th March 2020||30th June 2020||18th June 2020||18th March 2020|
|Guaranty Trust Bank Plc||N2.50k||2nd March 2020||Nil||19th March 2020||30th March 2020||30th March 2020||18th March 2020|
|United Bank of Africa||N0.80k||2nd March 2020||Nil||16th - 20th March 2020||27th March 2020||27th March 2020||13th March 2020|
|Transcorp Plc||N0.01k||28th February 2020||Nil||18th - 23rd March 2020||25th March 2020||27th March 2020||17th March 2020|
|MTN Nigeria Plc||N4.97k||28th February 2020||Nil||February 17, 1900||8th May 2020||19th May 2020||17th april 2020|
|Transcorp Hotels Plc||N0.07k||28th February 2020||Nil||13th-17th March 2020||24th March 2020||26th March 2020||12th March 2020|
|United Capital PLC||N0.50k||18th February 2020||Nil||9th-13th March 2020||24th March 2020||26th March 2020||6th March 2020|
|Infinity Trust Mortgage Bank PLC||N0.035K||30th January 2020||Nil||9th-13th March 2020||7th May 2020||14th May 2020||6th March 2020|
|Zenith bank Plc||N2.50k||21st February 2020||Nil||10th March 2020||16th March 2020||16th March 2020||9th March 2020|
|Africa Prudential Plc||N0.70k||25th february 2020||Nil||9th-13th March 2020||23rd March 2020||23rd March 2020||6th March 2020|
|Dangote Cement Plc||N16.00||25th february 2020||Nil||26th May 2020||15th June 2020||16th June 2020||25th May 2020|
|Tripple Gee & Company Plc||N0.05k||8th July 2019||Nil||2nd-6th September 2019||16th September 2019||28th September 2019||30th August 2019|
|Presco Plc||N2.00||6th June 2019||Nil||8th-10th July 2019||24th July 2019||29th July 2019||5th July 2019|
|C & I Leasing Plc||N0.075||25th June 2019||Nil||15th-19th July 2019||30th July 2019||31st July 2019||12th July 2019|
|NPF Microfinance Bank Plc||N0.05||25th June 2019||Nil||8th-12th July 2019||25th July 2019||25th July 2019||5th July 2019|
|Learn Africa Plc||N0.15k||2nd July 2019||Nil||23rd-27th September 2019||17th October 2019||18th October 2019||20th September 2019|
|Academy Press Plc||N0.05k||1st Juky 2019||Nil||5th-9th August 2019||19th September 2019||26th September 2019||2nd August 2019|
|University Press Plc||N0.15k||1st July 2019||Nil||2nd-6th September 2019||26th September 2019||26th September 2019||30th August 2019|
|Redstar Express Plc||N0.43k||2nd July 2019||Nil||17th-19th July 2019||8th August 2019||16th July 2019|
|Veitva Griffin 30 Plc||N0.27||Nil||N/A||N/A||31st May 2019|
|Vetiva S&P Nig. Sovereign Bond ETF||N13.00||Nil||31st May 2019||N/A||7th June 2019|
|Law Union & Rock Insurance Plc||N0.02||9th May 2019||Nil||3rd - 7th June 2019||25th June 2019||26th June 2019||31st May 2019|
|NEM Insurance||N0.13||30th April 2019||Nil||3rd - 7th June 2019||25th June 2019||25th June 2019||31st May 2019|
|Forte Oil||N1.15||3rd June 2019||Nil||4th - 7th June 2019||N/A||10th june 2019||3rd June 2019|
|Smart Products||N0.15||30th April 2019||Nil||1st - 5th July 2019||29th August 2019||5th Septemner 2019||28th June 2019|
|AIICO Insurance Plc||N0.06||16th April 2019||Nil||10th - 17th May 2019||20th May 2019||20th May 2019||May 9 2019|
|Consolidated Hallmark Insurance Plc||N0.02||23rd April 2019||Nil||7th - 13th March 2019||to be announced||to be announced||6th May 2019|
|FBN Holdings||N0.26||12th April 2019||Nil||24th - 29th April 2019||3rd May 2019||6th May 2019||22nd|
|Lotus Halal Fixed Income Fund||N28.00||Nil||N/A||N/A||12th April 2019|
|Nigerian Aviation Handling Coy Plc||N0.25||17th April 2019||Nil||9th - 11th July 2019||26th July 2019||26th July 2019||8th July 2019|
|Prestige Assurance Plc||N0.03||17th April 2019||Nil||6th - 10th May 2019||to be announced||to be announced||3rd May 2019|
|Regency Alliance Insurance Plc||N0.03||15th April 2019||Nil||13th - 17th May 2019||18th June 2019||19th June 2019||10th May 2019|
|Cement Coy. Of Northern Nig. Plc||N0.40||29th March 2019||Nil||2nd - 8th July 2019||25th July 2019||26th July 2019||1st July 2019|
|Dangote Sugar Refinery Plc||N1.10||4th April 2019||Nil||3rd - 5th June 2019||18th June 2019||19th June 2019||31st May 2019|
|The Initiates Plc||N0.05||2nd April 2019||Nil||3rd - 7th June 2019||to be announced||to be announced||31st May 2019|
|Aluminium Extrusion Ind. Plc||N0.085||26th March 2019||Nil||17th - 21st June 2019||to be announced||to be announced||14th June 2019|
|Beta Glass Nigeria Plc||N1.30||29th March 2019||Nil||17th - 21st June 2019||4th July 2019||5th July 2019||14th June 2019|
|UAC of Nigeria Plc||N0.64||29th March 2019||Nil||21st - 24th May 2019||26th June 2019||27th June 2019||20th May 2019|
|Okomu Oil Palm Plc||N3.00||27th March 2019||Nil||14th - 17th May 2019||13th June 2019||20th June 2019||13th May 2019|
|Wema Bank Plc||N0.03||29th March 2019||Nil||29th April - 6th May 2019||8th May 2019||13th May 2019||26th April 2019|
|Berger Paints Plc||N0.65||19th March 2019||Nil||29th April - 3rd May 2019||23rd May 2019||24th May 2019||26th April 2019|
|Caverton Offshore Support Group Plc||N0.25||29th March 2019||Nil||8th May 2019||21st May 2019||24th May 2019||7th May 2019|
|Eterna Plc||N0.25||29th March 2019||Nil||14th - 17th May 2019||13th June 2019||14th June 2019||13th May 2019|
|Infinity Trust Mortgage Bank Plc||N0.03||29th March 2019||Nil||25th April - 9th May 2019||16th May 2019||23rd May 2019||24th April 2019|
|CAP Plc||N2.50||29th March 2019||Nil||27th - 31st May 2019||20th June 2019||21st June 2019||24th May 2019|
|Portland Paints and Products Nig. Plc||N0.05||28th March 2019||Nil||6th - 10th May 2019||30th May 2019||31st May 2019||3rd May 2019|
|Glaxo SmithKilne Consumer Nig. Plc||N0.05||8th March 2019||Nil||24th April - 6th May 2019||23rd May 2019||24th May 2019||22nd April 2019|
|Chams Plc||N0.03||4th April 2019||Nil||18th - 24th April 2019||to be announced||to be announced||17th April 2019|
|Fidson Healthcare Plc||N0.15||3rd April 2019||Nil||18th - 24th April 2019||to be announced||to be announced||17th April 2019|
|Capital Hotel Plc||N0.05||2nd April 2019||Nil||24th - 29th April 2019||April 22, 2000||9th May 2019||23rd April 2019|
|May and Baker Plc||N0.20||29th March 2019||Nil||23rd - 26th April 2019||30th May 2019||3rd June 2019||18th April 2019|
|Unilever of Nigeria Plc||N1.50||29th March 2019||Nil||15th - 23rd April 2019||9th May 2019||10th May 2019||12th April 2019|
|Total Nigeria Plc||N14.00||28th March 2019||Nil||23rd - 29th April 2019||27th June 2019||28th June 2019||18th April 2019|
|FCMB Group Plc||N0.14||29th March 2019||Nil||12th - 18th April 2019||26th April 2019||29th April 2019||11th April 2019|
|Fidelity Bank Plc||N0.11||29th March 2019||Nil||15th - 19th April 2019||26th April 2019||26th April 2019||12th April 2019|
|Custodian Investment Plc||N0.35||21st March 2019||Nil||12th - 17th April 2019||24th April 2019||24th April 2019||11th April 2019|
|11 Plc||N8.25||22nd March||Nil||3rd - 10th May 2019||16th May 2019||17th May 2019||2nd May 2019|
|NASCON Allied Industries Plc||N1.00||22nd March 2019||Nil||31st May - 3rd June 2019||13th June 2019||17th June 2019||30th May 2019|
|Cadbury Nig. Plc||N0.25||21st March 2019||Nil||20th - 24th May 2019||18th June 2019||19th June 2019||17th May 2019|
|Julius Berger Nig. Plc||N2.00||21st March 2019||Nil||3rd - 7th June 2019||20th June 2019||21st June 2019||31st May 2019|
|UBA Plc||N0.65||15th March 2019||Nil||3rd - 9th April 2019||23rd April 2019||23rd April 2019||2nd April 2019|
|Access Bank Plc||N0.25k||14th March 2019||Nil||12th April 2019||25th April 2019||25th April 2019||11th April 2019|
|Stanbic IBTC Holdings Plc||N1.50k||7th March 2019||Nil||21st March 2019||19th June 2019||20th June 2019||20th March 2019|
|Guaranty Trust Bank Plc||N2.45||6th March 2019||Nil||9th April 2019||18th April 2019||18th April 2019||8th April 2019|
|Seplat Petroleum Dev. Company Plc||US$0.05||6th March 2019||Nil||21st March 2019||16th May 2019||23rd May 2019||20th March 2019|
|Nestle Nig Plc||N38.50k||4th March 2019||Nil||13th - 17th May 2019||28th May 2019||29th May 2019||10th May 2019|
|McNichols Consolidated Plc||N0.05k||1st March 2019||Nil||9th - 15th April 2019||16th April 2019||26th April 2019||8th April 2019|
|Dangote Cement||N16.00||28th February 2019||Nil||4th - 10th June 2019||17th June 2019||18th June 2019||3rd June 2019|
|Africa Prudential Plc||N0.50k||26th February 2019||Nil||14th - 20th March 2019||26th March 2019||26th March 2019||13th March 2019|
|United Capital Plc||30kobo||21st February 2019||Nil||14th - 20th March 2019||28th March 2019||2nd April 2019||13th March 2019|
|Zenith Bank Plc||N2.50||19th February 2019||Nil||11th - 15th March 2019||18th March 2019||18th March 2019||8th March 2019|
|Transnational Corp. of Nig. Plc||3k||18th February 2019||Nil||1st - 5th March 2019||15th March 2019||19th March 2019||28th February 2019|
|Nigerian Breweries Plc||N1.83K||18th February 2019||Nil||7th - 13th March 2019||17th May 2019||20th May 2019||6th March 2019|
|Transcorp Hotel||15k||15th February 2019||Nil||28th February - 1 March 2019||15th March 2019||19th March 2019||27th February 2019|
|Newrest ASL NIG Plc||20k||Nil||29th April - 3rd May 2019||15th May 2019||16th May 2019|
|SIAML Pension ETF 40||N1.17||Nil||25th January 2019||N/A||28TH January 2019|
Analysis: Is this a Lafarge rebirth?
Lafarge Africa Plc, one of the biggest building and concrete solutions companies in the world’s three biggest Achilles’ heels.
Lafarge Africa Plc, a unit of LafargecHolcim Group – one of the biggest building and concrete solutions companies in the world, has had a pretty long run in the construction sector. With projected growth in urbanization and inevitable population expansion, the leading producer of building materials and construction solutions has its stake in the huge Nigerian housing market. The company had served customers in Nigeria and South Africa (now discontinued) for decades, their customer base cutting across individuals requiring small building projects to major construction and infrastructure projects. All of these do well to place the company as an active participant in the economic growth of Africa.
Yet, so much has plagued the company in the past few years, curtailing its success with avoidable losses and below-par profits. While it, no doubt, has a series of challenges to worry about – like most organizations – three of its biggest Achilles’ heels had been its failing South African operations, its incessant changes in its corporate leadership, and of course, the one pandemic threatening to rip the global economy to shreds – COVID-19.
Lafarge South Africa
The company’s experience with its South African subsidiary gives credence to the phrase, “If anything is not serving you well, cut it off.” After years of dragging the African cement-maker down, the subsidiary was eventually spun off in July last year – not before it incurred a final loss of N3.2 billion in the first quarter of 2019. It was only after, when Lafarge restated its accounts by adjusting figures from the discontinued operations from its books, that the company set off on a positive growth trajectory.
Following the sale of Lafarge South Africa Holdings (LSAH) in Q3, there was a remarkable improvement in gross and operating margins, clearly showing that the sale of LSAH was valued accretive to shareholders. For one, the total debt reduced drastically. Short term loans and long term loans also had a drop of 79% and 75% respectively in comparison with the first quarter of last year. Other financial assets increased significantly from N1.7 billion in 2019 to N4.8 billion in Q1 2020. Also resulting from the sale was the increase in EPS from Q1 2019 of 0.36 to Q1 2020 of 0.93.
Khaled El Dokani, CCEO of Lafarge Africa had stated, “Our turnaround and cost-reduction strategy in FY 2019 and the divestment of the South African business, have delivered strong results. The decrease in net debt has significantly strengthened our balance sheet and has placed us in a vantage position to face the future.”
Its Changing Leadership
In 2018 alone, the firm appointed four directors in the space of three months. 9 months ago, in September, former CFO of Lafarge Africa Plc., Bruno Bayet, resigned. Just a month later, the board had announced the appointment of Lolu Alade Akinyemi as the new CFO. Next, the group CEO, Michel Puchercos, also resigned leaving Khaled Abdelaziz El Dokani in charge. Even amidst the challenges of 2020, Jean-Philippe Benard resigned from being a Non-Executive Director in January 2020 and by April, the retirement of two Non-Executive Directors was announced, as well as the appointment of three new directors. The high turnover of its leadership means one (or both) of two things. The first is the possibility that there could be more than meets the eyes within the company and the second is the truth that the newer leadership will need time to adjust to the company’s operations before the wins.
Just when things started looking up, COVID-19 came with all its challenges and it didn’t help that the first carrier of the virus – an Italian man, had been visiting Lafarge Africa’s factory in Ogun State. The loss in the demand for cement with the stalled construction activities will pose an additional challenge for the organization. In the performance summary released alongside the financials, the company had noted that the pandemic “will adversely affect the company’s results in Q2, 2020.” This is also coupled with the burgeoning competitive landscape with bigger brands like BUA and Dangote owning larger market shares.
While the company seems to be moving in the right direction, it might take a while for things to pick up. At its current price of N11.65 juxtaposed with its indicative dividend yield of 8.58%, the company could serve as an easy buy capable of yielding dividend income while investors wait patiently and hopefully for its wins to come.
Dangote Cement: Subdued earnings outlook but valuations still attractive
Trading at FY 2020 EV/EBITDA of 7.0x compared to its EM peer average of 9.2x and its 5-year average of 7.7x, we believe the company’s valuation remains attractive.
Dangote Cement reported a 3.8% y/y growth in Revenue to N249.2bn in Q1 2020. The growth in group revenue was solely driven by an improvement in revenue from its Nigerian operations (up 5.6% y/y to N179.3bn) amidst a flattish performance from Pan African operations (down 0.6% y/y to N69.8bn). We expect the impact of COVID-19 to have a more profound impact on Nigeria Sales in Q2-2020, given that Lagos, Ogun, and the FCT went on full lockdown from 30 March. Although the lockdown measures were relaxed on 4 May, economic activities are yet to return to pre-COVID-19 levels.
Similarly, we expect weaker Revenue from Pan African Operations driven by weakness in South Africa (poor macro conditions, lockdown in the last week of March amidst weak infrastructure spending by the government), Tanzania (production challenges and unfavorable weather conditions) and Zambia (the economy slipped into recession in Q1, leading to a decline in the cement market) to have a material impact on overall Pan African sales volumes. As such, we have made marginal adjustments to our forecasts.
We retain our target price of N182.4/s and maintain our Buy recommendation largely due to attractive valuations. Trading at FY 2020 EV/EBITDA of 7.0x compared to its EM peer average of 9.2x and its 5-year average of 7.7x, we believe the company’s valuation remains attractive. We arrived at our target price using a blend of DCF valuation and relative valuation in the ratio 60:40. We also note that the company’s planned share buyback has been approved by SEC and management will review the opportunity to deploy the programme in due time. We believe this remains a catalyst for an upward re-pricing of its shares.
Review of Q1 2020 performance
Q1 2020 Revenue grew 3.8% y/y to N249.2bn. The growth in group revenue was solely driven by an improvement in revenue from its Nigerian operations (up 5.6% y/y to N179.3bn) amidst a flattish performance from Pan African operations (down 0.6% y/y to N69.8bn). On a q/q basis, we note that group revenue grew stronger, up 17.6% q/q, again on the back of a sturdy growth from Nigerian operations (up 26% q/q). We believe the growth in revenue from Nigerian operations reflects stronger demand for cement particularly in the months of January and February which more than compensated for the slowdown in March due to headwinds triggered by the outbreak of the global pandemic. Notably, cement sales volumes grew by 0.7% y/y to 4.0MT, the highest Q1 volume in the last four years. However, we note that the momentum in sales volumes has slowed down, following the lockdown implemented in states such as Lagos, Ogun, and the Federal Capital Territory (FCT).
EBITDA grew 2.2% y/y to N114.2bn. The low single-digit growth in EBITDA was due to a higher increase in cost of sales adjusted for depreciation (up 6.3% y/y) compared to the growth in revenue (up 3.8% /y). The increase in cost of sales adjusted for depreciation was largely driven by growth in salaries and related staff costs (up 13% y/y) and other production expenses (N4.0bn in Q1 2020 vs N1.5bn in Q1 2019). However, the company reported a sub-inflationary growth in OPEX (up 4% y/y to N47.7bn). We highlight that expenditure on advertisement and promotion was up 96% y/y to N3.7bn- we believe this was due to the continued implementation of sales promotional activities to drive sales volume. Overall, EBITDA margin weakened marginally by 0.7ppts to 45.8% in Q1 2020.
Net Finance Cost dipped significantly, down 60.5% y/y t0 N3.7bn in Q1 2020, due to a decline in Finance Cost (down 23% y/y to N9.0bn) alongside foreign exchange gains of N3.7bn recorded in Q1 2020. However, Finance Income was down 32.6% y/y to N1.5bn, reflective of the decline in Cash and Bank Balances (down 41% y/y to N101.8bn) and a lower yield environment. We note that the decline in Finance Cost was due to the absence of Foreign exchange loss in Q1 2020 compared to N3.1bn recorded in Q1 2019.
Pre-tax Profit grew 11.5% y/y to N88.1bn in Q1 2020. A higher effective tax rate of 31% in Q1 2020 compared to 24% in Q1 2019 led to a flattish growth in Profit after tax, up 0.6% y/y to N60.6bn in Q1 2020. Earnings per share rose to N3.60/s in Q1 2020 from N3.54/s in Q1 2019.
Looking ahead, we expect the deterioration in the macroeconomic narrative of Nigeria, caused by the outbreak of COVID-19 and significantly lower oil prices to constrain activities in the construction industry as fiscal spending on capital projects weakens, on the back of lower oil revenue. In a similar fashion, we expect private sector investment in gross fixed capital formation to slow down as businesses cut down on their CAPEX plans given fragile macro conditions, which will weaken aggregate demand.
Similarly, we expect weaker Revenue from Pan African Operations driven by weakness in South Africa (poor macro conditions, lockdown in the last week of March amidst weak infrastructure spending by the government), Tanzania (production challenges and unfavorable weather conditions) and Zambia (the economy slipped into recession in Q1, leading to a decline in the cement market) to have a material impact on overall Pan African sales volumes. Considering the 1.4% decline in Pan African Sales Volumes in Q1 2020, we have revised downwards our forecast on Pan-African volumes to 9.25MT (previously; 9.82MT) in 2020.
Valuation; BUY rating maintained
We retain our target price of N182.4/s and maintain our Buy recommendation largely due to attractive valuations. Trading at FY 2020e EV/EBITDA of 7.0x compared to its EM peer average of 9.2x and its 5-year average of 7.7x, we believe the company’s valuation remains attractive. Furthermore, we highlight that the proposed share buyback is a positive catalyst for upward re-pricing of the shares. We arrived at our target price using a blend of DCF valuation and Relative valuation in the ratio 60:40.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.