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SA, Nigeria woes to slow down Dangote Cement volumes

Jan 05 2018 13:10
Memory Mataranyika

Harare – Weakness in its South Africa and Nigerian cement markets is expected to drag down Dangote Cement’s overall volumes this year as competitors across the continent consolidate and streamline operations, industry analysts say.

Dangote Cement has been rapidly expanding across Africa, helping shore up owner Aliko Dangote’s fortunes from the "Africa rising" narrative driven by the continent’s booming population and infrastructure requirements.

But experts at Exotix Capital have said in a research note on the African cement industry that Dangote Cement will hit the skids in its South Africa and Nigeria operations. They add that Lafarge Africa may put up its South African unit for sale, owing to limited visibility and challenges the operation is facing.

“We expect a decline in Dangote group volumes of minus 8% year on year, weighed by weakness in key markets of Nigeria and South Africa, which offsets growth in others including Cameroon, Senegal and Ethiopia,” Exotix said.

The Dangote prospects are expected to further suffer from “an increase in operating expenses resulting from rising admin and distribution costs” as well as “higher net interest expenses on a higher debt” balance.

Dangote Cement and Lafarge Africa had moved in 2017 to acquire cement manufacturer PPC, but this did not materialise in a solid deal. Dangote Cement and Lafarge Africa have however announced plans for capacity expansion in Nigeria of 6 to 12 million tonnes per annum, and 5.5 million tonnes per year respectively.

However, the analysts at Exotix believe only Lafarge Africa’s 3.0 million tonnes per year expansion planned at Ashaka, Nigeria is practical. In any case, it is likely to be commissioned only in 2020 "given its relatively small scale at 2.5mtpa (million tonnes per year)".

Challenges for Dangote in other markets such as Tanzania, where weaker prices and high fuel costs remain key headwinds, are also expected. Import restrictions in Ghana will also weigh down on volumes while “where ethnic unrest in Ethiopia and the devaluation of the Birr [the Ethiopian currency] have posed headwinds” for Dangote.

However, the Exotix analysts are expecting profit margins for Dangote to improve during the year, and have forecast an expansion in the earnings before interest, tax, depreciation, and amortisation margin to 46.8%.

Investors in the African cement industry, especially the bigger companies such as Lafarge, PPC, Dangote and Bamburi among others, are eyeing export opportunities to other African markets such as Zambia, Uganda and Senegal.  

Any other further investments in capacity expansion and new projects across sub-Saharan Africa are motivated by a strategy to benefit from “major infrastructure projects expected to materialise in the short-to-medium term”.

dangote cement  |  aliko dangote  |  cement


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