Expanding revenues of Nigerian cement firms attract foreign investors. The Nigerian Stock Exchange announced yesterday that a foreign investor has expanded its stakes in Dangote Cement by buying an additional 2.3 percent stake for N86.1 billion ($236 million) in a sign of some return of confidence to the prospects of the Nigerian economy.
Even though the name of the foreign investor was not disclosed, sources close to deal say the foreign investor that did the deal is one of the existing investors in the company. Dangote Cement has two major foreign investors holding stakes in the company currently.
In 2013, Dangote Industries sold 1.5 percent of its 95 percent stake in Dangote Cement to South Africa’s Public Investment Corporation (PIC) for $289.3 million.
Subsequently it sold a 1.4 percent stake to Sovereign Fund Investment Corp of Dubai (ICD) for $300 million in 2014.
It is not clear which of the two investors increased its holding of Dangote Cement stocks. The share price of the company rose 7.26 percent in yesterday’s trading, to close at N240 per share, which is seen as a positive reaction to the news. Dangote Cement share price has risen by 37.9 percent since the beginning of this year, outperforming the All Share Index (ASI).
The transaction increases Dangote Cement’s free float to 10.4 percent, according to Thomson Reuters calculations, still well below a stock market requirement of 20 percent.
It is the biggest company on the Nigerian Stock Exchange, accounting for a third of the bourse’s total market capitalisation, and when it listed in 2010 the bourse waived its free float requirement because it wanted to encourage more companies to list.
Dangote Cement told Reuters last month, that it planned to invest about $4 billion over the next two to three years, to nearly double its production capacity to 80 million tonnes in Africa.
However, it faces competition in Africa from French cement maker, Lafarge, which has combined its Nigerian and South African businesses to accelerate growth on the continent, as well as other local rivals.
Early in June, Lafarge Africa, which is majorly owned by LafargeHolcim, announced plans for a N140 billion rights issue, with its parent firm promising to fully take up their rights.
Commenting on the rights issue, the first since 2005, Mobaji Balogun, Chairman Board of Directors, noted that the decision of LafargeHolcim to convert existing loans into equity “demonstrates the group’s continued belief in the Nigeria story,” adding that, “This is the largest rights issue and the largest investment in a listed company by an investor.”
Cement manufacturers in the country have seen rebound in revenues from last year’s low, as firms have switched energy mix with a view to boosting profit.
The cumulative second quarter sales of three dominant producers of the building materials (Dangote Cement Plc, Lafarge Africa Plc, and Cement Company of Northern Nigeria (CCNN) spiked by 41.87 percent, to N576.08 billion as at June 2017.
This compares with a 23.05 percent drop in June 2016 figure, when these firms struggled with the devaluation of the naira and disruption of gas supply that suppressed margins.
“Margins were supported by multiple increases in cement prices. This commenced in the fourth quarter of 2016. The price increase was enough to make up for price-induced volume slowdown in the period,” said Philip Anegbe, Analyst with ARM, in a note to clients.
“In addition to this, a key player (Lafarge) substantially hedged its dollar exposure, while Dangote Cement reduced debt and interest expense sharply,” said Anegbe.
Lafarge Africa’s operating profit margins, a measure of efficiency, improved to 18.25 percent in June 2017, a sizable improvement from (-23.85 percent) recorded in 2016 when it made a loss.
Similarly, cost of sales margins fell to 71.68 percent in June 2017 from 85.98 percent as at June 2016, which means the firm has spent less in producing each unit of product.
Dangote Cement’s operating profit margins rose to 39.60 percent in the period under review, from 33.30 percent the previous year. Cost of sales ratios fell to 42.92 percent in June 2017 from 47.60 percent the previous year.
Dangote, Lafarge and CCNN cumulative net income spiked by 123.32 percent in the period under review, a rebound from a 78.13 percent drop in 2016 profit.
Analysts are optimistic about the performance of cement makers, as the new foreign exchange window introduced by the Central Bank has made dollars available to them.
“Sentiments were much better this year, given investors are more optimistic, especially with the new FX window,” Rencap said in a note to investors written by Temilade Aduroja, the bank’s Materials, Oil & Gas Analyst.
“Feedback is that the cement market in Nigeria remains resilient and individual homebuilders are still building. FX access for raw materials at the official rate is less cumbersome and gas disruptions have reduced.
“Upside could come from government spending on infrastructure, which the companies expect in 2018 given it is a pre-election year. Albeit a tough operating environment last year, significant price increases by end-2016 have reduced margin strain and cement players have returned to strong pre-devaluation EBITDA margins,” Rencap said.