For Dangote Cement, Government Policy Is Good | Independent Newspapers Limited
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For Dangote Cement, Government Policy Is Good

Posted: May 31, 2016 at 6:02 am   /   by   /   comments (0)


Kirk Leigh


At a time when the economy is going down and taking everything with it, the stock price of Dangote Cement, the most capitalised stock on the Nigerian Stock Exchange (SE), is racing upwards on a combination of investor sentiments and better prospects for the cement industry.

While the Nigerian economy decelerated to a negative 3.36 percent, according to the latest figures from the National Bureau of Statistics (NBS), Dangote Cement’s stock price has grown 8.1 percent from N162.01 on November 10, 2015 to N175.10 on Friday, May 27, 2016.

Analysts and investors are betting on Federal Government’s assurances to pump loads of money into growing the country’s infrastructure with the latest being the N350 billion planned to reflate the economy and put thousands of people to work.

The Federal Government also plans to source infrastructure funds from China to build roads and railways, among others.

Better still, there are talks of resorting to cement based road construction, which may unleash N224 billion in road contracts and another N90 billion in railways.

The Lagos State government is also talking big about transforming Oshodi into an ultra modern bus terminal with state-of-the-art facility as well as building a fourth mainland bridge.

These possibilities have sent stocks in the cement sub-sector in a northward trajectory.

For Dangote Cement (and Lafarge, Dangote’s major competitor), the possibilities are spread all over Africa and beyond, having transformed into a global player with factories in places such as Benin, Ghana, Congo, Tanzania, Senegal, South Africa and Zambia, according to information gleaned from the Group’s website.

Dangote Cement Plc reported annual 2015 earnings of 10.86 per share on March 01, 2016, causing investors to deepen their stakes in the company, which along with other quoted Dangote companies are about 43 percent of NSE capitalisation.

According to the Financial Times, which tracks analysts’ opinion on quoted companies, “As of May 20, 2016, the consensus forecast amongst 13 polled investment analysts covering Dangote Cement Plc advise investors to hold their position in the company. This has been the consensus forecast since the sentiment of investment analysts deteriorated on July 28, 2015. The previous consensus forecast advised that Dangote Cement Plc would outperform the market.”

According to FT, “The 14 analysts offering 12-month price targets for Dangote Cement Plc have a median target of N176.90, with a high estimate of N248.97 and a low estimate of N140.00. The median estimate represents a 1.03% increase from the last price of N175.10.”

Given the momentum of the stock since November, achieving the median target of N176.90 can only be a few weeks away, all things being equal.

Year-on-year, Dangote Cement Plc grew revenues 25.56% from N391.64 billion to N491.73 billion while net income improved 15.20% from N160.58 billion to N184.99 billion.

The company remains confident of its performance this financial year, telling media that it expects the effect of its price cuts last September would boost demand while it keeps an eye on government infrastructure drive.

The 70 percent volume rise in the three months through March is indicative that the optimism is not farfetched.

“We are confident that as we progress through 2016 we will be able to improve over last year on volume, earnings before interest, taxes, depreciation and amortisation and all the way through to earnings per share,” the company said.

Dangote Cement’s sales capacity remained stagnant in the last financial year and revenue inched 1.3 percent to N391.6 billion from N386.6 billion. Earnings before interest taxes and depreciation (EBITDA) shrank to N223.4 billion from N229.6 billion, a 2.7 percent decline.

Pre-tax profits took a 3.2 percent dive into negative territory, falling to N184.7 billion from N190.8 billion.

Profit in the period “was affected by manufacturing and operating costs that rose significantly” due to gas shortages, Philip Anagbe, an analyst at Lagos-based Asset & Resource Management Co, told the media. “It is an area the company has to work on.”