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Investors ignore cement makers’ H1 bumper earnings

…as share price fails to reflect performance

Nigeria’s largest cement makers, Dangote Cement Plc, BUA Cement Plc and Lafarge Africa, reported a combined profit before tax increase of 61.90 percent in the first half of this year.

But the bumper earnings failed to boost investors’ appetite for the companies’ stocks as their share prices have not risen to compensate for their performance.

Analysis of the three companies’ unaudited financial statements showed that the trio posted a combined pre-tax profit of N237.60bn in H1 2021, up from N146.76bn in H1 2020.

The impressive performance of the cement makers can be linked to the increase in the volume of sales as well as the increase in the price of cement following the full re-opening of construction activities amid the government decision to relax COVID-19 restrictions.

Dangote Cement, for example, reported revenue of N690.55billion in H1 2021, up 44.81 percent from N476.85bn in the corresponding period of 2020.

Read also: Cement companies bounce back from COVID downturn

The manufacturer grew its profit before tax by 102.30 percent year-on-year to N151.15billion from N74.79billion in the comparable period of 2020.

BUA Cement grew its profit before tax to a N49.70billion, an increase of 24.27 percent when compared to the H1 of 2020. Its revenue increased by 22.73 percent from N101.26billion in half-year of 2020 to N124.28billion in H1 2021.

Lafarge Africa’s profit before tax increased by 27.29 per cent year-on-year to N36.75bn in H1 2021. Its revenue rose by 20.30 per cent to N145.02bn from N120.54bn in H1 2020.

The CEO of Lafarge Africa, Khaled El Dokani, said in a statement, “Our performance remained resilient in Q2 2021, with net sales of +29.4 percent, recurring earnings before interest and taxes of +11.1 percent and net income of +25.7 per cent, compared to the previous year.

Despite this impressive performance, investors refused to price in the outstanding performance as their share price remained low even after publishing their financials.

The share price of BUA Cement has dropped 12 percent year-to-date and the same was seen for Dangote Cement and Lafarge BUA’s as their share prices have both remained unchanged and dropped, respectively, as the market closed Tuesday.

While it seemed like investors were taking a position on Dangote Cement ahead of the release of its half-year financials, the share price of the cement maker remained unchanged at N248 per share from July 22 till date (Tuesday, August 3 2021). The company released its half results on July 30. Its share price jumped 7.83 percent on July 19.

Lafarge Africa reported its highest share price yet this year in January 2021 at N30.30 per share. Since then, till the market close on Tuesday, its share price has shed 28.35 percent to settle at N21.71 per share as at market close on Tuesday.

Increasing activity in the real estate sector which is expected to continue to push up cement demand is one reason market analysts believe cement stocks are a viable investment for long term investors.

The optimism ranges from the N4.13trillion earmarked for capital expenditure, analysts said. The early passage of the 2021 budget which is expected to fast track implementation, as well as increasing demand for the building material with the easing of Covid-19 restrictions, was some other catalyst cited for the cement industry.

“We remain upbeat about the performance of cement manufacturers as all indicators point to a stellar 2021FY. A key tailwind is the continued implementation of the Federal Government’s sizable capital expenditure plan and the continued adoption of cement for road construction (which is already gaining traction),” Lagos-based Meristem research analysts in their 2021 half-year outlook.

This, according to analysts is expected to keep public sector demand for construction materials steady.

They also expect the demand from the private sector to remain robust for the rest of the year.

Although, the analysts acknowledge the high rain volumes associated with the third quarter of the year and its impact on construction activities and cement distribution. “We envisage that cement and clinker exports will buoy sales in Q3:2021”, the analysts added.

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