In the current year, the cement sector has been characterized by various factors, including rising input costs, currency depreciation, and government policies. While the government’s infrastructure push has stimulated demand, challenges persist. The sector’s profitability has been impacted by increased production costs, particularly energy.
Despite these headwinds, cement companies have been taking steps to mitigate costs, such as adopting CNG technology to improve efficiency and reduce costs. That said, we expect these initiatives to ease energy and transportation costs, mitigating downswings in profitability margins on a base-case scenario.
Capex spend continues to underwhelm
In the current year, Nigeria’s cement producers have experienced strong topline growth, driven primarily by higher cement pricing. Despite the surge in top-line, FX losses remained a cog in the wheel for industry players, impacting earnings negatively. Accordingly, the three key players recorded a total of ₦143.1 billion in FX losses for the 9M’24 period. Operating expenses (₦763.2 billion) also surged (+452%) across the industry, driven by the hike in diesel prices which affected haulage expenses. That said, the bottom-line print for cement players was relatively underwhelming.
Overall, the outlook for 2025 remains cautiously optimistic, with expectations of a resilient performance from cement players, to be driven by elevated cement prices. However, outperformance from the industry is not out of the cards, but that will depend on the government’s ability to manage fiscal pressures and ensure the timely execution of infrastructure projects.
What shaped the past week?
Equities: This week, the local market traded in a bearish manner, declining by 2.94% w/w to close at 102,353.68 ppts. The Industrial Goods sector led the losers chart, easing 8.20% w/w, primarily due to sell-offs in DANGCEM (-16.46% w/w) and JBERGER (-9.98% w/w). The Insurance sector also experienced a downturn, losing 6.23% w/w, driven by profit-taking in UNIVINSURE (-19.23% w/w), REGALINS (-17.78% w/w), and SOVRENINS (-16.67% w/w). The Oil & Gas sector shed 0.78% w/w, with losses in MRS (-7.71% w/w) and ARADEL (-7.02% w/w), while the Banking sector fell by 0.46% w/w. On the flip side, only the Consumer Goods sector (1.33% w/w) recorded a gain this week, driven by positive sentiments for DANGSUGAR (+16.67% w/w).
Fixed Income: This week, system liquidity remained negative, opening on Monday at approximately ₦389 billion in the red, and closing on Friday at around ₦398 billion negative. Consequently, the OPR ended the week at 32.33% (-504bps w/w). The secondary market showed mixed performance, with bullish sentiment observed on the shorter end of the curve, while bearish sentiment prevailed across the longer maturities. Specifically, yields moved as follows: 91-Day (-203bps w/w), 182-Day (-46bps w/w), 364-Day (+30bps w/w), 2-year (+51bps w/w), 5-year (+99bps w/w), 7-year (+157bps w/w), and 20-year (+6bps w/w).
Currency: In the currency market, the Naira depreciated by ₦4.55 w/w to close the week at ₦1,547.58/USD.
Domestic Economy:
Nigeria’s inflation rose slightly to 34.80% y/y in December 2024, up from 34.60% in November. A significant contributor was the sharp increase in food prices, which soared to 39.84% y/y, putting considerable pressure on households. Additionally, the festive season led to heightened demand for goods and services, contributing to a marginal 0.20% rise in inflation in the month. For the January print, inflation is likely to ease on base effects, amid less volatility in the exchange rate.
Global: U.S. stocks surged on Friday, wrapping up a strong week, fuelled by optimism about the economy’s health and the future trajectory of interest rates, as investors prepared for potential policy shifts under the incoming Trump administration. Preliminary data showed that the S&P 500 rose by 1.01%, finishing at 5,996.82 points, while the Nasdaq Composite climbed 1.51%, to 19,630.20 points. The Dow Jones Industrial Average increased by 0.79%, to 43,491.95 ppts. The yield on the benchmark U.S. 10-year note remained mostly unchanged at 4.6%, although it had retreated from a 14-month peak of 4.8% earlier in the week. In Europe, major indexes saw weekly gains, with the pan-European Stoxx 600 up by 0.81%, the DAX gaining 2.18%, the CAC 40 rising 2.74%, and the UK’s FTSE 100 advancing by 1.74%. Finally, in Asia, China’s blue-chip stocks (. CSI300) and Hong Kong’s Hang Seng (.HSI) both increased by 0.3%, while Japan’s Nikkei 225 fell by 0.3%.
What will shape markets in the coming week?
Equities market: Given the limited changes to the catalysts of buy-side action in the market, we expect sentiment next week to remain mixed. However, we cannot rule out the possibility of bargain hunting activity in large cap names, that could push the index higher during the week.
Fixed Income: In the coming week, we anticipate that market activity will likely be influenced by both the upcoming NTBs auction outcome and prevailing system liquidity conditions.
