Nigeria: Vetiva Predicts Bright Prospects for Cement Sector

21 July 2021

Goddy Egene

Vetiva Research has predicted increased optimism for the cement sector in Nigeria, underpinned by stronger capital disbursements from the public sector.

Vetiva noted that the increased focus of the federal government on transport infrastructure projects was a key driver for its expectation, with the aim to position the transport sector ahead of the recently launched African Continental Free Trade Area (AfCFTA).

Although it stated that capital expenditure (capex) execution could be threatened by a high budget deficit (N5 trillion), it remained optimistic that the government would obtain adequate financing to meet a sizeable portion of the funds through debt financing.

However, beyond the public sector, Vetiva Research also highlighted the continued reopening of the broader economy as well as the mini renaissance in the Real Estate sector as critical support factors for cement demand in 2021.

"Notably, after six quarters of contraction, the real estate sector gross domestic product (GDP) expanded in the last two quarters, driven by larger investments in the residential market," Vetiva stated.

Overall, the investment bank projects an 11 per cent growth in domestic cement sales in 2021, taking overall cement demand to 29.1 million MT in Nigeria.

The report forecasts a mild drop in cement prices in the second half of 2021 due to an expected increase in product supply and a potential re-launch of marketing campaigns such as Dangote Cement's "Bag of Goodies" promotions.

However, Vetiva still projects a six per cent growth in average cement prices in 2021, driven by inflationary and foreign exchange pressure.

Speaking on the cost pressures, the Industrial Goods Analyst at Vetiva Research, Onyeka Ijeoma, said that the continuous rise in costs would push cement majors to focus more on controlling the largest controllable cost item -energy costs.

"So far, the largest producer, Dangote Cement Plc has launched an Alternative Fuels (AF) strategy to manage their energy costs better, while Lafarge Africa Plc will look to ramp up on its AF utilisation," Ijeoma said.

Following the expectations laid out in the report, Vetiva is optimistic about the valuations of the key producers and placed BUY ratings on its coverage stocks, which is Dangote Cement, Lafarge Africa Plc and Julius Berger Nigeria Plc. Their targets prices are set at N264.66, N28.11 and N38.37 respectively.

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