BY DAYO ADESULU
Investors who bought Dangote Cement stock in 2020 and sold it on June 30, 2023, earned 140.26 per cent in capital appreciation and 11.11 per cent in H1-23. This does not include the dividend payment, which has been consistently impressive.
As a result of the economic headwinds that erode working capital, many companies are reinvesting a larger portion of their profits, resulting in a decline in dividends paid to shareholders. Dangote Cement, on the other hand, has maintained its dividend payment history. It paid a N20.00 dividend per share in 2022, prompting renewed interest in the stock. And Kasimu Garba Kurfi, CEO of APT Securities and Funds Limited, attributes this to the previous administration’s infrastructure development.
The growing interest in the company’s solid earnings is driving up returns on capital invested. Dangote Cement increased revenue by 17.39% to N1.62 trillion in 2022, up from N1.38 trillion in 2021. Profit after tax increased by 4.94% to N0.382 trillion from N0.364 trillion. During the same time period, the company’s assets increased from N2.39 trillion in 2021 to N2.61 trillion.
This is despite crippling cost pressures on companies’ toplines, which are causing a slide in the bottom line. Dangote Cement had to deal with an increase in production costs, which increased to N0.662 trillion from N0.551 trillion in 2021. Selling and distribution costs rose from N0.191 trillion to N0.295 trillion.
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.The production cost of sales increased to N163.67 billion in Q1-23 from N154.10 billion in Q1-22. Selling and distribution expenses increased from N60.68 billion in Q1-22 to N68.71 billion.
The cost increase is primarily due to the Naira’s depreciation against foreign currencies, which raises the cost of imported inputs.
The amount spent on diesel, distribution, and taxation is also increasing. To reduce costs caused by raw material importation, increase margins, and return to investors, the company sources a large portion of its limestone locally.
According to asset managers, Dangote Cement’s Q1-23 profit after tax of N109.50 billion, up from N105.85 billion in Q1-22, has the potential to deliver higher returns that outperform inflation and the local market.
Revenue growth has been fueled by the previous administration’s infrastructure and private sector investment in real estate assets, and the current President has pledged to follow suit. The pledge to continue capital project investment is expected to boost cement sales.
With its N2.61 trillion asset, N287.00 billion cash flow from operating activities, and N283 billion cash and cash equivalent at the end of the 2022 fiscal year, Dangote Cement has the ability to take on larger ticket transactions and weather unexpected storms. The company reported net cashflow of N115.70 billion and assets of N2.69 trillion in Q1-2023.