‘Dangote Cement has 20% capital gain potential’

Dangote Cement’s share price can rise further by more than 20 per cent, analysts have said.

Analysts at Coronation Asset Management said Dangote Cement’s share price could rise to N328.65 per share, some 20.2 per cent capital gain on N273.50 recorded on April 8, 2022.

In discussing the investment case for Dangote Cement, analysts noted that the group recorded double-digit revenue growth for the second consecutive year in both Nigeria and its rest of Africa (Pan-African) operations.This translated into earnings per share growth of 31.6 per cent.

According to analysts, the group performance was supported by increased demand from the housing sector and commercial construction despite volatility in the landing cost of cement and clinker, especially in its Pan-African operations.

“We believe opportunities still exist for volume growth in the forecast year 2022 due to strong demand, an evident infrastructure deficit and traction in commercial construction, especially in a pre-election year in Nigeria. We recommend Dangote Cement (Dangcem) as a BUY with a target price (TP) of N328.65 per share,” Coronation stated.
Analysts noted that infrastructure deficit and low cement consumption per capita supports growth as there continuing potential growth opportunities in the cement market of which Dangote Cement has positioned itself as a market leader accounting for about 60 per cent of the industry in Nigeria.

According to analysts, these growth opportunities for Dangote stem from rapid demand growth in the domestic market of Nigeria as well as its pan-African markets as housing infrastructure, commercial construction, and government projects including major highways, roads, and railways gain traction.

“Aggressive capacity rollout to capture demand opportunities. The company has embarked on an aggressive capacity rollout with an additional 6.0mmt plant in Okpella, Edo State, in 2021. Management has said this was necessary to capture demand opportunities in the future as they arise.

“Our revenue growth forecast for 2022 to 2025 is set at a CAGR of 13.1 per cent. We expect EBITDA to grow by a CAGR of 13.8 per cent over the forecast period from 2022 to 2025. We forecast that that the company will report earning per share growth of 11.2 per cent year on year to N23.62 in 2022 driven primarily by steady growth in both output and prices, expanding its operating margin and significantly reducing finance costs” analysts stated.

According to analysts’ estimates, Dangote Cement is trading on a 2022 estimated price-earnings ratio of 11.6x and EV/EBITDA multiple of 6.9x which is a discount to emerging market peer multiples of 13.6x and 8.7x.

“We rate the investment case highly, especially considering the company’s strong earnings growth, return on equity and Pan-African diversification benefits. A key catalyst to its share price is the potential for a Tranche III share buyback program, following the success of the first two” analysts stated.

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