FBN Holdings (FBNH) performance in 2019 showed improving asset quality. However, high Operating Expenses resulted in a deterioration in Cost to Income Ratio (CIR ex-provisions) to 70.0% compared with 63.7% in 2018 was a major drag to earnings. In line with Management’s guidance that majority of the costs were one-off, we saw an improvement in CIR to 65.1% in Q1 2020. Adjusting for the one-off expenses, cost savings from COVID-19 restrictions and accounting for reduced operating income on the back of COVID-19, we forecast CIR declining to 65.0% in 2020e.
The bank’s asset quality ratios continue to improve with Cost of Risk (COR) moderating to 1.9% in Q1 2020 compared with 2.6% for FY 2019 and NPL ratio coming down to 9.2% from 9.9% in FY 2019. Though we expect a strain in FCY loans following the reduction in oil prices and elevated risks to devaluation in the local currency, we expect that many of such loans will be restructured and their tenors elongated in the near term. We however believe we will see some deterioration in the loan book because of the effects of the pandemic on many businesses and consumer pockets. This makes us model COR of 2.5% for 2020e.
Capital Adequacy Ratio (CAR) of 15.3% (without the full impact of IFRS 9) was reported for FBN Nigeria in Q1 2020, almost at par with the regulatory limit of 15.0%, implying the bank will continue to retain capital aggressively to avoid external capital increase in the near term. Without significant deterioration in asset quality, which we believe is unlikely in the near term, we believe the bank can struggle to remain above water considering its net long FX position and expectations of revaluation gains to cushion the effect of further devaluation on capital. As of FY 2019, FBNH had a net long FX position of c.US$398.2m.
We have made slight changes to our estimate, with the overall effect being a slight change to our price target which reduces to N11.07/s from N12.13/s previously and we retain a Buy recommendation. At 0.27x price-to-book (P/BV), valuation remains compelling and though we expect income growth to be challenged owing to the Covid-19 pandemic and the fragile economic conditions, we see no major disaster in view.
@Copyright CSL STOCKBROKERS LIMITED, 2020. All rights reserved.
Dangote Cement incurs N97 billion taxes in 2020
The cement giant incurred its taxes on record.
One of Nigeria’s largest indigenous companies and the largest by market capitalization incurred a company income tax of N97 billion for the financial year ended December 2020.
This s according to the information contained in its full-year audited financial statements for the period under review.
Why this matters?
Dangote Cement has enjoyed Pioneer Status over the years and has often been criticized for not paying enough taxes despite its mega-profits.
- The N97 billion incurred in 2020 is the highest company income tax reported by Dangote Cement since it became listed on the Nigerian Stock Exchange.
- It incurred N49 billion in taxes in 2019 and got a tax credit of N89.5 billion in 2018.
- Despite incurring N97 billion in taxes during the year, Dangote Cement’s actual tax paid was just N20.9 billion in 2020 compared to N4.6 billion paid a year earlier.
- Tax incurred in the profit and loss statement is an accounting provision and is not always the actual tax paid in cash.
- Putting it into context, the dividend paid during the year is N272 billion and interest payments to its creditors totals N48.2 billion.
Improved Cement Revenues
Despite the Covid-19 Pandemic, the Cement Giant reported full-year revenue of N1 trillion, the highest it has ever recorded since it was privatized almost 20 years ago. The company also reported a profit before tax of N373.3 billion only and a profit after tax of N276 billion, its highest since 2018.
Nigeria like most countries in the world has faced a challenging 2020 due to the impact of Covid-19 on the economy, especially the private sector. However, mega-corporations like Dangote Cement appear to have even performed better during the year. The cement industry in general also appears to have performed well during the year as the combined revenue of the top 3, Dangote Cement, Lafarge, and BUA rose to N1.47 trillion from N1.28 trillion.
The impressive result nonetheless, Dangote Cement’s margins remained strong during the year posting a gross profit margin of 57% in line with its 3-year averages. However, the higher taxes incurred in 2020 dropped profit margins to 26.7%. When compared to 2018 when it still enjoyed Pioneer status, the company posted profit margins of about 43%.
Dangote Sugar yearly revenue surge by 33%, announces a dividend of N1.50
Dangote Sugar Refinery Plc. recently declared a 33.0% Year to year growth in earnings to N29.8 billion for the financial year of 2020
Dangote Sugar Refinery Plc via the Nigerian Stock exchange recently declared a 33.0% Year to year growth in earnings to N29.8 billion for the financial year of 2020
The company also announced a dividend of N1.50 (vs N1.10 total dividend in 2019).
Dangote Sugar’s revenue expanded by 33.0% YoY amid strong volume growth in its 50 kg sugar offering (c.96.0% of total sales).
The company’s impressive outing amazed a significant number of stock pundits despite a surge in tax charges which partially offset some of the positive passthrough from border closures on earnings.
Gross margin expanded by 1.31ppts Year to Year to 25.08%, which points to the effects of recent cost-containment measures and the slump in global raw sugar prices in 2020 amid the COVID-19 pandemic.
The raw sugar price dropped to as low $0.09/lb in 2020 and traded c.$0.13/lb on average during 2020 (-4.38% YoY)
What you should know: Dangote Sugar Refinery Plc (the Company) was incorporated as a Public Limited Liability Company on 4 January 2005, commenced operation on 1 January 2006, and became quoted on the Nigerian Stock Exchange in March 2007.
Its current shareholding is 68% by Dangote Industries Limited and 32% by the Nigerian public.
The principal activity of the Group is the refining of raw sugar into edible sugar and the selling of refined sugar. The Group’s products are sold through distributors across the country.
That being said, in spite of such impressive results from the N217 billion valued company experienced a surge in operational cost partly due to persistent FX scarcity.
Dangote Sugar reported a four-fold increase in finance cost, which can be largely attributed to the foreign exchange loss in its ordinary business operations, driven by persistent FX shortages and naira repricing at the exchange rate windows.
Nairametrics | Company Earnings
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