Whilst cement volumes in the first 9 months of 2018 have largely rebounded from a slump in the previous year (up 10% y/y to 15.6 million MT), we expect volume growth to come in slightly weaker in the final quarter of the year, pressured by extended heavy rainfall in Q4 as well as a heightened political environment. Notably, this is in line with Q4 GDP data, where the Cement sector expanded by 1.0% y/y in real terms, a sharp moderation from 8.1% y/y in Q3.
Among the listed players, we see CCNN being least affected as they ramp up sales and exports from the newly acquired plant in Kalambaina. Nonetheless, FY’18 numbers should still come in higher y/y, buoyed by the strong cement sales in the first 9 months of the year.
Amid this weaker-than-usual demand, we expect Q4’18 revenue to be impacted by mild price competition. We saw this already in Q3, with cement prices coming in lower, due to seasonally weaker sales in the quarter. We expect the intensified competition to affect pricing across all major players, with producers who typically enjoy regional advantages also reducing prices to ward off competition. However, FY’18 Revenue is projected to come in 9% higher y/y, supported by strong 9M revenue.
Whilst we believe the cement majors continued to implement their cost containment strategies, we expect the weaker top line in Q4 to negatively impact EBITDA margins in Nigeria. That said, we expect DANGCEM and CCNN’s margins to be somewhat resilient as the former is bolstered by improvements in Pan African operations and the latter by the improved efficiency of the new plant.
Overall, in spite of the lower-than-usual topline in Q4’18, the bottom line should come in higher y/y in both the quarter and full year, supported by the aforementioned cost-containment measures. Notably, we expect DANGCEM and CCNN to report record figures, with WAPCO reporting a reduced loss figure.
Credits: Vetiva Capital Research
