BUA Reports EPS Growth of 11.3% y/y in Q4 22

The management of BUA Cement Company has released its Full Year audited results in 2022 after trading hours on 24 February last week Friday. According to the report, the gross margins shrank by 385bps to 44.0% in Q4 2022, owing to heightened Cost of sales growth of 50.0% year on year.

The report showed the Cost of Sales continued to be pressured mainly by the surge in Energy Cost growth by78.1% year on year, which reflects the sustained hike in prices of alternative energy sources.

In addition, Quarry fees and royalties up by 103.8%, Water Supply up by 582.1% and Other Production Expenses up by 96.5% year on year respectively, contributed to the elevated Cost of Sales recorded. However, we are encouraged that the company managed to keep Raw Material costs soar to 9.04% year on year under control despite the worsening FX situation as it relates to imported inputs, it added.

The company reported an EPS growth of 11.3% year on year in Q4 22, translating to a FY 22 EPS growth of 12.0% year on year. While it proposed a final dividend of N2.80/s, implying a dividend yield of 2.8% based on the last closing price of N99.75 on the first day of March, 2023.

The company acknowledge of the driven to the elevated pricing environment and improved volumes, the group reported double digit bottom-line growth despite elevated production and operating costs, as well as its weighty finance expenses. As a result, the achieved EPS is 3.72% above our forecasts for Full Year in 2022.

“The market’s reaction to the results has been neutral. Year-to-date, the stock is up 1.7%.

Despite all mentioned above, the company’s revenue grew by 39.7% year on year in Q4 2022 compare with Full Year of 20 22 which stood at 40.3% year on year. The achieved revenue is in line with our Full Year 2022 forecasts up by 0.75% variance.

Adebayo Adebanjo, Analyst at Coronation Research said We note that BUA Cement delivered the most revenue growth year on year amongst its peers in Nigeria in Q4 2022. But the management Is yet to provide details on the drivers of the company’s strong revenue growth adding that analyst believe this to be driven by strong Industry-wide growth in price per tonne and recovery in sales volume growth.

Analyst recall in 9M 2022, revenue growth was a combination of volume which soared to 16.3% year on year and price up to 20.9% year on year growth respectively. For instance, Full Year 2022, we expect that the firm started to take advantage of the additional 3.0MMT Kalambaina line 4 plant commissioned in January 2022. Nevertheless, it is not unlikely that factors such as record high inflation, disruptions in gas supply and elevated variable production costs impede the pace of sales volume growth, he added.

Nevertheless, he stressed that revenue growth in absolute terms offset Cost of Sales growth as the company reported Gross Profits growth of 28.5% year on year in Q4 2022.

He said EBITDA rose by 15.7% year on year in Q4 2022, despite a 101.3% year on year jump in Operating expenses while Selling and Distribution costs more than doubled, up 129.7% year on year leaving the distribution cost component (accounting for c.70% of total Selling & Distribution costs) surged by 216.9% year on year as the sustained high cost of Automotive Gas Oil (AGO or Diesel) in Nigeria remained a major headwind. In addition, he pointed out that Advertising and sales promotion cost rose by 75.5% year on year, contributing to overall OPEX pressure (Full Year 2022 compare with 86.7% year on year).

The company, he said like the rest of the industry intesifies efforts to lower its energy bill by consuming locally-sourced Liquefied Natural Gas (LNG) to diversify its energy mix and reduce its reliance on imported Coal, Low Pour Fuel Oil (LPFO) and AGO. However, sustained disruptions in LNG supply continue to militate against this objective. This has forced the company to remain reliant on diesel and imported coal for production and distribution, he noted.

Analyst expect that as the company transitions to gas powered plants, ultimately its energy bill will be lowered in the long term. However, in the short to medium term, these costs are likely to persist as the company relies on these existing fuel sources for backup.

“While the company recorded Net finance income of N1.11bn in Q4 2022 after a Net finance cost of N36.07m In Q4 21, for Full Year 2022, the company recorded a 693.6% increase in Net finance cost to N8.61bn. This is consistent with its policy to unwind earlier capitalisation of bonds and loan interests on its Sokoto line 4 plant and other qualifying assets.

“Nevertheless, Profits Before Tax grew by 10.8% year on year in Q4 2022. Tax expense in Q4 2022 was flat by negative of 0.5% year on year, hence Net Income grew by 11.7% year on year In Q4 2022.

In conclusion, Analyst affirmed that BUA Cement’s revenue performance in Full Year 2022 was in line with our expectations soared by 0.75% variance.  Amongst its peers in the industry, we are pleased with its improved capacity utilisation to 57.3% positive which reflecting in decent volume growth while also taking advantage of the elevated pricing environment, he added.

Analyst continue that on the flip side, the elevated operating expense profile is worrisome. Like its peers, in the medium term, given the disruptions in LNG supply, we expect the company to continue to rely on diesel and coal for its production and distribution activities and this is likely to further pressure its Cost of Sales and Operating expenses, said Adebayo.

“Recall that In Q3 2022, we anticipated rising net finance costs as the company continued to unwind earlier capitalised borrowing costs as plants become operational. We expect this going forward until the capitalised borrowing costs for operational plants are exhausted, he reiterated.

March 03, 2023