Dangote cement’s Revenue in H1 was impacted by the current inflationary pressures, FX depreciation and supply chain disruptions as its group volumes declined 5.5% y/y to 13.4m MT in H1 2023. However, the combination of increases in prices and strong volume growth from its Pan African operations came to the rescue, resulting in Revenue growth of 17.7% y/y in H1 2023. Net Income was N178.6bn in H1 2023, a 3.8% y/y growth compared to H1 2022.
The company’s management noted that the Naira cash crunch and the distortion of trading days caused by the general elections affected production volumes in H1 2023. Given its sizable market capacity, we believe that Dangote cement is well positioned to meet increased demand when industry volumes pick up. We are also optimistic that production volumes in the Pan-African region will increase as the commencement of operations in the 0.4Mta grinding plant in Ghana was announced and the 1.5Mta grinding plant in Cote d’Ivoire is in its final stages.
We forecast price growth of 15%, which will be the main driver of the group’s topline performance for 2023e while we expect a marginal increase in volume growth of 5% due to the identified concerns. We have a price target of N428.36/s, with a BUY recommendation, our price target implies a 15.8% upside potential from the last closing price of N369.8/s. We arrived at our target price using a blend of DCF and Relative valuation in the ratio of 50:50.
