BUA Cement’s +27.4% y/y Revenue growth in 2023 was primarily driven by upward increases in both price and sales volumes. BUA Cement reported price increases in 2023 with average cement price rising by 18.7% to N68,293/ton from N57,511/ton, in 2022, while sales volumes closed 2023 at 6.60 million MT from 6.30 MT in 2022, indicating a 4.8% increase. Due to a significant rise in FX losses of N69.96bn, profitability declined in 2023, with Pre-tax Profit down by 44.1% to N67.64bn from N121.11bn in 2022.
With the launch of the new production lines 3 and 5 at the Obu and Sokoto plants, the company's volume capacity has increased from 11 to 17 million metric tonnes. This expansion is anticipated to drive further growth in sales volumes. However, we foresee a modest increase in 2024 due to the expected initial low-capacity utilization of the new lines. We forecast a 15.9% rise in volumes in 2024 to 7.7 million MT from the 6.6 million MT recorded in 2023.
We expect prices to increase in 2024 to reflect macroeconomic realities. We have forecasted a 13.0% increase in price to N77,171/ton in 2024, from N68,293 in 2023. Overall, we expect Revenue to increase by 28.3% y/y to N590.36bn in FY 2024 from the N460bn recorded in FY 2023. We, however, remain concerned about the company's ability to manage its increasing costs. Without a stronger focus on cost-cutting measures, we anticipate potential pressure on the company's bottom line in the medium to long term.
We maintain our SELL recommendation on the stock, and we have revised our target price downwards to N77.52/s from N80.50/s previously. Our price target implies a 46% downside potential from the last closing price of N143.2/s. We believe the stock is overvalued at current levels. We arrived at our target price using a blend of DCF and Relative valuation in the ratio of 50:50. The stock currently trades at an EV/EBITDA of 29.64x compared to the industry average of 15.85x.
