September 6, 2024/United Capital Research
Based on Q2 GDP numbers, the cement sector’s growth rate declined significantly y/y, down 47.98% to 1.74% in Q2 2024 from 3.34% in Q2 2023. On a q/q basis, the growth rate also decreased by 15.36%, falling from 2.05% in Q1 2024. This downward trend was mirrored in related sectors such as real estate and construction, both of which saw sharp declines in their growth rates. Specifically, the real estate sector’s growth rate fell to 1.05% in Q2 2024 from 3.42% in Q2 2023, while the construction sector’s growth rate declined to 0.75% from 1.87% over the same period. These declines highlight broader challenges within the industry, driven by cost pressures and other macroeconomic factors.
Despite robust revenue growth in the Nigerian cement sector, fueled by increased demand from higher government capital expenditure (CAPEX) and intensified private-sector activity, the industry is still grappling with significant challenges due to the country’s challenging macroeconomic environment. Escalating cost pressures and the persistent depreciation of the Naira have significantly impacted the growth of the sector. In Q2 2024, the industry’s key players—BUA Cement, Dangote Cement, and WAPCO (Lafarge) recorded considerable foreign exchange losses amounting to approximately N261.19 billion, marking a 125.6% y/y increase.
These FX losses have notably affected the players’ financial performance. WAPCO saw a 15.7% decline in Pre-tax Profit to N46.63 billion, while BUA Cement’s Pre-tax Profit dropped by 47.5% y/y to N40.13 billion. In contrast, Dangote Cement managed to report a Pre-tax profit of N292.96 billion, marking a 22.1% increase from the previous year. Looking ahead, we maintain a cautious outlook on the cement sector. We anticipate that rising cement prices, driven by current macroeconomic conditions, will drive revenue growth in the sector.
Additionally, increased demand resulting from higher government capital expenditure (CAPEX) and heightened private sector activity will further support growth in the sector. However, challenges such as high raw material costs, persistent inflationary pressures, and rising energy costs are likely to continue impacting profitability across the sector.
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