48 BUSINESS DAY
Monday 21 October 2019
MARKETS INTELLIGENCE
Why this is time to buy Dangote cement BALA AUGIE
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lobal economic uncertainties have made safe heaven assets less attractive while the United States (US)- China trade spate and Germany’s are causing more gyrations in the stock market. This means the best bet of an investor is a company that pays bumper dividend, and Dangote Cement Plc, the largest producer in Africa’s largest economy, is about to reward its owners generously from distributable profit. A pioneer extension is expected to boost the cement makers’ profit, and its ability to deliver solid dividend yield for investors. The Nigerian Investment Promotion Council (NIPC) in its third quarter (Q3-2019) Pioneer Status Incentive (PSI) Report has approved Dangote Cement’s (Dangcem) application for a two-year PSI extension. Following the approval, Dangcem will enjoy tax holiday on its N116.09 billion Ibese Lines 3&4 and N69.54bn Obajana Line 4 until February 2020. According to management, the tax credit was as a result of N133.70
billion complete reversal on tax provisioned on profits earned from Ibese lines 3 & 4 and Obajana line 4 on the basis that they were yet to obtain approval for tax exemptions under the PSI scheme. A tax credit of N89.03 billion propelled the company’s full year 2018 profit to N390.332 billion, and the growth momentum is expected
to continue in 2019. Pioneer status is a tax relief given to a company that sets up a plant in an economically disadvantaged area, but it has a deadline (between 5 and 7), during which it lapses. Dangote Cement is a dividend aristocrat as it has been consistently increasing dividend in the last five
years. It paid a dividend of N272.06 billion in 2018, this compares with N178.92 billion, N144.92 billion, N136.40 billion, and N102.30 billion declared in 2017, 2016, 2015, and 2014. The company has an aggressive dividend policy, paying out close to seventy percent out of distributable profit to owners in 2018, 87.60
percent in 2017; 77.65 percent in 2016; 75.22 percent in 2015, and 64.13 percent in 2014. The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. The firm has maintained a steady cash flow since 2014, giving it the impetus to fund future expansion plans, settle its obligations and pay dividend. Cash flow from operating activities was N215.89 billion in 2014, this compares to N375.38 billion figure of 2018. Analysts at Chapel Hill have placed a Buy ratings on the shares of Dangote Cement, and the company’s stocks are attractive as price to earnings ratio stood at 6.75 times. The firm said it was looking to expand cement capacity on the continent by 29 percent to 62 million tons, consolidating its share of the Nigerian market. It plans to add six million tons in Nigeria next year, taking volume in Dangote Cement Plc’s home market to 35 million tons. Cement makers in Africa’s largest economy are poised to take advantage of Federal Government record proposed capital expenditure to spur growth and strengthen profit. President Muhammadu Buhari had directed the Ministry of Finance, Budget and National Planning to release N600 billion for Capital Expenditure in the next three months. The President gave the directive in his nationwide broadcast to mark the Nigeria’s 59th Independence Anniversary in Abuja. The president said Federal Government had so far released N1.74 trillion for execution of various capital projects in the 2018 fiscal year.
GTBank is on track to outperform full year guidance
Investors balk at green bond from group specialising in oil tankers
...earned N170.7b in Q3
Billy Nauman, New York
IFEANYI JOHN
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igeria’s most efficient bank, GTBank appears to be on track to surpass its 2019 Profit Before Tax (PBT) guidance of N220 billion after posting its 9 months performance of 170.7 billion PBT last week, achieving up to 77.6 percent performance which translates to an annualized performance of N227.6 billion. Based on the bank guidance, the expected Q3 performance from its N220b full year target is to be N165bn, below its actual performance of N170.7bn. The annualized PBT of N227.6 shows that the bank is expected to beat its profit guidance by around 3.5 percent. The PBT guidance which was announced earlier in the year in its 2018 full year investor presentation
showed that the bank expected to grow its PBT by around N4.6 billion from N215.6 billion in 2018 to N220 billion in 2019. However, our calculations show that going by its current trend, the bank could grow its PBT by as much as N12 billion or 5.6 percent from its 2019 PBT performance. Despite the impressive performance by the bank so far this year, it has not been spared by the massive selloffs in the stock market as the share price of GTBank has declined by around 23 percent year to date. The stock traded around N34.50 at the beginning of the year and closed Friday around N26.65, posting a loss of around N7.85 per share despite growing its PBT by an additional N6.5 billion during the first 9 months of the year. “I think the performance by GTBank is truly commendable www.businessday.ng
although it is below our expected earnings as our guidance for 2019 was higher than that provided by the bank. Considering the bank’s retention rate of about 55% and its return on equity of around 31%, we actually expected the bank to achieve profit growth north of 15%,” said Obinna Uzoma, Chief Economist at EUA Intelligence. “Despite significant headwinds in the country and regulatory changes, the bank was still able to muscle through all obstacles and grow its profitability. I don’t think this sort of performance is surprising for the company as they have showed over the years what they can achieve. I believe they are among a small group of 4 elite companies with annual earnings before tax above N200billion which is quite a remarkable feat,” Uzoma added.
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eekay Shuttle Tankers’ attempt to float a green bond has partially run aground as investors balk at the notion that a company specialising in oil tankers can qualify for eco-friendly financing. The Bermuda-headquartered company, which owns one of the world’s largest fleets of ships that transport oil from offshore drilling sites, issued its green bond earlier this month. It was seeking between $150m and $200m to finance the construction of four new fuel-efficient tankers but fell short, raising just $125m. The cool reception comes despite the fact that the bond qualifies for a tax incentive from the Norwegian government. The bond was brought to market by Danske Bank, Nordea, SEB and DNB Markets and pays a significantly higher coupon than the market average for high-yield debt. @Businessdayng
Teekay’s struggle to raise capital is a rarity in the green bond market, which has been especially hot this year. Global issuance has been on a record-setting pace and many of the securities coming to market have been oversubscribed by investors. The fundraising shortfall was largely attributable to investors being “skittish” over the notion that Teekay could be considered green, said Maria Christina Dikeos, head of global loans contributions at Refinitiv. “Looking at this, [investors] were like ‘Hold on, we are actually funding tankers which will fundamentally enable a company to transport fossil fuels’,” she said. Teekay’s sale highlights an ongoing struggle to define terms in the world of sustainable finance. The London Stock Exchange announced last week that it was tightening its standards on green bonds and the EU is working to publish an official taxonomy to help define different types of sustainable assets, but there is currently no established set of rules.