By Peter Egwuatu
Cement Company ofÂ Northern Nigeria (CCNN) Plc has significantly surpassed its turnover and Profit After Tax ( PAT) forecast of N3.12 billion (Actual-N6.59 billion) and N460 million (Actual-N1.17 billion) respectively for the second quarter 2009.
The company has also declared an interim dividend of N0.80 per share. According to the company, the impressive performance can be attributed to the mostly uninterrupted functioning of its 500,000 MT plant in the period under review. In prior periods, the company had suffered from downtime caused by breakdown in the plant machinery. However, following a comprehensive overhaul in 2008, breakdowns have been reduced to minimal levels, and the only downtime recorded in the period under review were due to periodical maintenance activities carried out on the plant.
Also partly responsible for the improved performance, was the change in the companyâ€™s energy input for its power generator, from diesel to LPFO fuel. Even though the official price of LPFO has almost doubled from N25.40 to N44.70, over the last six months, it still represents a cheaper alternative to diesel, which trades well above N100 per litre.
In addition to this, diesel fuel burns faster, resulting in an increased fuel consumption rate for the power plant.
The Research unit of Vetiva Capital Management, which revealed this stating, â€œJudging by this quarterâ€™s performance, we believe that CCNN may be well on its way to securing a place amongst the sectorâ€™s leaders,
though we noted that it still remains one of the smallest Nigerian cement players.â€The companyâ€™s focus on cost reduction and increased operational efficiencies has proven a sustainable strategy for CCNN in the optimization of its shareholdersâ€™ capital. According to Vetiva, â€œWe were of the view that a plant expansion would enable it take advantage of the opportunities posed by the Supply Shortfall Challenge facing the sector. However recent announcements from the company indicate a realization that, in order to stay relevant in the sector, it has to not only play the efficiency game, but also the size game.
The company recently made public its plans to increase capacity by 0.75 Million MT to 1.25 million MT. The plans are however still in an embryonic stage with no mapped out timelines.
In its valuation analysis of the company, Vetiva said â€œour valuation model does not take into account any potential gains from the proposed expansion programme .Glancing at some of its performance metrics, one can deduce that the company is undoubtedly undervalued even when compared with its peers.
The company presently has the lowest trailing PE (6.05x) in the sector. We believe its attraction is also strongly linked to the fact that it has a significantly lower number of outstanding shares relative to its peers.â€