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Dangote’s Brand Top Equity Analysts’ Best Buy for 2021

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Aliko Dangote, Chairman, Dangote Group

Following a good start to the year, Dangote brand is doing well among big names listed on the floor of the Nigerian Exchange with strong buy ratings from a slew of equity analysts.

Both the Cement and Sugar companies bolstered earnings performance in the first quarter of 2021, raced ahead performance projections as a number of equity analysts said in the separates reports.

Specifically, Dangote Cement has been enjoying buying recommendations as consensus analysts’ opinions on the ticker remain positive following a stronger-than-expected earnings debut in the first quarter of 2021.

In the cement industry, Dangote currently accounts for more than 60% of the market share, according to equity analysts’ reports reviewed by MarketForces Africa Research team.

The company’s sky-high growth trajectory could rekindle its share buyback programme, as equity analysts believe that the stock market has not been rewarding best performers.

Meanwhile, BUA is taking over from Lafarge Africa due to increase capacity development but both still come farther behind Dangote Cement in terms of volume and revenues.

The brand appears loud enough to sell itself competitively across Africa markets.

Last year, Dangote Cement revenue crossed more than N1 trillion revenue market due to massive surge in demand despite the outbreak of coronavirus and its impacts on global economy.

In the same vein, Dangote Sugar has also continued to buck economic uncertainties in Nigeria with stronger earnings outing in the first three months of operation in 2021.

The sugar company performance scorecard swoops analysts’ optimism about the outlook despite the threat of new entrant into the industry.

Basically, what appears common among Dangote brands is the industry’s leadership, cost management, effectiveness, and efficiency.

Based on MarketForces Africa Research channels check, of a fact the brand sells itself in the market when quality is preferred to pricing

Also, these products are competition strongly in terms of pricing. For example, Anthony Chiejina, the Group Head of corporate communication told MarketForces that Dangote Cement has not raised price of its cement since 2019.

However, against the factory price, many distributors that understand demand pattern see an opportunity to make extra bucks by charging higher.

Of course, people still prefer the cement brand, as some real estate developers told MarketForces Africa Research that it dries faster than its competitors.

Dangote Sugar: Vetiva Capital set price target at N23.41
Vetiva Capital Analysts set target price on Dangote Sugar at N23.41 per share after its first quarter earnings debut. According to data from the National Sugar Development Council (NSDC), sugar prices averaged ₦19,108 per 50kg bag, representing a 32% year on year surge.

This was evident in Dangote Sugar Refinery’s Q1-2021 financial statements, where it showed a 41% year on year jump in revenue to ₦67.4 billion, outperforming Vetiva’s estimate of ₦52.7 billion.

Suppressed importation boosts sugar volumes

Whilst the increase in sugar prices was partly responsible, analysts express view that topline growth was also driven by a boost to sales volume.

Thus, after accounting for the effect of the change in prices on DANGSUGAR’s topline performance, Vetiva Capital analysts said they realized that the sugar giant’s volumes increased by about 8% year on year in the quarter.

“We believe that this was driven by the tightened pool of supply, given that refined sugar importation is severely limited”, analysts said.

It was also noted that despite Nigeria being open to intercontinental trade under the AfCFTA, the National Sugar Master Plan (NSMP) has ensured that sugar remains protected under the trade exemption list.

“That said, although there is still the possibility of leakages from the borders, we believe that the challenges around FX liquidity have significantly suppressed this”.

Though the pool of players is shallow, the competitive situation among local producers remains tense reflecting in price choices.

“Thus, we see limited scope for price increases in the market. That said, we consider the possibility of a ban on FX for raw sugar imports as implied by the CBN.

“If this happens, we believe that sugar manufacturers would raise prices to support margin at this level”, analysts explained.

On the volume front, Vetiva Capital projected that volume growth will be supported at its current level given the import duty on refined sugar, FX challenges involved in importing refined sugar, and the restriction on importation of sugar via the land borders.

Thus, combining these drivers, we cautiously estimate that DANGSUGAR’s Revenue will grow 29% in FY’21 to ₦277.1 billion.

In the first quarter of 2021, Dangote Cement Plc (DANGCEM) delivered strong double-digit year on year growth of 47.8% and 48.1% in pretax and after tax profit to N130.1 billion and N89.7 billion respectfully.

According to analysts, the solid performance stemmed largely from improved volumes and margins as well as better cost management during the quarter.

Taking a closer look at the results, analysts at ARM Securities said they saw group revenue increase by 33.5% year on year to N332.7 billion.

This was supported by higher average realized prices, due to lower discount and increased volumes in both its Nigerian and Pan African markets.

In the period, average realised price jumped 12.4% to N44,230/tonne while the company reported 18.7% year on year increase in volume to 7.5Mt.

“The continued recovery from the COVID-19 pandemic was quite supportive of the demand for cement with DANGCEM recording volume growth in 8 out of its 9 Pan African subsidiaries”, analysts at ARM Securities said.

Furthermore, the investment firm noted that the recently revamping of its Obajana line 5 also helped garnered more volumes following strong cement demand in the Nigerian market, which began since Q3-2020.

DANGCEM registered a 22.7% increase in cost of sales during the quarter, with the pressure mostly felt on the raw material (+59.2%) and energy (21.4%) cost lines.

“This may have been driven by the weakness in the Naira and inflationary pressures”, analysts said.

Cumulatively, gross profit and margin expanded by 41.3% and 339 basis points year on year to N204.7 billion and 61.5% respectively.

“On a balance of factors, for the rest of the year, we remain broadly positive on DANGCEM and expect the company to sustain earnings growth, albeit, at a slower pace in H2-2021 due to the high base of H2-2020.

“Like 2020, we expect top line to remain volume driven in 2021. We have a fair value estimate of N257.92 from previous estimate of N255.75 on the stock, which implies an OVERWEIGHT rating based on current market price of N217.00”, ARM Securities analysts added.

Source: Market forces Africa

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