The Industrial Goods sector – proxied by Cement subsector GDP – recovered from a downturn in 2018 (+4.5% y/y from -2.2% in 2017). The Construction subsector also recorded an uptick in 2018 to 2.3% from 1.0% in 2017. Meanwhile, cement players under our coverage continued to focus on volume growth and increased energy diversification.
Notably, DANGCEM (the largest player in the space)in its FY-1 8 report, grew its Nigerian sales volume by 11.4%y/y which largely offset the flattish growth in other markets and culminated to an 11.9%y/y growth in revenue. On the other hand, while WAPCO has not released FY-18 numbers, performance running up to 9M-18 has been less impressive, as financing costs remained the elephant in the room.
In terms of market performance so far in 2019, the Industrial Goods index has returned +3.4% (vs NSEASI: +2.2%) as players took a position ahead of the earnings season – especially for the dividend windfall declared by DANGCEM (+52.4% to N16.0/share) which buoyed sentiments.
We believe the outlook for cement demand in Nigeria remains rosy as the nation’s gaping infrastructure, housing deficit, increased interest in the use of the concrete for road construction and strategic positioning for export to neighbouring countries are favourable factors. Overall, we remain bullish on companies that have improved capacity and utilization, diversify energy sources, deleveraged balance sheets and have developed strategies to enhance route to market.