Cement makers are no longer in a growth spurt

The cement industry used to be the darling of the Nigerian economy few years ago because of the country’s rising middle class and population that crave for accommodation and the expected copious government spending on infrastructure.

These firms are no longer hugging the limelight given the effects to an economic downturn on their operating performance.

Gas supply disruptions as a result of the vandalised gas pipeline infrastructure across the western and eastern gas grids combined with logistics challenges due to deterioration of road conditions have undermined bottom lines of cement makers.

The third quarter earnings of four dominant cement makers, Dangote cement, Lafarge Africa (LA), Ashaka cement and Sokoto cement (SC) showed cumulative cost of sales (COS) increased by 31.75 percent to N384.59 billion from N291.91 billion recorded the previous year.

The COS figure is higher than the September inflation rate of 17.90 percent as cumulative average cost of sales increased to 56 percent in 2016 from 49.65 percent, last year.

Hitherto, these firms have enjoyed lower cost margins and higher profit margins on the back of availability of gas supply at the factories.

The scarcity of gas has however forced firms to switch to Low Pour Fuel Oil (LPFO), which is a very expensive alternative source of energy.

An insider, who doesn’t want his mentioned told BMI that despite the fact most firms source 90 percent of material locally, they are exposed to scarcity of dollars and currency risk as they import some raw materials needed to produce their products.

Of all the 4 major market lenders, only Dangote cement grew sales. And that is because of the recent cut in the price of the products.

However, Dangote cement saw quarter on quarter COS move by 19.20 percent to N76.98 billion in the second quarter and16.27 percent to touch down at N92.49 billion in the third quarter.

Lafarge Africa seem to be the most hit by devaluation and currency exposure. The company’s sales or cement volume dipped by 16 percent to 4.13 billion Kilo per ton (Kt) fuelled by gas shortages, logistics challenges and interconnection of the new line. Net sales dipped 25 percent, see Table.

Dangote Cement’s share price closed at N175 as of 1:30 pm on the floor of the exchange as ytd was +2.94 percent compared with -4 percent returned by the All Share Index (ASI).

It has a price to sales ratio (P/S) ratio  (ttm) of 5.25, which is higher the 1.26 investors value its peers.

One reason for this could be investors expect Dangote to post growth in sales in subsequent quarters, which may be better than what’s expected for its peers.

Lafarge Africa’s share price was up 5 percent to N52.50 as of 1:30 pm while ytd shares have shed -40.50 percent, compared with the -4.0 percent return delivered by the index.

Its P/S ratio stood at 1.02 times.

Ashaka’s share price dropped -4.89 percent to closed at N11.65 .They have shed -51.0 percent ytd vs. the -4.0 percent return delivered by the ASI.

Sokoto cement’s share price closed at N5.25 as of 1:30 pm while market. Ytd  shares have shed -44.06 percent, compared with the -4.0 percent return delivered by the index.

BALA AUGIE