Power rationing cuts TCCL quarterly revenue

Tanga Cement (TCCL) reported a slight slowdown in revenue for the quarter ending 30th September 2022, but better than analysts’ expectations. Last week, the cement manufacturer reported a trivial 1% drop in quarterly income despite production disruption due to power outages since the beginning of July 2022.

By this time, Tanga Cement reported a decline in production as intense as 83% for cement and 78% for clinker. The company blamed the slowdown on a drop in power supply to 15MW from the usual full capacity requirement of 26MW.

Against the odds, the firm raked in TZS 56.96bln for Q3-22 compared to TZS 58.23bln for Q2- 22, and higher than TZS 38.7bln for Q1-22.

At 19.86%, the gross margin is slightly higher, by 57bps, than the previous quarter, as a result of improved efficiency.

The gross margin is way low from Q1-22 which stood at 26.72%, mainly due to the increased cost of inputs from the rise of fuel prices. On the other hand, the operating margin for quarter three was the highest for the year 2022, standing at 2.08% compared to 1.66% and 0.5% for Q2-22 and Q1-22 respectively.

Despite realising operating profits for the periods, the firm still made net losses due to provisions of interest expenses, while the loan is on a standstill negotiated last year, to make way for acquisition negotiations.

This is also seen in the financing activities segment of the cash flow statement where long-term debt payment is non-existent and interest payments only refer to overdrafts and leases.

The same is seen on the balance sheet where the current portion of the loan is non-existent, and the long-term portion is accumulating.

This indicates that the standstill shall still be valid next year.

Tanga Cement made a net loss of TZS 22/- per share compared to TZS 31/- for the previous quarter, but higher than the quarter before last which saw a net loss of TZS 12/- per share. The lower loss per share for Q1-22 and Q3-22 was partly because of foreign exchange gains in both periods compared to Q2- 22.

Similar to the last period, the board did not propose a dividend payment and remains prudent with cash resources. The price of Tanga Cement (DSE: TCCL) is 7.3% up year to date as a result of the speculative rally that began late last year following the announcement of the acquisition deal.

The price has since then already dropped by more than 30% from its year’s highest point, and 9.23% down since the end of September, especially after the pushback of the acquisition deal from the Fair Competition Tribunal.

The deal still hangs on a thread following the latest ruling of the FCT, as the company is still exploring options. In the first nine months of the year 2022, TCCL accounted for 1.78% of the total equity turnover realized on the Dar es Salaam Stock Exchange, equivalent to TZS 2.05bln.

About 73% of the TCCL turnover was realized during Q2-22, specifically in April which accounted for 55% of the turnover, as he counter experienced the highest rally during the quarter.

The lowest month was September as investors factored in more information about the possibilities of the deal and its pricing of it. Apart from Tanga Cement, the market recorded an equity turnover of TZS 1.14bln during the week that ended on the 02nd of December 2022.

The turnover is slightly higher by 3.7% compared to the previous week. The top mover for the week was CRDB which accounted for 58% of the total equity turnover for the week, followed by TBL and NMB which accounted for 21% and 14% respectively.

Collectively, the three counters account for 93% of the total weekly turnover. Another minimal mover for the week was TCCIA Investment Company Ltd which accounted for 2.2% of the total equity turnover.

The price of TICL dropped by 5.56% during the week, making the counter the top loser for the week.

The counter has already seen its price slashed by 21% since the end of October and by 51% since the beginning of the year. The price drop is attributed to the increased appetite of investors on the counter, but at lower prices.

As a result, the price is moving away from the company’s net asset value towards a fairer price by consideration of free cash flow and dividends.

Another losing counter was Swissport which saw a 4% for the week and a 13.25% decline since the end of October. The price of Swissport is still 44% up since the beginning of the year following investors’ excitement about the company’s recovery after the pandemic.

Prices of NMB and TPCC went up by 4.3% and 2.78% respectively during the week. Similar to the last few weeks, foreign participation has been waning from the market, picked up by domestic investors, providing a cushion for prices.

Foreign investment during the week accounted for 13.2% of the total investment while foreign divestments accounted for 21.15%, leading to a net foreign outflow of TZS 90.2mln.

Despite foreign selling pressure, both indices gained some points during the week, with the Tanzania Share Index (TSI) gaining 13.89 points while the All Share Index (DSEI) gained 3.08 points.

Treasury bonds turnover rose by 121% to TZS 51.3bln on the bonds secondary market while the transaction turnover to face value turnover ratio dropped from 1.17x to 1.06x indicating dropping prices.

The observation goes in tandem with the latest 20 years Treasury bond auction where the central bank accepted every bid, with yields as high as 13%, and the weighted average yield to maturity gaining 12bps to 12.23%.