Focus for the week: FY’25 Industrials Outlook

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: In the week, the local equity market traded in a bullish manner, gaining 1.19% w/w to settle at 99,377.62pts. This was majorly driven by gains in the Oil & Gas sector, with the index rising by 7.61% w/w, purported by strong gains in CONOIL (+33.52% w/w), ARADEL (+18.48% w/w) and OANDO (+9.54%). Similarly, the Insurance sector inched up 5.52% w/w. Stocks such as SUNUASSUR (+20.79% w/w), NEM (+18.48% w/w) and CUSTODIAN (+12.70% w/w) were among the top gainers. The Consumer Goods sector increased by 1.01% w/w, driven by gains in GOLDBREW (+60.00%). Banking Sector also inched up by 0.16% w/w, due to ETI recording a 5.88% w/w gain. Meanwhile, the Industrials sector closed lower, losing 0.60% w/w.  This was driven by losses in JBERGER.

Fixed Income: This week, the DMO, through CBN, conducted an NTBs auction. ₦275.7 billion worth of bills were offered, but total allotment reached ₦527.8 billion, as subscriptions exceeded ₦907.8 billion. At the auction, the stop rates remained unchanged for the 90-day and 182-day bills at 18.00% and 18.50%, respectively, while the 364-day paper saw a 13bps decline, settling at 22.80%.

Also, system liquidity was constrained due to increased borrowings at the SLF window, and NTB sales. It opened on Monday at c.₦33 billion negative and closed on Friday at c.₦1.7 trillion negative. As a result of this, OPR increased significantly by 487bps to 32.54% w/w. At the end of the week, the secondary market closed on a mixed note with a bearish bias, with the most notable change being a yield increase of 464bps on the 91-day T-bill to 26.17%.

Currency: At the NAFEM, the Naira depreciated marginally by ₦2.00 w/w to close the week at ₦1,533.00 per dollar.