Investors cautious about cement stocks despite H1’22 returns –

Nigeria’s largest cement makers, Dangote Cement, Lafarge (WAPCO), and BUA Cement recorded combined revenue growth of 23.3 percent in the first half (H1) of 2022, but investors have reacted cautiously to these stocks. The three stocks recorded a combined revenue of N1.18 trillion in H1 2022 up from N959.8 billion in the same period last year.

According to Sesan Adeyeye, an analyst with CSL Stockbrokers, there are other factors that investors consider apart from the fundamentals (the financial statement) when deciding to invest in a stocks.

“Share performance of a company goes beyond fundamentals,” he said. “The share price can be influenced by past information, publicly available information, and information not disclosed to the public.”

The three aforementioned companies earned an increase in profit by 2.9 percent to N270.9 billion in H1 2022 compared to N263.3 billion in the H1 of 2021.

BUA Cement in its half-year 2022 unaudited financial report earned a profit growth of 41 percent to N61.4 billion up from N43.4 billion in the same period last year. Its revenue also increased by 52 percent to N188.6 billion in contrast to N124.3 billion in the comparable period last year.

Despite this positive performance, movements in the share price of BUA Cement have been inconsistent. Its share price which was N71.9 at the beginning of the year (Jan 4, 2022) rose to N74.3 between May 4, 2022, and 21, June 2022, then declined to N71.9 afterwards, till 8 July 2022, and further down to N69.3 as on July 29, 2022. It is currently at N61 as of August 4, 2022.

Sesan was of the view that the drop in share price is partly because investors are aware that the stock is overvalued, coupled with the illiquidity of the stock, and compounded by the fact that the company’s free float is low.

On the other hand, Dangote Cement recorded a 10 percent decline in profit to N172 billion in H1 2022 from N191.6 billion in H1 2021. This is despite that its revenue increased by 17 percent to N808 billion in H1 2022 as against N690.5 billion in the comparable period in 2021.

The share price of Dangote Cement was up 3.11 percent year-to-date to N265 at the close market last week Thursday.

According to Sesan, Dangote Cement’s current share price is a result of the strong start that the company had when it conducted its second share buy-back at the beginning of the year.

For Lafarge Africa, its profit and share price have continued to go in the same direction. Lafarge’s profit increased by 32.1 percent to N37.4 billion from N28.3 billion in the comparable period of 2021. Similarly, its revenue also increased by 28 percent to N187 billion from N145 billion in the comparable periods.

Its share price was up by 3.75 percent year-to-date to N25.5 at the close of market last week Thursday.

Nevertheless, the fundamentals of the cement makers show their resilience in the half-year financial results despite the increase in energy costs, inflationary pressure, and weakening naira against dollars.

Bua Cement

According to Coronation Research, a combination of growing
demand for cement, aggressive capacity expansion, and price increases broadly in line with inflation are set to be the primary drivers of BUA Cement’s revenue growth going forward.

Read also: Dangote Cement, other stocks drive N400bn gain on Nigerian Exchange

For BUA Cement, its production cost rose by 47.4 percent to N97.5 billion in H1 2022 from N66.16 billion in H1 2021. Raw materials and energy costs constitute the major portions of BUA Cement’s production costs, with energy alone representing over 37 percent of the cost of sales.

Operating profit surged 53.9 percent to N77.7 billion in H1 2022 from N50.5 billion in H1 2021 while its net finance costs skyrocketed by 245.2 percent to N2.8 billion from N824 million in the comparable periods.

BUA Cement is the largest producer of cement in the North-West, South-South, and South-East regions; with a combined installed capacity of 11 million metric tonnes/pa and with plans underway to increase the existing capacity to 20 million metric tonnes/pa, through the commissioning of three new lines.

Dangote Cement

According to Coronation Research, Dangote Cement’s revenue growth was on the back of a price increase (average price per tonne rose by 30.2 percent year on year). It reported a 16.8 percent increase in the cost of sales to N322.46 billion in H1 2022 from N276.12 billion in H1 2021, driven primarily by a 31.3 percent hike in fuel & power consumed that closed H1 2022 at N129.96 billion from N98.98 billion in H1 2021.

Its management says the slump in volume by 9 percent to 4.51 metric tonnes was due to persisting disruptions in energy supply which impacted volumes.

Nigeria’s leading cement company also suffered N40.66billion foreign exchange loss in H1 2022 from N4.94billion reported in H1 2021, attributable to depreciation of the naira at the foreign exchange market.

Operating profit increased by 5.3 percent to N318 billion in H1 2022 from N302.2 billion in H1 2021.

Net Finance cost surged, up by 154.2 percent to N53.2bn in H1 2022 from N20.9bn in H1 2021. The growth in net finance cost came from a 147.9 percent year-on-year increase in finance cost to N75.2 billion, which masked the 233.9 percent year-on-year increase in finance income to N22.0 billion.

In terms of capacity, Dangote Cement is Africa’s leading cement producer with nearly 51.6 million metric tonnes/pa capacity across Africa

Lafarge Africa

According to Cardinalstone, the revenue growth was on the back of 28.2 percent and 45.3 percent increases in the proceeds from cement and aggregates & concrete sales, respectively. In particular, these proceeds were bloated by higher product prices (cement prices increased by 17 percent year on year).

Lafarge Africa announced N90.52billion in cost of sales in H1 2022, representing an increase of 25 percent from N72.54billion reported in H1 2021.

Operating expenses increased by 37.0 percent to N47.1 billion in H1 2022 from N34.4 billion in H1 2021. The double-digit growth was driven by pressure on both selling & distribution expenses which were up 45.4 percent to N37.7 billion from N25.9 billion and administrative expenses which were up 9.8 percent to N10.1 billion from N9.2 billion.

Finance costs nosedived by 30.1 percent to N1.9 billion in H1’22 from N2.7 billion in the same period last year, while finance income was also down 47 percent to N191 million from N362.8 billion in the periods under review.

Lafarge Africa has a current installed cement production capacity of 10.5 metric tonnes/pa and its 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.