GCR gives Dangote cement AA+ ratings

Sequel to the completion of the first tranche of its share buy-back program, the Global Credit Ratings (GCR) rating agency has affirmed the long-term issuer rating of AA+(NG) to Dangote Cement plc.

GCR has affirmed the AA+ (NG) national scale long-term Issue rating for Dangote Cement Plc’s existing Senior Unsecured Bond Issues. The outlook on the ratings is stable.

The affirmation is based on the company’s continuous dominance in the Nigerian market and its expanding presence in other African markets, which contributes to a robust financial profile, according to the rating note.

Why the AA+ rating

However, GCR noted that the ratings of the cement company are affected by the comparatively weaker credit profile of its parent company, Dangote Industries Limited.

According to the GCR rating- an affiliate of Moody Investor Service, the primary factor influencing the ratings of the cement company is its competitive position assessment.

This is attributed to the company’s substantial production capacity, which extends across ten countries in Africa.

Dangote Cement plc is a subsidiary of Dangote Industries Nigeria’s largest cement producer with an installed capacity of 32.22 MTa. In Africa, the company produces around 52MTa of cement yearly making it the largest producer on the continent.

The GCR notes that although Dangote Cement plc has made substantial entry into other markets in Africa, the bulk of its returns come from Nigeria.

It said, “We note that several markets where the DCP operate are inherently riskier and yield relatively low margins than Nigeria. Nevertheless, the company’s strategic focus on promoting self-sufficiency in cement production within West and Central Africa could yield better competitive advantages across Africa over the medium-to-long term”.

Financial environment of the Dangote cement

According to the rating note, Dangote Cement experienced slight pressure on its earnings during the review period.

This was primarily attributed to lower volumes caused by gas supply disruptions in Nigeria, as well as supply chain issues and plant downtimes in its Pan-African operations.

However, despite these challenges, the company’s revenues saw a notable increase of 17% to N1.62 trillion or USD 2.1 billion in the financial year that ended on 31st December 2022. This growth was largely driven by price increases.

The rating notes further confirmed that the cement company implemented price hikes in response to inflationary pressures and currency devaluation observed across its markets.

While this strategy contributed to revenue growth, it also resulted in a decrease in volumes.