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Nigeria Cement Firms Entice Investors With Solid Earnings Growth

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Nigeria cement makers who are the best performers in the manufacturing sector have enticed local and foreign investors with consistent growth in earnings amid energy challenges, currency devaluation, and price erosion.

The net profit of the three major listed producers of the building material (Dangote Cement, BUA Cement, and Lafarge Africa) in Africa’s largest economy surged by 33.73 percent to N507.18 billion in December 2021, according to data gathered by MoneyCentral.

Their combined sales were up 31.19 percent to N1.93 trillion in December 2021 from N1.47 billion the previous year.

The earnings growth also means sector players have largely surmounted the Covid-19 crisis that paralyzed construction as the government was forced to impose lockdown measures to curb the spread of the virus.

“In line with our prognosis, Q4 revenue was the highest in the year as the quarter is historically proven to be the best quarter for the cement players,’’ said analysts at Cordros Securities.

Of course, the early dry season in the last quarter of last year and the euphoria towards completing many residential homes before the yuletide season amidst the newly launched 3MT Okpella plant accelerated demand for cement.

Analysts at CSL Stockbrokers in a recent note to clients said the persistent inflationary pressure presented opportunities for the firms to demand higher prices in the third quarter of 2021 to neutralize costs.

Analysis of the fourth quarter (Q4) 2021 GDP report showed the manufacturing sector real GDP closed the year positive, rising by 3.35 percent year on year (y/y) in 2021 from a contraction of 2.75 percent y/y in 2020, according to data from the National Bureau of Statistics (NBS).

Analysts at CardinalStone Research see legroom for a 6 percent growth in cement volumes in 2022 on the back of projected overall rise in budget implementation.

“Historical precedence suggests that this rise in budget implementation may primarily be driven by higher recurrent expenditure, with CAPEX implementation likely to follow the historical path of notable moderations in pre-election year,” said analysts at Cardinal Stone

“The view on recurrent expenditure points to potential gains in the real estate sector. In addition, public private partnerships (PPPs), including the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme (RITC) and the newly launched Infrastructure Corporation of Nigeria Limited (INFRACO), are likely to provide relatively milder support to cement demand,” said the analysts.

Cement makers are poised to take advantage of the infrastructure deficit and proposed government spending as they continue to invest in new plants, which validates their investment strategies.

BUA cement group has revealed that its production capacity will hit 17 million metric tons in 2023 when its additional 3million metric tons’ plants are completed.

Dangote Cement will consolidate on its leading position with an extra 4mmt in Okpella, to be completed in 2022E.

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