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 boost 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 bourse traded in a mildly bullish note, inching up to close at 103,598.46 ppts (+122bps w/w). This reversal from the previous bearish weekly close hinged on broad based sectoral gains. Leading the pack was the Banking sector (+4.09% w/w), followed by the Industrial Goods sector (+0.12% w/w). However, the consumer goods (-1.20% w/w) and Oil & Gas sectors (-0.93% w/w) were subdued. At the forefront of the gainers chart are SCOA (+59.68% w/w), UPDC (+19.05% w/w) and WAPIC (+15.32% w/w). Other notable top performers include UNIVINSURE (+11.11% w/w), TRANSCORP (+10.76% w/w), and GUINNESS (+10.00% w/w). Meanwhile, leading the losers’ chart is SUNUASSUR (-25.11% w/w), largely driven by profit-taking actions of investors. Following are EUNISELL (-18.95% w/w) and JOHNHOLT (-18.47% w/w).
Fixed Income: On Wednesday, the DMO, through CBN, conducted an NTBs auction. ₦530 billion worth of bills were offered, and the total allotment reached ₦756 billion, as subscriptions exceeded ₦2.5 trillion. At the auction, the stop rates remained unchanged for the 91-day and 182-day bills at 18.00% and 18.50%, respectively, while the 364-day paper saw 82bps decline, settling at 21.8%. Additionally, system liquidity rebounded, having opened on Monday at a negative ₦308 billion, but closed on Friday at ₦212 billion positive. Following this, rates at the interbank window eased to close at week at 27.00% (-533bps w/w). In the secondary market, trading sentiment was generally tepid, albeit with a bearish tilt. Changes in yields were as follows: 91-Day (-42bps w/w), 182-Day (-48bps w/w), 364-Day (-92bps w/w), 2-year (+157bps w/w), 5-year (+53bps w/w), 7-year (+35bps w/w), and 20-year (+768bps w/w).
Furthermore, the Nigeria’s FX reserves experienced a significant decline within two weeks of January, dropping by $929.51 million (-2.3% decline) from $40.92 billion on January 6 to $39.99 billion as of today, January 24. The decline raises fresh concerns regarding the nation’s external liquidity position amid increasing economic pressures.
Currency: At the NAFEM windows, the Naira appreciated by ₦16.38 w/w to close the week at ₦1,531.20/USD.
Domestic Economy:
The Nigerian Communications Commission (NCC) has approved a 50% increase in call tariffs, effective immediately, the first hike in over a decade. This decision comes in response to rising operational costs faced by telecom operators and aims to ensure a balanced and fair market for both consumers and providers. The new pricing structure is expected to raise the average cost of calls to N16.5 per minute. The latest data on Subscriber/Network Performance Report by the NCC showed that 408.7 billion minutes of local calls were made in 2023. Based on this, the telecom industry is projected to generate over N6.7 trillion from voice calls, excluding international calls. Additionally, the telecom industry is projected to earn N137.84 billion from SMS in 2025, driven by the tariff hike with an average cost of an SMS set at N6.
However, this move met with various threats and rejections especially from subscribers and consumer protection groups. The Nigerian Labour Congress (NLC) opposes the 50% telecom tariff hike, planning a nationwide boycott, expressing concern that the timing of the increase coincides with rising inflation and declining purchasing power. The resolution of this issue will determine the accessibility and affordability of essential communication services for millions of Nigerians.
Global: The S&P 500 closed lower on Friday, after hitting new records high earlier in the session, as investors booked profits to end a solid week centered on President Donald Trump’s return to the White House. The S&P index declined by 0.3% on Friday to 6,101.24 points. Also, the Nasdaq Composite slipped 0.5% to 19,954.30 ppts, while the Dow Jones Industrial Average (DJIA) dropped 140.82 points, or 0.3%, to 44,424.25 ppts. Friday’s losses snapped a four-day winning streak for the three major indexes. Some megacap tech stocks that helped drive the market to all-time highs pulled back in the session, putting downward pressure on equities. Meanwhile, the STOXX Europe 600 Index concluded the week at 530.07 points (+1.23% w/w). The NIKKEI 225 Index gained 1480.52 points or 3.85% this week to 39931.98 points. The CAC 40 Index also rose 217.87 points or 2.83% this week to 7927.62, marking its third consecutive week of gains. The DAX finished at 21,386 points on Friday, just below recent peaks, as investors capitalized on gains after an eight-day rally. Attention was centered on the ongoing earnings season, new economic data, and the implications of the new US administration.
On the economic front, The Bank of Japan raised the policy rate by 25 basis points to 0.5% — the highest since 2008 and in line with economists’ expectations. Following the decision, the Japanese yen weakened marginally to trade at 155.18 against the dollar. Investors are also likely to be looking ahead to the Fed’s FOMC meeting on Wednesday with no change expected to interest rates. Elsewhere in China, equity markets will be closed from Tuesday for the Lunar New Year holiday.
What will shape markets in the coming week?
Equities market: Upcoming corporate action announcements are expected to shape market sentiment as investors analyze the numbers for guidance. Bullish interest in the banking sector is likely to persist, while strong results across other segments could sustain a positive bias among traders.
Fixed Income: The week ahead commences with a bond auction on Monday, which will set the tone for trading activities next week.
