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CCNN: Bigger, more profitable
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CCNN: Bigger, more profitable


[Image: Cement-Company-of-Northern-Nigeria-640x375.jpg]





Cement Company of Northern Nigeria (CCNN) Plc triples its top-line and bottom-line as the gains of recent strategic initiatives and business combination strengthen the outlook of the company. In this report, Capital Market Editor, Taofik Salako, looks at the underlying performance and outlook for the cement producer

Cement Company of Northern Nigeria (CCNN) Plc is one of the highpoints of this earnings season. With three-digit growth in all key performance indices, CCNN recorded well-rounded performance in the first half of 2019. The six-month report for the period ended June 30, 2019 showed that total turnover rose by 166.14 per cent to N32.15 billion in first half 2019 as against N12.08 billion in comparable period of 2018. Gross profit grew by 163.07 per cent from N5.47 billion to N14.39 billion. Profit before tax jumped by 165.3 per cent from N3.66 billion to N9.71 billion. After taxes, net profit leapt by 180 per cent from N2.60 billion in first half 2018 to N7.28 billion in first half 2019. Underlying performance ratios showed a generally stable outlook. Gross profit margin stood at 44.76 per cent. Pre-tax profit margin was steadied at 30.21 per cent while net profit margin improved to 22.64 per cent.

The balance sheet also showed a stronger and better-positioned company with reduced leverage and increased working capital. Total assets rose to N356.75 billion in June 2019 compared with N347.75 billion recorded for the year ended December 31, 2018. Total equity increased from N333.49 billion in December 2018 to N340.77 billion in June 2019. Current assets had risen from N17.28 billion to N23.13 billion while non-current assets had increased from N330.46 billion to N333.6 billion.
The first half 2019 performance places CCNN in good stead to sustain its impressive year-on-year growth and cement its leading position as the fastest growing  cement company. The company had increased total dividend payout for the 2018 business year by 235 per cent to N5.26 billion after turnover and net profit jumped by 62 per cent and 77 per cent respectively. In the audited report and accounts for the year ended December 31, 2018, CCNN’s turnover rose to N31.7 billion in 2018 as against N19.58 billion in 2017. The top-line growth was due largely to increased domestic sales and exports.  CCNN produced 0.76 million metric tonnes of cement and sold over 0.74 million metric tonnes, an increase of about 59 per cent. Sale of cement in Nigeria rose by 49 per cent to N28.9 billion while exports jumped from N0.2 billion in 2017 to N2.9 billion in 2018. Earnings before interest and taxes rose by 86 per cent to N7.9 billion profit before tax increased by 81 per cent to N7.6 billion. Profit after tax rose to N5.86 billion in 2018 as against N2.91 billion in 2017.

New Growth Momentum

CCNN had in December 2018 strengthened its competitiveness and laid out new strategic growth plan with the business combination with Kalambaina Cement Company, a larger and newer Sokoto-based cement company. With CCNN’s pre-merger 500,000 metric tonnes per annum capacity and Kalambaina Cement Company-‘s 1.5 million metric tonnes per annum capacity, the emergent CCNN boasts of 2.0 million metric tonnes capacity, strengthening CCNN’s dominance as North-West Nigeria’s largest cement company and giving the company the volume for aggressive expansion in Nigeria and beyond. Kalambaina Cement plant uses primary fuels such as coal, heavy oils and AGO and it is expected to help solve the power problem with limited downtime and further opportunities for growth and expansion. These competitive advantages are visible in the emerging results. CCNN and Kalambaina Cement Company had related core investor. Damnaz Cement Company Limited held 50.7 per cent majority equity stake in CCNN. Alhaji Abdul Samad Rabiu, who chairs the board of CCNN, held the majority equity stake in Damnaz while his company-BUA International Limited held the 100% stake in Kalambaina. The business combination not only made CCNN a stronger competition in the cement market, it pivoted its ranking at the Nigerian stock market, scaling up to become Nigeria’s 12th largest quoted company.
Most analysts believe the business combination would further boost efficiency, productivity, output and better returns for CCNN.

“The opportunities within CCNN’s key markets and its export potential are almost endless. Situated just about 100km from Niger Republic and as the nearest cement plant to key markets in Northern Nigeria, the enlarged CCNN is now poised to compete effectively and serve those markets better at a lower cost with more energy efficiency through our use of coal,” Rabiu said. Rabiu also hinted of plan to increase the company’s production capacity, while pointing out that the merger has led to introduction of new technology, reduction in operational costs and increase in the number of transport fleet.
“The company recorded its highest domestic exports sale during the year (2018). This was facilitated by the additional output from the enlarged entity. In 2019, we hope to have the full combined capacity of the two entities. With the new capacity, CCNN is now the dominant player in its home market of North West Africa,” Rabiu said.
The Founder and Chief Executive Officer of BUA Group said CCNN is taking advantage of its proximity to the neighbouring West African borders, which has opened a new window for the export operations and revenue generation in foreign exchange.
Managing Director, Cement Company of Northern Nigeria (CCNN) Plc, Engineer Yusuf Binji said the company will sustain its positive growth trajectory as it is now in better and more competitive position to drive growth in its home market and exports.
He said the more benefits of the 2018 business combination and ongoing strategic initiatives will become more pronounced in the period ahead as the company continues to growth with economies of scale, enhanced operations and administrative efficiencies.

Analysts’ opinions

Most analysts are positive about CCNN’s outlook. On the back of the first half 2019 performance, analysts at Cordros Securities flagged CCNN as a high-return stock with potential total return of 124 per cent over the next 12 months. Analysts noted that CCNN’s half-year earnings per share of 55 kobo is tracking well ahead of Bloomberg consensus full-year 2019 estimate of 86 kobo and Cordros’ estimate of N1.01. Analysts described CCNN’s top-line performance as impressive.
According to analysts, CCNN is an attractive buy and its three-digit operational growth could translate into similar three-digit returns. Analysts pointed out that CCNN is trading at significantly below its peers in the Middle East and Africa, making it a more attractive stock.
In its review of the Nigerian cement industry outlook, Cordros noted that irrespective of the constraints in the overall economy, there are still strong triggers for cement producers in Nigeria, especially in the light of government’s aggressive infrastructure development and growing private sector demand.
According to analysts, although there could be competition for cement demand growth from infrastructure development in Nigeria and neigbouring countries, CCNN tops scale of preference because of its proximity to fast growing markets.
“From the perspective of users, CCNN’s new cement plant in Sokoto is the best cement plant in Nigeria, due to the high level of technological configurations which makes end products cure and dry faster. Beyond that, we are encouraged by the company’s potential for margin expansion over the next few years – which should drive earnings per share growth – as the company is able to optimise energy costs, increase capacity utilisation rate, and slightly increase prices,” Cordros stated.

Analysts at Investment One Financial Services Limited also remained positive about the outlook for CCNN, citing the synergies from its recent business combination and market advantage. Analysts said the top-line growth in first half 2019 suggested the company may be recording success in its plan to expand market share to other northern regions of Nigeria, as the North-west region may not have the capacity to absorb new volumes.
According to analysts, while the third quarter may be a tepid quarter due to the rainy season, which slows construction, the company’s top-line performance may see support from potential increase in Federal Government capital expenditure spending following the appointment of executive cabinet and implementation of 2019 budget.

While noting the decline in margin due to increased costs, Investment One said CCNN has potential to deliver improved sales and profitability. “In addition, the cement producer should continue to reap benefits of its merger with Kalambaina Cement if its plans to enter new market and expand market share continues to be successful. We also draw attention to a potential drop in cost in the medium term as its new factory is designed to run on multiple energy sources (such as gas and coal); this is unlike its old factory which is run predominantly with Low Pour Fuel oil (LPFO) which is the most expensive of all energy sources. If a switch in energy sources is effectively implemented, we see potential improvements in margin performance of CCNN as we have previously seen in other players operating in the sector,” Investment One stated.
With almost a consensus on the positive outlook for CCNN, the company appears to be on the right track to further consolidate its impressive growths over the years and increase returns to shareholders.

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