Economy
CCNN: Upward Revision to Estimates on Strong 9M-17 Results
We revise forecasts for CCNN following impressive 9M-17 results, and roll forward estimates and valuation to 2018. On net, we raise our TP for the stock by 28% to NGN9.52/share and upgrade rating to HOLD.
The revision to our estimates was driven by improved EBITDA and EBITDA margin (+113% and +774 bps respectively in 9M-17) on (1) higher realized sales volume and stronger selling price and (2) improved energy cost (-10% YtD and -35% q/q cost/tonne in Q3).
On net, we raise our EBITDA and net profit forecasts by 33% and 38% respectively for 2017F, and by 14% and 16% average respectively for 2018-2019F.
CCNN’s annualized 9M-17 EBITDA and net profit are 38% and 36% ahead of Bloomberg’s consensus’ 12-month estimates.
We increase sales volume and price forecasts for 2017 by 6% and 9% respectively, equating to -16% (previously -20%) and +58% (previously 44%) from 2016. The revised volume estimate follows strong growth in Q3 (we estimate +26% q/q and +13% y/y) achieved on the back of lower prices (by N50/bag compared to Q2-17, using ASHAKACEM’s prices as proxy).
Discount on cement sold by CCNN in Q3-17 alone was NGN580 million, compared to NGN332.9 million in H1-17. Following the contraction in 2017, we forecast sales volume will grow by 2% in 2018 and flattish in 2019 on estimated 85% plant utilization rate. Compared to 2017, outlook for national cement consumption is modestly optimistic. Our estimated utilization rate also considers less production disruption from better energy availability on significantly reduced demand from the bigger players and less volatile prices on stable FX.
Those said, CCNN’s lower volume growth estimate compared to the industry (+9% average), reflects the capacity constraint challenge facing the company. At 9M-17 run-rate, we estimate CCNN’s 0.5Mts/year plant capacity is already running at 83% utilization for 2017F.
Notwithstanding the expected modest recovery of consumption, the outlook for cement selling prices remains positive. The market leaders have repeatedly communicated intent to maintain stable prices, and the nature of the Nigerian cement market makes this realizable.
More positive for CCNN is that the current NGN45,997/tonne selling price (vs. NGN43,705/tonne in 9M-17), assuming unchanged next year, translates to 2% gain over our estimated 2017 average of
NGN44,920/tonne.
Compared to Q2-17, we estimate that CCNN achieved 35% decline in per tonne energy cost in Q3-17. This, in our view, was significant in the surprised 938 bps q/q gross margin expansion achieved during the period. Outlook for the price of CCNN’s type of energy is positive, on significantly reduced demand from the bigger consumers in the cement industry and positive feed-through from stronger one-year naira outlook.
Downside risk, however, is the potential increase in the unregulated LPFO price, on rising crude oil price; hence, our EBITDA margin estimates of 23% average for 2018-2019F (albeit above 5-year average of 17%), vs. 27% for 2017F (on the backdrop of the 33% margin achieved in Q3).
Media reports have recently quoted top management member of CCNN reiterating progress on expansion work (additional 1.5Mts/year to increase capacity to 2Mts/year) in Sokoto and guiding to delivery in 2018. While noting the significance of the delivery of additional volume on EBITDA formation going forward, we are still reluctant to factor the expansion into our model, given that the company’s recent financials (balance sheet and cash flow statements) are yet to capture the movement of capital to support management’s claim.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange closed flat on Wednesday, August 5, as the market witnessed weaker trading activity with only two deals executed.
In the midweek session, the volume of securities exchanged by investors dropped 99.9 per cent to 802 units from the 1.6 million units recorded on Tuesday. The value of securities further decreased by 99.6 per cent to N208,240 from the preceding session’s N47.6 million, and the number of deals significantly went down by 93.9 per cent to two deals from the 33 deals recorded a day earlier.
Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 76.9 million units transacted for N5.5 billion.
GNI Plc was also the most active stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
There were no price gainers or losers yesterday.
As a result, the market capitalisation stood unmoving at N2.739 trillion, while the NASD Security Index (NSI) remained unchanged at 4,563.96 points.
By Adedapo Adesanya
The Naira slid against the US Dollar by N2.28 or 0.17 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, August 5, to N1,363.85/$1 from N1,362.55/$1.
The local currency also declined against the Pound Sterling in the official market during the session by N5.97 to close at N1,837.38/£1 compared with Tuesday’s closing rate of N1,831.41/£1, and against the Euro, it crashed by N6.54 to quote at N1,575.25/€1 versus the preceding session’s N1,568.71/€1.
But at the black market, the Nigerian Naira traded flat against the greenback yesterday at N1,400/$1, and also remained unchanged at the GTBank FX desk at N1,373/$1.
The Central Bank of Nigeria (CBN) says rates have narrowed to below two per cent, while the country’s external reserves have risen above $52.5 billion, reflecting the impact of its ongoing monetary and foreign exchange reforms.
CBN Governor Yemi Cardoso, represented by the Acting Director of Corporate Communications and Investor Relations, Mrs Hakama Sidi-Ali, disclosed this on Tuesday during the CBN Fair in Gombe. He noted that reforms introduced since 2023 had significantly reduced the disparity between the official FX market and the parallel market.
“The Naira continues to strengthen, with the spread between official and Bureau de Change rates now below two per cent,” he said, adding that reserves at $52.5 billion were supported by sustained inflows and renewed investor confidence in the economy.
Interbank FX transactions slid as weaker market activities dropped total Dollar volume exchanged to $75.35 million, a 51.8 per cent decline from $156.23 million in turnover quoted at the previous close.
The deals at the NFEM window also fell as data from the central bank put Wednesday’s quote at 82 from 139.
In the cryptocurrency market, major were down as global risk sentiment softened as a key world equity index slipped and chipmakers fell.
The MSCI All Country World Index snapped a five-day run to fall 0.2 per cent as chipmakers retreated on both sides of the Pacific. South Korea’s Kospi, a bellwether for the AI trade, dropped 4.4 per cent.
Ripple (XRP) depleted by 1.7 per cent to $1.05, Binance Coin (BNB) decreased by 1.0 per cent to $594.87, Cardano (ADA) depreciated by 0.9 per cent to $0.1884, TRON (TRX) shrank by 0.2 per cent to $0.3261, Solana (SOL) crumbled by 0.1 per cent to $74.00, and Dogecoin (DOGE) went down by 0.1 per cent to $0.0697.
On the flip side, Ethereum (ETH) gained 2.3 per cent to trade at $1,911.41, and Bitcoin (BTC) rose by 0.8 per cent to $64,759.28, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The domestic stock exchange rebounded by 0.05 per cent on Wednesday on the back of renewed bargain-hunting by investors, though the level of activity waned.
After bleeding for a few days, the Nigerian Exchange (NGX) Limited heaved a sigh of relief yesterday, as the All-Share Index (ASI) gained 109.41 points to close at 244,912.24 points compared with the previous day’s 244,802.83 points, and the market capitalisation garnered N71 billion to settle at N158.087 trillion versus Tuesday’s N158.016 trillion.
Business Post reports that despite the rebound recorded by Customs Street at midweek, the market breadth index remained negative, as there were 20 price advancers and 29 price decliners, implying bearish investor sentiment.
Linkage Assurance appreciated by 9.94 per cent to N1.77, AVA Capital rose by 9.55 per cent to N10.90, Fortis Global Insurance advanced by 7.69 per cent to N2.80, McNichols gained 7.34 per cent to finish at N5.85, and Coronation Insurance surged by 5.51 per cent to N2.49.
Conversely, Honeywell Flour depreciated by 9.94 per cent to N16.30, PZ Cussons gave up 9.94 per cent to trade at N74.75, Zichis crashed by 9.74 per cent to N20.76, Learn Africa slipped by 9.62 per cent to N9.40, and Neimeth tumbled by 8.33 per cent to N8.25.
The busiest equity was FCMB, with a turnover of 369.2 million units valued at N4.1 billion. Chams transacted 46.7 million units worth N201.8 million, First Holdco transacted 43.5 million units for N5.7 billion, Access Holdings sold 29.8 million units worth N778.0 million, and Linkage Assurance exchanged 19.6 million units valued at N33.5 million.
At the close of transactions, market participants bought and sold 824.1 million units worth N25.5 billion in 48,114 deals, in contrast to the 1.6 billion units sold for N28.7 billion in 54,160 deals a day earlier, showing a shortfall in the trading volume, value, and number of deals by 48.49 per cent, 11.15 per cent, and 11.16 per cent, respectively.
