• Tuesday, June 18, 2024
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Why investors should take second look at Nigeria’s cement companies

The political economy of cement

For long term investors in cement companies’ shares, it is rarely a wrong decision. If not for anything, increasing activity in the real estate sector will continue to push up cement demand. Again, there is no doubt that the odds are in favour of Nigeria’s cement makers.

This optimism ranges from the N4.13trillion earmarked for capital expenditure, the early passage of 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.

“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).

“This is expected to keep public sector demand for construction materials steady,” said Lagos-based Meristem research analysts in their 2021 half year outlook.

“We also expect the demand from the private sector to remain robust for the rest of the year. Although, we 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.

Although, they noted that the Nigerian cement industry still suffers capacity underutilization, “a major theme for the second half of the year is the additional capacity expected to come onstream (in our view, this is more of a strategy to capture the tax benefits in the sector than growth).”

“Dangote Cement’s 3MTPA Okpella plant, as well as BUA Cement’s 3MTPA Kalambaina third line are expected to commence operations in H2:2021. This will further intensify the jostle for market share, and thus, we expect an increased investment in marketing and distribution as cement manufacturers push for more sales volumes in the second half of the year”, Meristem analysts noted.

Dangote Cement Plc

With listed equities cumulatively valued in excess of N4.23trillion, Dangote Cement Plc is the largest listed company on the Nigerian Exchange Limited (NGX). Investors who held the shares of Dangote Cement Plc from the beginning of this year to Monday August 2, have seen their equity value appreciate slightly by +1.3percent to N248.10. In their half-year outlook, Meristem analysts rated Dangote Cement stock a “Hold”.

Read also: Cement companies bounce back from COVID downturn

In the first half ended June 30, 2021, Dangote Cement Plc posted profit growth of 52 percent as demand for building material picked up with the easing of Covid-19 restrictions.

Its half year results at the Nigerian Exchange Limited show revenue rose by 44.8 percent, also to a record N690.5billion from N476.8 billion last year, the biggest jump since at least 2012.

Dangote Cement grew profit by 52 percent to N191.6 billion in the first half of 2021 compared to N126.1 billion in the same time last year.

Notes to the condensed consolidated and separate interim financial statements for the three months and six months ended June 30, 2021 show that Basic and diluted earnings per share (Naira) in second-quarter (Q2) 2021 was N5.92 while in H1’21 it was N11.21 from lows of N3.85 and N7.45 respectively in corresponding periods of 2020.

Dangote Cement Plc with an installed capacity of 48.6Mta capacity across 10 African countries operates a fully integrated “quarry-to-customer” business with activities covering manufacturing, sales and distribution of cement.

On July 9, Dangote Cement Plc, Africa’s largest cement producer announced that the Securities and Exchange Commission (SEC) approved the renewal of its share buy-back programme until January 21, 2022. Listed on the Premium Board of the NGX, Dangote Cement’s shares outstanding are in excess of 17.04billion.

Dangote Cement said the share buy-back will be undertaken through an open market offer or self-tender, at such times and on such terms as the management of the Company may determine, subject to prevailing market conditions.

The Company said it will continue to monitor the evolving business environment and market conditions, in making decisions on tranches of the share buy-back programme.

Dangote Cement has a production capacity of 32.3Mta in its home market, Nigeria. Its Obajana plant in Kogi state, Nigeria, is the largest in Africa with 16.3Mta of capacity across four lines; its Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta and while its Gboko plant in Benue state has 4Mta.

Through its recent investments, Dangote Cement has eliminated Nigeria’s dependence on imported cement and has transformed the nation into an exporter of cement serving neighbouring countries. In addition, the cement company has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), and Zambia (1.5Mta).

BUA Cement Plc

The second largest cement company’s 33.864billion shares outstanding at the NGX are cumulatively valued at N2.302trillion. The N68 its share exchanged on the Main Board of the Nigerian Exchange Limited (NGX) as at August 2 shows that investors who held the stock have lost 12.1percent of its year-open value. In their half-year outlook, Meristem analysts rated BUA Cement stock a “Hold”.

About BUA Cement Plc: This company was incorporated in 2008 and commenced operations in the same year through its floating cement terminals, ‘BUA Cement 1’, designed specifically for bulk and bag cement unloading.

In 2009 BUA Group acquired the Cement Company of Northern Nigeria (CCNN)/ (Sokoto Cement) and the Edo Cement Company to boost and increase the metric tonnes of annual cement production in the country. In the second quarter of 2015, BUA signed a contract with FLSmidth for a 3 million mtpa new production line in Edo Cement to be sited at Obu, Edo state. In 2017, BUA Commissioned the Obu Cement (Line I) 3million mtpa facility in Obu, Edo state.

In 2018, BUA Obu Cement completed a 3million mtpa plant resulting in a combined capacity at Okpella of 6million mtpa. In 2020, BUA Group consolidated its cement operations and listed BUA Cement Plc on the Nigerian Exchange with a total combined installed capacity of 8million mtpa and a market capitalisation of N1.18trillon ($3.3billion), making it the second largest cement producer in the Nigerian market and the largest cement producer in the North Western region of the country.

In the half year to June 30, BUA Cement Plc, the second largest cement maker grew its revenue by 22.7percent to N124.27billion, from N101.26billion in H1’20. Profit Before Tax (PBT) increased by 26.9 percent to N49.70billion from H1’20 low of N39.16billion. BUA Cement Profit After Tax (PAT) in H1’21 increased by 24.6percent to N43.396billion from N34.819billion in same period of 2020. Basic Earnings Per Share (Kobo) increased to 128kobo in H1’21 from 103 kobo in H1’20.

BUA Cement Plc with a free float value of N40.77billion as at June 30, 2021 is compliant with the free float requirement for the Main Board of the Nigeria Exchange Group.

Lafarge Africa Plc

Lafarge Africa Plc, a leading Sub-Saharan Africa building solutions company is a member of Holcim Limited, a world leader in building solutions accelerating its world’s green transformation. Each of the stocks of Lafarge Africa Plc exchanged for N22.90 as at August 2. Also listed on the Premium Board of the Nigerian Exchange Limited (NGX), the cement maker’s outstanding shares of 16.107billion units are cumulatively valued at N368.8billion.
Lafarge Africa is actively participating in the urbanization and economic growth of Nigeria, the largest economy in Africa. The cement maker came stronger in half year (H1) 2021 compared to same period in 2020. Lafarge Africa recorded revenue of N145.01billion in H1’21, up 20.3percent from N120.54billion in H1’20. Lafarge Africa’s Profit Before Tax grew by 27.8percent to N36.74billion from N28.75billion in H1’20; while its Profit After Tax (PAT) in the review half year of 2021 came in higher by 21.4percent to N28.32billion, from N23.32billion in H1’20. In their half-year outlook, Meristem analysts rated Lafarge stock “Buy”.

Lafarge Africa has the widest footprint in Nigeria with cement operations in the South West (Ewekoro and Sagamu in Ogun State), North East (Ashaka, in Gombe State), South East (Mfamosing, Cross Rivers State) with Ready-Mix operations in Lagos, Abuja and Port Harcourt. Lafarge Africa has a current installed cement production capacity of 10.5Mtpa.

Lafarge expects good demand momentum in second half (H2) of 2021, saying it will continue to maximize volume opportunities across its markets and actively manage its costs. “We will consolidate our efforts in Sustainability”, Lafarge said.

Khaled El Dokani, CEO of Lafarge Africa, said “Our performance remained resilient in Q2 2021, with net sales of +29.4percent, recurring EBIT of +11.1percent and net income of +25.7percent, compared to previous year. We are equally pleased with the progress we are making on sustainability; our use of affordable clean energy and our agro-ecology footprint are in accordance with the acceleration of our net zero pledge”.