Cement makers’ bumper Q1 earnings fail to reflect in share performance

Dangote Cement, Lafarge (WAPCO) and BUA Cement, Nigeria’s largest cement makers, recorded a combined profit growth of 37 percent in the first quarter (Q1) of 2021, but the bumper earnings have failed to boost investors interest as their share prices have not risen to compensate for their performance.

The trio recorded a combined profit of N121 billion in Q1 compared to N88 billion recorded in the same period last year.

“The cement makers’ impressive performance came on the back of volume growth as well as price increment,” Yinka Ademuwagun, a research analyst at Chapel Hill Denham, said.

The companies grew cement sales 27 percent to N465 billion in Q1 2021 compared to N366 billion in the Q1 of 2020.

According to the International Cement Review, retail cement

prices in the country reportedly rose from around N2400-2600/50kg bag last year to N3500 at the end of April. On May 4, Kunle Adeyemi, CEO of Sterling Homes, stated that cement prices once more rose to N3800 over the course of one day.

Despite this impressive performance, the share price of Dangote Cement has dropped 14 percent year-to-date while WAPCO and BUA’S share prices have both dropped 1 percent, respectively, as the market closed Monday.

However, the dip in their share prices appears to be a broader market situation as investors’ appetite for equities have waned.

Last year, the Nigerian equities market ended the year as world best with 50 percent gain, as local investors piled into the stock market following the lowinterest rate environment.

“Compared to the previous year, investors are now moving their funds away from the equities market. This is because the interest rate environment is going upwards and therefore will see some investment pull out of equities into more secured fixed income instruments,” Ademuwagun said.

Dangote, Nigeria’s largest cement maker, made a profit N89.7 billion in Q1, a 48 percent increase from N60 billion in the same period of 2020. The cement maker also reported revenues of N332 billion, a 34 percent increase compared with N249 billion revenues reported last year.

BUA’S Q1 profit increased by 13 percent to N22.3 billion from N19.7 billion a year ago, while its revenue also surged 13 percent to N61.1 billion from N53.9 billion in Q1 2020.

For WAPCO, it made a profit of N 9.1 billion in Q 12021, a 14 percent increase from N8 billion recorded in the same period last year. The cement maker also saw its revenue grow from N71.4 billion, a 12 percent surge compared to N63.6 billion recorded last year.

Analysts expect these companies to maintain this momentum for the rest of the year.

Mustapha Wahab, an infrastructural analyst at Chapel Hill Denham, explained the outlook for the rest of the year would remain positive as there were lots of opportunities for growth for the cement makers.

“There is a lot of opportunity in the cement market. Nigeria competes favourably with South Africa and other emerging markets, and the country’s housing deficit is over 17 million units. The Federal Government is also undertaking a lot of infrastructural projects, which will support cement demand.

“Compared to last year, revenue posture is a lot better, we are in a period where the crude oil price is rising, this will mean there will be sustained revenue for capital project implementation, and all the three players will benefit from this,” Wahab said.

Ademuwagun also pointed out that the shortage in rainfall last year supported volume growth towards the end of the year, and if we have the same trend this year it would also support overall performance.