Goldman Sachs Calls for Rate Hike and FX Backlog Resolution for Nigeria’s Unification Success

In the wake of the successful completion of the first phase of its share buy-back program, Global Credit Ratings (GCR), the well-regarded rating agency, has re-affirmed Dangote Cement plc’s long-term issuer rating at AA+(NG).

This noteworthy rating decision reflects GCR’s unwavering confidence in the company’s enduring prominence within the Nigerian market and its ongoing expansion into various African markets. These factors collectively contribute to Dangote Cement’s resilient financial profile, as elaborated in their recent rating note.

The AA+ (NG) national scale long-term Issue rating for Dangote Cement Plc’s existing Senior Unsecured Bond Issues has also received a renewed affirmation from GCR. Importantly, the outlook for these ratings remains stable, indicating a sense of continuity and predictability in the company’s financial health.

GCR’s continued endorsement of Dangote Cement’s creditworthiness is grounded in the company’s steadfast position as a market leader in Nigeria and its expanding presence across the African continent. This substantial market presence has significantly bolstered the company’s financial standing. The rating agency acknowledges the pivotal role of Dangote Cement in the cement manufacturing industry, and this is reflected in its impressive AA+ (NG) rating.

However, it is imperative to underscore that this favorable rating is not without its nuances. GCR has noted that Dangote Cement’s ratings are somewhat impacted by the comparatively weaker credit profile of its parent company, Dangote Industries Limited. This dynamic reflects the interplay between subsidiary and parent companies and how the financial health of one can influence the other.

In the realm of credit assessments, Dangote Cement’s competitive position assessment takes center stage. The company’s strength lies in its substantial production capacity, which spans across ten different African nations. This vast geographical reach affords the company a broad footprint within the African cement industry.

Dangote Cement, a subsidiary of Dangote Industries, holds a prominent position as Nigeria’s largest cement producer, boasting an impressive installed capacity of 32.22 million metric tonnes annually. Furthermore, on a continental scale, the company annually produces approximately 52 million metric tonnes of cement, thereby securing its status as the largest producer in Africa.

GCR, in its evaluation, acknowledges that despite Dangote Cement’s foray into other African markets, the lion’s share of its returns continues to be derived from Nigeria. This highlights the significance of the Nigerian market for the company’s financial health. It is important to note that while the company’s expansion into other markets may entail certain inherent risks and relatively lower margins compared to the Nigerian market, Dangote Cement remains committed to its strategic objective of fostering self-sufficiency in cement production within West and Central Africa. This strategic focus is expected to yield enhanced competitive advantages across the African continent in the medium-to-long term.

Shifting the lens toward the financial environment in which Dangote Cement operates, the rating note provides insights into the company’s financial performance during the review period. It is disclosed that Dangote Cement experienced some level of earnings pressure. This pressure was primarily attributed to a variety of factors, including disruptions in gas supply within Nigeria, as well as supply chain issues and occasional plant downtimes affecting its Pan-African operations.

Despite these challenges, the company’s revenues exhibited a noteworthy increase of 17%, surging to a staggering N1.62 trillion (equivalent to approximately USD 2.1 billion) for the financial year that concluded on December 31, 2022. This remarkable growth in revenue can be primarily attributed to strategic price increases.

The rating note underlines that Dangote Cement implemented these price hikes in response to inflationary pressures and currency devaluation observed across its various markets. While this strategic move did lead to notable revenue growth, it also coincided with a decrease in volumes.

In conclusion, the affirmation of Dangote Cement’s long-term issuer rating at AA+(NG) by Global Credit Ratings reflects the company’s dominant position in the Nigerian cement market and its expanding presence across Africa. While the company faced challenges such as supply disruptions and supply chain issues, its strategic response to inflation and currency devaluation through price increases bolstered its revenue. It is evident that Dangote Cement remains a formidable player in the African cement industry, with a vision to strengthen self-sufficiency in cement production across the West and Central African region, ensuring a competitive edge in the long run.