|
Listen now
|
Strong capital expenditure announced by the federal government in its 2024 budget coupled with renewed focus on the affordable housing segment could lead to a sharp jump in Nigerian cement stocks.
An improvement in public and private sector demand is propitious, as sector players are struggling with elevated cost of production, but some of them are intensifying their energy mix.
The federal government has proposed a capital expenditure of N6.05 trillion for 2024 fiscal year, which is 27.10 percent higher than 2023’s N4.93 trillion.
Analysts at Cordros Securities in a recent report stated that they expect a better budget implementation rate in 2024FY, following the federal government launching of a central database for asset tracking and monitoring of project implementation.
In the private sector, analysts at Cordros Securities see the increasing demand for housing units driven by continuous urbanisation.
“For context, the National Integrated Infrastructure Master Plan (NIIMP) projected Nigeria’s infrastructure gap at $2.30 trillion, amid the rapid urbanisation rate putting more pressure on the already stretched housing infrastructure, as housing supply constraints, political risks, and government changes have prevented the country from keeping up,” said analysts at Cordros Securities.
Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc collectively posted profit after tax (PAT) of N392.19 billion in September 2023, even amid foreign exchange losses booked due to currency devaluation, according to data gathered by MoneyCentral
The average industry gross margin (based on the averages of three dominant players) reduced to 51.09 percent in September 2023 from 51.48 percent in September 2022, but Lafarge Africa bucked the trend as it recorded improvement in gross margin, thanks to prudent management strategies for cost of sales.
Of course, analysts have wagered that rising revenue on the back of government capital expenditure and investment from the private sector combined with a reduction in foreign exchange losses will help offset sticky operating costs that will result in improved margins and increased profit in 2024.
Analysts at Cordros Securities forecast sturdy earnings per share (EPS) growth for Dangote Cement (+26.3% y/y), Lafarge Africa (+19.5% y/y), and BUA Cement (+11.3% y/y) in 2024FY.
And the investment house’s top pick among Nigerian cement stocks is Lafarge Africa which it places a Buy ratings and a target price (TP) of N44.48.
“Our choice is driven by the various initiatives of management, aimed at cost reduction, enhancing the utilisation rate of installed capacity, and improving thermal substitution rate, among others,” said the analysts.
“We note that these strategies are paving the path for improving business operations and sustaining profitability,’’ said the analysts.
Dangote Cement has a year to date (YTD) gain of (+22.61 percent); Lafarge Africa, (+31.46 percent), and BUA Cement, (-0.77 percent), underperforming the NGXASI index of 43.21 percent.
These cement makers have embarked on strategies that magnify shareholders earnings.
For instance, Dangote Cement wants to boost the value of its stock and improve its financial statement as it has completed the second tranche of share repurchase.
BUA Group has signed an agreement with CIMC ENRIC, a global leader in the energy equipment industry, in partnership with Axxela, to establish a 700-ton-per-day mini LNG project in Nigeria, which should aid cement demand during the construction phase as well as improve energy efficiency of its cement plants.
Follow the MoneyCentral Nigeria channel on WhatsApp: Click here!