• Tuesday, February 27, 2024
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BusinessDay

The rise and rise of Dangote Cement

Dangote Cement, the multinational cement manufacturer became the first company to hit the N10 trillion market capitalisation on the Nigeria Stock Exchange.

The cement manufacturer’s equities capitalisation reached an all time high of N10.098 trillion on Monday. The stock hit a capitalisation in excess of N10trillion when its price reached N592 per share on Monday.

It has rallied this year by 85.6 percent from N319 on the first trading day of the year. The stock furthered its rise to N651.80 per share on Tuesday, reaching the maximum daily increase of circa 10 percent as early as 12 noon.

“The surge in Dangote Cement has led the rally in Industrial goods sector. Going by the popular saying ‘Buy the rumour, sell the fact’, we may consider raising our notional holdings in Dangote Cement,” CardinalStone Research said in their recent Model Equity Portfolio.

Though they had in their outlook for equities this year asked investors to buy shares of Dangote Cement, Lafarge Africa, while urging them to hold that of BUA Cement.

“As Nigeria’s cement industry reflects on a challenging 2023, characterised by demand-stifling events like the cash crunch orchestrated by a poorly executed currency redesign policy, the material currency devaluation, and bouts of heavy rainfall, its hope for a gradual recovery in 2024 feeds off the return to relative macroeconomic normalcy and early gains from tough policy reforms,” the analysts said.

“In 2024, the Nigerian cement industry is expected to benefit from renewed government focus on infrastructure development and construction projects, which could stimulate demand for cement products.

“With increased budget allocations to critical sectors and ambitious infrastructure initiatives (N1.32 trillion to infrastructure, which represents 5 percent of the total FG 2024 budget), the construction industry is likely to experience a resurgence.

“Cement manufacturers, in response, are beginning to recalibrate their production strategies in the form of capacity expansion and improved efficiency to meet the anticipated rise in demand.

“While challenges may persist, the outlook for Nigeria’s cement industry in 2024 is one of cautious optimism, with potential growth opportunities emerging amidst the recovery phase,” according to Philip Anegbe-led team of CardinalStone Research analysts.

Nigeria’s billionaire investor Femi Otedola recently acquired significant shares in Dangote Cement, noting that his acquisition of Dangote Cement shares underscores the company’s potential.

Otedola emphasises long-term wealth preservation, export potential and shareholder value in Dangote Cement share acquisition.

“This strategic investment underscores Otedola’s confidence in Dangote Cement’s potential to generate foreign exchange for the country and his dedication to supporting businesses that contribute to Nigeria’s economic resilience.

“As Sub-Saharan Africa’s largest cement producer, Dangote Cement boasts an annual production capacity of 51.6 million tons across ten countries. This extensive footprint not only highlights the company’s dominance in the cement industry but also its crucial role in driving economic growth across the region” he said..

As at Monday last week the Dangote Cement share price was N375 with a trading volume of 318,537.00 at the end of the week, it’s price had moved by 43.6 percent to N538.8 and a trading volume of 1,290,275.00.

A Lagos-based analyst said that the positive buy sentiments are driving investors’ sentiments.

“And I think that after hitting N10 trillion market capitalisation, it will continue to grow as long as the market continues to do well because it is one of the most fundamentally strong stocks on the market,” he said.

The multinational cement factory recorded a 30 percent growth in its profit after tax for the first nine months of 2023, a BusinessDay analysis has shown.

According to the firm’s financial statement, its profit after tax increased to N277.6 billion in the nine months 2023 from N213.1 billion in the same period 2022. Similarly Revenue was N1.51 trillion, up from N1.18 trillion.

In their January 23 note titled ‘Should you sell the January rally?’ Lagos-based Coronation Research analysts said “It certainly was an extraordinary week. As we re-balanced our notional holdings in the largest stocks by index weight, we were briefly overweight in Dangote Cement which rose 53.9 percent over the week (we were in the process of cutting it to a neutral position, mid-week). This accounts for our highly unusual outperformance. It is rather humbling to think that the kind of outperformance we strive for over a year can arrive in a week, and by chance.

“Our earlier decision to overweight the banks did not work out(the banking index fell slightly last week) but it barely seemed to matter.

As we explain in our feature article, the rise in the market so far this year is out of proportion to rallies in previous years. There is no clear political or economic driver. We are inclined to prepare for a correction in February. The problem is, of course, is that being underweight anything in this environment could be a recipe for disaster (imagine if we have been underweight Dangote Cement last week)”.

The analysts further said: “The more prudent approach is to wait for the first signs of a correction and then take profits; and then to concentrate on building overweight positions where there are fundamental grounds for outperformance. Now that we have seen the first signs of a correction in the bank sector, we will bring our overall position back down to neutral this week and continue to take our notional positions in Okomu Oil and Presco up to double over-weights”.