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CCNN Plc: Stock rebounds, but below expectations

By Emeka Anaeto, Business Editor

In a series of rebounds recorded by early birds in  the nine-months 2017 financial results season, stocks of Cement Company of Northern Nigeria Plc, CCNN, returned to double digit last weekend on the strength of the impressive results it announced that day.

•Abdulsamad Rabiu, Chairman CCNN Plc.

Following the bear run that pervaded the market after the second quarter earnings season, the stock suffered series of declines dropping to single digit and stagnating at N9.68. But the third quarter 2017 (Q3’17) results it announced last Friday excited investors enough to give it a 5.1 percent mark-up putting the cement player back on double digit price of N10.17.

But whether this good turn of things would be sustained this week as more positive results come into the exchange is debatable given the less than expected stock gains that have greeted the hugely impressive earnings reported by quoted companies in the last two weeks.

Moreover, CCNN have not always been the favourite of investors in the recent times going by the lack-luster responses to corporate actions and information from the company.

Obviously, a 5.1 percent gain against earnings growth rate announced by the company demonstrated this lack-luster market response to CCNN.

Impressive 9-months

CCNN’s Q3‘17 result, showed revenue growth of 86.1%   year-on-year (y/y), Earnings Before Interest Tax Depreciation Amortisation (EBITDA) growth of   553% y/y, and Profit After Tax (PAT) growth rate of 1,500% y/y.

Compared to Q2-17, strong double-digit growth was also recorded across all line items – revenue (23%), EBITDA (90%), and PAT (95%).

From the notes to the account, the company’s quarter-on-quarter (q/q) margin expansion points to significant reduction in energy cost (-17% q/q) and presumably, other production costs.

Group operating expenses (OPEX) rose by 51.3% y/y and 4.8% q/q. As a proportion of revenue, OPEX was down by 319 bases points (bps) and 241 bps respectively y/y and q/q.

In addition to lower OPEX margins, also having positive impact on earnings were the 94.5% y/y and 808% q/q increase in other income and the 32% y/y and 7% q/q decline in net finance cost.

Investment analysts’ view

Commenting on the 9-month 2017 financial profile of the company, investment analysts at Cordros Capital Limited, a Lagos based investment house,   stated: “At N3.55 billion and N2.04 billion, CCNN’s EBITDA and net profit as at 9M- 17 are only 7% and 9% short of our 12-months forecasts respectively but are 3.4% and 2.3% ahead of consensus’.

“We look for positive investor reaction to the result on likely upward revisions of both 2017 and 2018 earnings forecasts.”

They also gave further insight into the company’s performance thus: “We assume that price increase during the quarter entirely accounted for the surprised strong q/q growth in revenue. And driving our assumption are (1) the usually slack demand for cement during the Jul-Sep period of the year, (2) faster increase in revenue over COGS, and (3) the significant increase in gross margin. “Indeed, a major competitor confirmed to us that realized average cement prices were higher in the far North in Q3, compared to the rest of the country.

“Relative to 2016 however, in addition to pricing, CCNN appears to be dispatching more cement this year.

“At the current run rate, 2017FY revenue is ahead of our estimate by 12%. At 43% (+2,100 bps y/y and +900 bps q/q), the gross margin reported over the three months period was a positive surprise.

“Again, pending otherwise guidance from management, we assume that pricing was significant in achieving the margin growth.”

However, commenting on stock to watch for the week, analysts at another Lagos based investment house, Vetiva Capital stated: “ Cement Company of Northern Nigeria , CCNN Plc, released its   nine months , 9M’17 results   weekend, with   Profit After   Tax, PAT rising by 182 per cent   to  ¦ 2.0 billion , representing 68 per cent   above Vetiva estimate. The stock rose 506 bases points, bps Friday to close at  ¦ 10.17, above consensus target price of  ¦ 6.99 and has returned 103 per cent Year to Date, YtD.”

Similarly, analysts at GTI Research stated that CNNN has performed well, saying: “Revenue grew by 47.7 per cent compared to Q3, 2016 due to a hike in cement price late in 2016. This created more impact to revenue in the current result. The firm experienced a dip in its finance cost as a result of a reduction in debt profile.”

Company trajectory

The trajectory of the CCNN, a Sokoto State based federal government company, was dramatically changed when BUA Group’s cement operation saw it acquire a controlling stake in the publicly listed CCNN.

Recently, the group has been engaged in various upgrading and expansions. It has started the construction of another greenfield cement plant in Sokoto State with an annual capacity of 1.5 million tons at a cost of over $300 million which, hopefully, will be commissioned early next year.

BUA’s investment in the cement line in Sokoto is the single largest private sector led investment in the North-Western part of Nigeria.

Recently the Group commissioned one of the best cement plants anywhere in the world. It is engineered to be the most environmentally friendly cement plant in Africa with the most advanced duct emission systems. The technology has the latest filtration with capacity of less than 10 milligram per normal cubic meter.

It uses natural gas, which is a very clean energy for both its kiln as well as the power plant in addition to having a very green environment.

Supplied by the FL Smidth of Denmark, one of the best cement equipment suppliers in the world and powered by Siemens turbines, the plant has the capacity to produce about 9,000 tons of cement per day or 230,000 per month. The construction of the first line, which commenced commercial production early last year, came with a lot of challenges. BUA had to build a 31 Kilometre 16 inch gas pipeline that is capable of transporting over 100 mscf of gas, which if it was meant for power generation alone, it could transport gas that would generate over 500 mega watts of electricity.

The company also invested millions of dollars into purchasing an over 50-mega watts power plant for the facility. It has 2-kilometer horizontal water boreholes that are supplying water to the plant at a rate of about 50-cubit meter per hour.

BUA Group entered into the Nigerian Cement industry in 2008 with the acquisition of BUA Cement 1, a 2-million toner floating cement terminal that was able to process bulk cement into bags on a vessel.

The Group’s investments in the cement lines in Edo State represent the largest non-oil and gas related investment in the whole of the South-Southern region of Nigeria. With these, BUA would have invested over $2 billion dollars in the Nigerian cement industry with capacities in excess of over eight million tons per annum within the course of a decade.

 


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