September 9, 2018/InvestmentOne Report
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· We maintain our positive outlook on the cement sector given the present stability in the economy and implementation of the 2018 Budget of Consolidation combined with the favourable macroeconomic variables. Capital expenditure is budgeted at N2.86trillion (31% of passed budget) and with implementation taking off in H2 2018, we believe this should lead to volume growth and improvements in top-line performance.
· Plagued with a huge infrastructural gap that has impeded its desire to utilize its natural and human resources to stimulate development, Nigeria is now compelled to improve its infrastructural deficit to facilitate economic growth and to diversify the economy away from oil.
· Following the disruptions to productive activities and margin performance in 2016 and early parts of 2017, as a result of gas supply shortages, cement manufacturers have increasingly diversified their sources of power. As an alternative, cement names have looked at coal, both locally sourced and imported, in diversifying their source of energy, particularly away from the use of the expensive Low Pour Fuel Oil (LPFO).
· Nonetheless, we highlight that Lafarge’s production capacity of 10.5 million metric tons per annum in Nigeria is still far below its major competitor, Dangote cement, with a capacity of 29.3million metric tons per annum.
· Consequently, we maintain preference for Dangote Cement in the subsector on the back of its market share of 68% as well as its’ inspiring cost management through its effective fuel mix. We opine that Dangote Cement’s coverage across Africa and its exports drive to other West African countries position it well above its competitors in Nigeria. We believe it is likely to benefit more from the various opportunities in the sector and the economy even over the medium to longer term.