Moody’s Investors Service has assigned a first-time Ba3 corporate family rating (CFR), Ba3-PD probability of default rating and Aaa.ng national scale rating (NSR) to Dangote Cement Plc. (DCP), a Nigeria-based cement producer. The outlook on the ratings is stable.
DCP’s Ba3 CFR and Ba3-PD probability of default ratings reflect strong financial profile, which factors high operating margins trending above 50 percent; low leverage as measured by debt/EBITDA trending below 1.0x over the next 18 months; and high interest coverage as measured by EBIT/interest expense trending above 8x over the next 18 months.
The ratings also factor in conservative funding policies with debt funding matched to the currency of cash flow generation and prudent financial policies, as well as the diversification of the company’s revenue streams as new cement production plants are commissioned in Africa with Pan-African volumes expected to reach 40 percent of total sales volumes by 2020.
“DCP’s Ba3 corporate family rating, one-notch above the Government of Nigeria’s rating, reflects the company’s strong standalone credit profile and track record of demonstrated financial support from a larger and more diversified parent, Dangote Industries Limited,” says Douglas Rowlings, Vice President and lead analyst for Dangote Cement Plc at Moody’s.
The company’s ratings are further predicated upon a continuing growing cement market share of 65 percent in Nigeria as Africa’s most populous country and its largest economy where GDP is expected to reset to growth levels of around 2.5 percent in 2017.
This is despite the ensuing low oil price environment, protected domestic production in the various African markets in which it operates, given on-going restrictions on imports, and competitive advantage brought about by an intention to always be the lowest cost cement producer in the markets where it operates, with a differentiated offering in Nigeria through access to low cost coal as an energy resource and a comprehensive fleet network.
Under Moody’s forecasts, DCP’s liquidity profile is sufficient to meet the company’s cash needs over the next 12 months. Moody’s estimates that funds from operations generation of NGN493 billion ($1.5 billion) for the next 12 months and an unrestricted cash balance of NGN136 billion ($419 million) as of 31 March 2017 are sufficient to cover maintenance capex of NGN11 billion ($34 million), planned expansion capex of NGN235 billion ($724 million) and dividends of NGN145 billion ($447 million). Uncommitted expansion capex will require external funding.
Headquartered in Lagos, Nigeria, Dangote Cement Plc is Africa’s largest cement producer. The company operates three fully integrated cement plants with combined capacity of 29.25 Mtpa and more than 65 percent share of the market in Nigeria, Africa’s largest economy and population. DCP has expanded its production base over the past three years with new plants in several African countries adding capacity of 16 Mtpa, bringing total production capacity to almost 46Mtpa. This will increase further to 49 Mtpa by the end of 2019.
For the last twelve month ended 31 March 2016, DCP reported revenues of NGN683 billion ($2.5 billion) and an EBITDA of NGN291 billion ($1.1 billion), as adjusted by Moody’s.
DCP has the largest market capitalisation on the Nigerian Stock Exchange at NGN 3.4 trillion ($10.6 billion as at 4 July 2017) and is owned by Dangote Industries Limited (DIL).