Dangote: The King cement maker moving against all odds

Dangote Cement Plc is Nigeria’s multinational publicly traded cement company. It is involved in the production, packaging, exportation and distribution of cement in Nigeria and other parts of Africa.

Dangote Cement Plc is the largest company traded on the Nigerian Stock Exchange with a market capitalization of N1.99 trillion as at April 10, 2020.

The Nigerian cement industry may be set for a difficult year on account of the COVID-19 pandemic, and it is expected that the sector’s full recovery could take at least 2 years, in line with the macro guidance of African finance ministers.

Clearly, the spread of COVID-19 has altered the global economic outlook for this year. The virus outbreak has led to border closures, as well as restrictions on constructions and other non-essential business activities.

(READ MORE: Dangote Cement Plc: Frail macro conditions to pressure earnings in 2020)

The Nigerian cement market is likely to underperform the rest of Africa, given that imposed restrictions in its country of domicile have been concentrated in key construction hubs like Lagos, which cumulatively accounts for about 48.0% of the country’s GDP.

It’s expected that the shutdown of activities in these zones is likely to last till the end of the third quarter of 2020. In line with global expectations, DANGCEM is expected to report contractions in cement volumes in Nigeria and across its pan African operations in 2020.

In addition, Dangote cement earnings will likely be under strain by greater income tax deductions going forward, following the expiration of pioneer tax grants on Ibese Lines 3 & 4 and Obajana Line 4 in February 2020.

Consequently, the company recorded an increase in distribution cost in the 2019 financial year as a result of an increase in its number of truck fleet and the proportion of sales distributed by trucks to customers.

In its 2019 released audited financial results, the company posted a revenue of N891.7 billion and pre-tax profit declined by 16.7% year on year to N250.5 billion in the financial year of 2019.

(READ MORE: Dangote Cement woos investors with N100 billion issue)

Profit after tax, however, dropped sharply, down 48.5% year on year to N201.2 billion in 2019 vs N390.9bn recorded in 2018.

Similarly, its profit margin pressures are likely to start after the operating line, with drags coming in the form of higher interest expense N63.8 billion vs N50.1 billion in 2019.

Fundamentally, the company has had a traditionally strong cash flow position, even during 2016 recession; furthermore, it has a dividend yield of 13.31 % and earnings per share of 11.79, as at April 10, 2020. With a look at the stock on the chart where DANGCEM trades at N117, showing a series of spinning top forming on the price support level, it’s thus likely a strong bullish bias signal on the mid and long term review on the stock.