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Thursday, 1 September 2022

How BUA Cement Lost 29% of Market Valuation in 2-Month


BUA Cement Plc.’s market valuation has declined significantly in the past months. On June 22, 2022, the cement company’s share price peaked at N71.90, according to market data screened.

However, as of Friday, the company share price sold at N51.31 despite a strong bargain hunting in the local bourse.

Largely owned and control its Chairman, Rabiu Abdulsamad and BUA Industries Limited, BUA Cement is a market move, ranking among the heavyweight on the Nigerian bourse.

Billionaire Rabiu and his BUA Industries jointly own 96.29% of the company’s outstanding shares on the Nigerian Exchange, though the management said the company meets the free float requirement for listed companies.

The cement company has N43.604 billion free float on the Nigerian bourse, and non-controlling interest was less than 4%. The cement industry’s challenger share price closed at N51.31 on Friday, about 29% lower than the 2-month high. 

BUA Cement’s numbers have come up strong but market sentiment continues to eclipse its healthy earnings performance.  In the first half of 2022, the cement company earned N1.81 on each share deployed for business, up 41.4% from N1.28/s in H1 2021.

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On Friday’s close, the company’s valuation printed at N1.761 trillion despite solid earnings fundamentals, though with a downside in FX losses due to weakening naira and rivalry with other members of cement oligarch with weight. READ: NGX Declines as Investors Sold MTNN, BUA Cement

In the first half, the company’s sales spiked by 51.7% year on year to N188.6 billion from N124.3 billion in the comparable period in 2021.  However, on quarter on quarter basis, the cement company’s revenue was down by 5.6% to N91.6 billion in Q2 2022 from N96.98 billion in Q1 2022.

In a review, analysts at CSL Stockbrokers believe the torrential rainfall seen in Q2-2022 may have limited cement demand, saying in Q1 2022, BUA Cement was the only player in the cement oligarch that deliver volume growth of 26.2%.

MarketForces Africa reported that BUA commissioned its 3 million MTPA line 4 in its Kalambaina plant in Q1 2022. 

Equities analysts noted showed that the company’s adjusted cost of sales grew in line with revenue growth to N89.7 billion from N59,6billion, up 50.5% year on year compared with revenue growth of 51.7%.

The increased costs of sales in the period was propelled by energy-related expenses.  The company’s result shows that energy costs rose 64.7% to N43.6 billion and costs of materials jumped 48.2% to N28.0 billion.

“We note that apart from the increase in volume produced that may have necessitated cost increment, the company is also facing inflationary pressures and the impact of FX depreciation on energy prices”, CSL Stockbrokers said.

However, analysts said given the robust revenue growth seen in the period, BUA Cement’s gross profit still grew 52.8% to N98.8 billion in H1 2022 with a margin strengthened 38 basis points to 52.4% in H1 2022.

Adjusted for depreciation, BUA Cement’s operating expenses jumped significantly, up 83.4% year on year to N11.5 billion in H1 2022 from N6.3 billion in H1 2021.

In an equity review, analysts said the astronomical increase was driven by both administrative expenses adjusted for depreciation and selling & distribution expenses.

Despite the cost pressures, the cement company’s earnings before interest tax depreciation and amortization (EBITDA) remained resilient, up 49.7% to N87.5 billion in H1 2022.

CSL Stockbrokers hint that the company’s EBITDA was also boosted by a 175.8% year-on-year increase in Other Income to N200 million, much of it arising from significant increased insurance claims.

Due to higher financing needs and associated costs, BUA Cement reported a steep increase in net finance costs, up  245.3% to N2.8 billion in H1 2022 from N824.0million 12-month earlier.

The steep rise in funding costs reflects a 246.1% increase in interest expense to N3.2 billion in the period, though interest Income also surged 256.0%.

The pressure was also fueled by a significant increase of 257.2% in foreign exchange loss to N1.1 billion as a result of a wide margin between auction bid rates and the Investors’ and Exporters’ foreign exchange window rates.

At the end of the first half, BUA’s pretax profit jumped 50.7% to N74.9 billion.

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