Investors harvest 140% return from Dangote Cement

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by Godfrey Obioma

Investors who took positions in Dangote Cement’s stock in 2020 and exited June 31, 2023 harvested 140.26 per cent returns through capital appreciation and 11.11 per cent in H1- 23. This excludes dividend payment which has remained consistently impressive.

In response to the economic headwinds which erode working capital, many companies are ploughing back a larger portion of their profit, resulting in a slide in dividends to shareholders. But Dangote Cement maintained its dividend payment history. In 2022, it paid a N20.00 dividend per share, a gesture that has provoked renewed bids for the stock. And Kasimu Garba Kurfi, chief executive officer of APT Securities and Funds Limited attributes this to the previous government’s infrastructure development.

The growth in returns on capital invested is supported by the huge interest in the company’s solid earnings. In 2022, Dangote Cement grew revenue by 17.39 per cent to N1.62 trillion from N1.38 trillion in 2021. Profit after tax rose 4.94 per cent to N0.382 trillion from N0.364 trillion. During the same period, the company reported a rise in assets from N2.39 trillion in 2021 to N2.61 trillion.

This is in spite of the crippling cost pressures on companies’ toplines, leading to a slide in the bottom line. For Dangote Cement, the company had to contend with an increase in production cost which rose to N0.662 trillion from N0.551 trillion in 2021. Selling and distribution expenses increased to N0.295 trillion from N0.191 trillion.

In Q1- 23, the production cost of sales rose to N163.67 billion from N154.10 billion in Q1-22. Selling and distribution expenses increased to N68.71 billion from N60.68 billion in Q1-22.

The rise in cost is driven largely by the depreciation of the Naira against foreign currencies and the resultant increase in the cost of importing inputs.

Further escalating cost is the amount spent on diesel, distribution and taxation expenses. To contain costs inspired by raw material importation, grow margin and return to investors, the company sources large quantities of its limestone locally.

Asset managers said the stock has the potential to deliver stronger returns that beat inflation and the local market going by Dangote Cement’s Q1- 23 profit after tax of N109.50 billion, up from N105.85 billion in Q1-22.

Revenue growth is on the back of the previous government’s infrastructure and private sector investment in real estate assets and pledged by the current President’s campaign promise to toe the same path. The pledge to continue with investment in capital projects is expected to boost cement sales.

Dangote Cement’s strong capital base and cash flows offer the company opportunity to take up bigger ticket transactions and weather unexpected storms with its N2.61 trillion asset, N287.00 billion cash flow from operating activities and N283 billion cash and cash equivalent, at the end of the 2022 financial year. In Q1-2023, the company reported net cashflow of N115.70 billion and N2.69 trillion assets.