Analysts Forecast Bright Prospects for Cement Stocks Next Year

Goddy Egene

Investment analysts have predicted positive performance for listed companies in the building materials sector of the Nigerian Stock Exchange (NSE).

In special report on the industrial goods sector obtained by THISDAY, analysts at Cordros Capital Limited, stated that Nigeria’s present administration remains committed to bridging the infrastructure deficit in Nigeria.

“On that premise, we believe capital expenditure (CAPEX) outlay will be even stronger 2020 as the government prepares to reflate economic growth with an ambitious N10.6 trillion budget. The Buhari-led government earmarked N2.14 trillion for CAPEX spend in 2020 (excluding CAPEX components of statutory transfer). While we acknowledge the significant shortfall from the N2.93 trillion budgeted in the prior year, our optimistic view hangs solely on a higher implementation rate, given better revenue prospects,” they said.

According to the analysts in the proposed 2020 budget would involve heavy cement consuming projects. This include: Works and Housing N262 billion; Transportation N123 billion and Power N127 billion.

“Beyond the preceding, we also believe that Nigeria’s growing preference for concrete roads, given its better lease of life, also looks set to bolster cement demand. We believe the recently completed 28km ItoriIbese road in Ogun State and the 43km long Obajana-Kabba road in Kogi State must have induced both the government and private sector to embrace cement-paved roads,” they said.

Looking at the performance of the share prices of cement producers in the stock market, the analysts said it was not unconnected to the widespread naira asset sell-offs by foreign and domestic investors.

“The troika impact of unclear government policies, weak earnings growth, and still tepid economic recovery was that investors remained risk-off Nigerian equities. While Dangote Cement Plc had lost 26.2 per cent year-to-date, Cement Company of Northern Nigeria gained 18.6 per cent and Lafarge Africa Plc appreciated 9.3 per cent outperformed. For the latter, we believe investors welcomed the news of its divestment from the margin dilutive South African business. The action helped the company deleverage its balance sheet and also allowed management to focus on the more profitable Nigerian market, where they believe opportunities abound. We think the prospect of gains from the divestment resonated deeply with investors.