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BUA, Lafarge, Dangote await Government Spending to boost Construction Despite Earnings Growth 

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Nigerian Cement makers such as Dangote, Bua and Lafarge are in dire need of a boost in government capital expenditure to help invigorate construction activities after months of lockdown forced sites to shutter even as they recorded earnings growth in the first six months of 2020.

Operators in the industrial goods sector rely on the passage of the budget as billions of Naira is earmarked for the capital projects that accelerates demand for cement.  

Hitherto, analysts had wagered that the huge deficit in the infrastructure space across the continent and renewed commitment of the Federal Government of Nigeria (FGN) to invest heavily in transport/housing infrastructure would catapult the cement industry on the path of double digits growth.

However, the coronavirus pandemic and a crash in oil price changed the  narrative of the sector, as there was a 9.5 percent downward review of capital expenditure in the 2020 budget.

Cement makers may be in a more difficult third quarter as the Covid-19 crisis forced government to lockdown three key states that are construction hubs, but the gradual reopening of businesses will pave the way for workers and engineers getting back to site. 

Despite the wrought caused by macroeconomic uncertainties in the half year (H1) period, the dominant players in the industry recorded uptick in operating activities.

For instance, the cumulative net income of Dangote Cement, BUA Cement, and Lafarge Africa, increased by 16 percent to N184.29 billion in June 2020 from N158.86 billion the previous year, according to data compiled by MoneyCentral.

Lafarge Africa was a major driver of industry bottom line (profit) as its net income surged by 158.95 percent, thanks to  reduction of finance cost as the company had deleveraged its balance sheet when it sold a subsidiary two years ago.

Investment house Chapel Hill Denham Limited in a note to clients retained BUY ratings on Lafarge Africa, with a target price of N26.

The combined operating profit otherwise known as Earnings Before Interest and Taxation (EBIT) of the three largest players  followed the same growth trajectory as it grew by 4.44 percent to N270 billion, according to data compiled by MoneyCentral.

There is light at the end of the tunnel for Dangote Cement and peer rivals as the recently submitted Economic Sustainability Plan (ESP) by the Vice President led committee on economic sustainability is set to be implemented in an efficient and expeditious manner.

“Based on the ESP report, the FG plans to shift attention to the usage of locally available materials like limestone, cement, and granite for road construction in a bid to save cost from the importation of bitumen,” said analysts at analysts at United Capital Limited.

“FG also plans to construct about 300,000 homes in the next 12-months coupled with renewed commitment toward the construction and maintenance of federal highways, roads and bridges, road interventions within federal tertiary institutions across the country,” said analysts United Capital.

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