Dangote, Lafarge to gain as Africa now cement’s fastest growth market

Nigerian cement manufacturers, including Dangote and Lafarge, are poised to benefit as Africa has overtaken China and India to emerge as the world’s fastest growing cement market.

Cement consumption in China, the world’s largest cement market, has decelerated markedly over the past two years and is poised to decline further in 2015, according to Africa focused frontier market research firm, DaMina advisors.

“Nigeria’s Dangote Cement is poised to almost double its total production capacity in 2015 to feed this growing demand,” said Christopher W. Hartland-Peel, senior director, DaMina Frontier Africa Equity Research.

“Over the coming decade, the African brand is poised to become a major global brand that will serve as an investment vehicle for international investors seeking to gain a share in Africa’s enormous once-in-a-century economic transformation.”

African economies are expanding fast (the IMF expects 5.4 percent GDP growth for the SSA region in 2015) however there is often inadequate infrastructure to keep pace with that growth. 

The cost of addressing Africa’s infrastructure deficit is estimated to be approximately $90b every year, for the next decade, with spending needed for new investments in roads, bridges, dams, seaports, airports and other major structures that use a lot of concrete, according to data from consulting firm, Ernst and Young.

Dangote Cement and Lafarge Africa, both listed in Lagos are best poised to tap that growth, as they have cement plants established across the continent.

Lafarge SA, in June 2014 combined its Nigerian and South African assets to form a new company (Lafarge Africa) with cement production capacity of 12 million metric tons and combined revenue of $1.25 billion in 2013.

 Dangote Cement, controlled by Africa’s richest man Aliko Dangote, plans to have capacity of more than 60 million tons in 2016.

The firm is Africa’s leading cement producer with three plants in Nigeria and plans to expand in 13 other African countries, including Ethiopia, Senegal, Republic of Congo, Liberia, Tanzania, Kenya and Zambia.

“We are making progress across our other African projects and continue working to become Africa’s leading Cement Company,” former Chief Executive Officer, Devakumar Edwin, said in a November statement, after the firm released nine months results.

Sub – Sahara Africa cement consumption rose by 6.8 percent in 2014, compared with 5.2 percent in India, 3.5 percent in China, 6.4 percent in North America, and 3.7 percent in South Asia, according to data from global cement report, Morgan Stanley and DaMina Advisors.

Lafarge Africa reported revenue and profit after tax of N159.40billion and N31.76billion respectively in its nine months to September 2014 period, while revenue was up by 3.39 percent y/y from N154.17billion, net income fell by 37.14 percent from N50.52billion recorded in 9M‘13

Dangote Cement, meanwhile, grew its consolidated group revenue by 7.3 percent to N310.2 billion, with pre-tax profits for the 9M 2014 period up by 1.5 percent to N154.1 billion.

Dangote Cements’ stock is down -23 percent this year, while Lafarge Africa has gained 11.8 percent. This compares to a -9.53 percent performance by the wider all share index benchmark in 2015.

Given the solid growth potential for the firms on the African continent, it is no surprise that analysts are bullish on both names.

“Our medium to long-term view for Lafarge Africa is strongly positive, as we believe the current share price presents an opportunity to invest in a company that offers two streams of cash flow– capital appreciation and regular dividend payments,” Alex Ibhade, an analyst with investment firm Dunn Loren Merrifield, said in a December 2014 note.