Analysts Raise Target Price for BUA Cement, Expect Margin to Recover
Analysts at CardinalStone Limited have increased their 12-month target price (TP) for BUA Cement Plc to N66.17 at a reference market price of N83.70—suggesting the company is currently overvalued.
BUA Cement Plc has been flattish at N83.7 in the stock market amidst fluctuation in trading volume. “We have revised BUA Cement’s 12-month target price upward to N66.17 from N56.46. Despite the upward revision, we retain our sell recommendation on the stock”, CardinalStone told investors in its equities review.
The investment firm said the new target price reflects renewed optimism around the company’s operational rebound, driven by expanded production capacity, improved margins amid a more favourable macroeconomic environment, and a stronger focus on sustainability and operational efficiency.
From a relative valuation standpoint, BUA Cement trades at a premium relative to peers, with P/E and EV/EBITDA multiples of 38.3x and 12.4x, compared to peer averages of 12.3x and 6.2x, respectively, CardinalStone said in the report.
Analysts said nonetheless, the ticker is now trading at a discount to its 5-year historical average multiples, indicating that the current share price is becoming more aligned with its underlying fundamentals. CardinalStone forecasted that in 2025, the cement company’s margins are expected to improve, supported by revenue growth and strategic cost management.
“The company is optimising its energy mix to include more locally sourced energy materials, aiming to reduce foreign exchange (FX) exposure”, analysts told investors in the equities review.
The investment firm cited that BUA management has guided that its facilities are designed to accommodate such energy switches easily. Additionally, renegotiations on operating and maintenance contracts aim to incorporate more local content, lowering costs.
As a result, the gross margin is projected to rise by 0.25 percentage points to 34.5%, while the earnings before interest and tax (EBIT) margin should expand by 0.30 percentage points to 27.3%, analysts stated. “We anticipate stronger performance from BUA CEMENT, driven by higher volumes from capacity expansion, elevated pricing, and reduced cost pressures”.
Volume growth and pricing strategy to drive revenue in 2025. In its audited report for 2024, BUA CEMENT grew revenue by 90.5% year on year, driven primarily by a 21.3% year on year increase in sales volumes to 8.14 million tonnes.
Analysts at CardinalStone revealed that the cement company’s installed capacity has increased to 17.0 MMt. However, with these facilities coming online late in the year, the effective capacity for FY’24 stood at 14.0MMt, with capacity utilisation at 58.1%. For 2025, BUACEMENT is poised for stronger growth, underpinned by increased production capacity and sustained demand, analysts said.
With both new plants fully operational, volumes are projected to grow by 23.0% YoY to 10.01MMt, with capacity utilisation to settle at 58.9%. The demand outlook remains favourable, supported by aggressive government infrastructure spending and rising private-sector investments.
Last year, total cement demand grew by 14.0%, and further expansion is expected in 2025, reinforcing BUACEMENT’s growth trajectory, CardinalStone said. Analysts explained that BUA CEMENT has historically adopted a more gradual pricing strategy to expand its market share, with a 4-year price cumulative average growth rate of 15.8%.
The company’s average revenue per tonne settled at N107,092 in 2024, trailing the industry peer average of N124,211. According to management, this was due to an initial lag early in the year, stemming from the backlog created by the October 2023 price cut.
However, pricing gained traction towards year-end, with Q4 average revenue per tonne rising to N130,902. For 2025, average revenue per tonne is projected to grow by 22.0% to N131,395.
Combined with stronger volume growth, this is expected to push revenue past the N1 trillion mark, reaching an estimated N1.3 trillion.
Analysts said severe expense pressures weighed on margins in 2024, as inflation and currency volatility drove up energy costs, operating expenses, and maintenance expenditures.
Finance costs soared by 201.0% to N60.0 billion, while foreign exchange losses from the IFC loan drawdown amounted to N92.1 billion. Despite these headwinds, a strong Q4 performance helped drive a 6.4% YoY increase in earnings.
The sharp depreciation of the Naira had a significant impact on BUACEMENT, leading to N92.1 billion in foreign exchange losses expensed.
CardinalStone Limited said in the review note that it noted that this was primarily driven by the $300 million drawn from the $500 million IFC line of credit obtained in 2023, with interest payments on the facility further contributing to higher finance costs.
“With expectations of relative currency stability in 2025, FX losses are anticipated to moderate”, the investment firm said. The company has indicated that it will hedge cash flows for interest repayments, which should help alleviate FX-related pressures.
Additionally, the commissioning of new plants came with contractual obligations involving deferred payments over the next 12 months. Combined with the revaluation of foreign supplier balances, this drove a 360.0% YoY increase in payables.
“While we anticipate that stronger operating cash flows will support the settlement of these obligations in 2025, we do not rule out the possibility of the company securing additional—albeit smaller— borrowings during the year”, CardinalStone said in its equities report.
That said, the company has prioritised loan repayments, particularly those on import finance liabilities, and this explains the reduction in overall borrowings in 2024.
The report said principal repayments on the 7.5% N115 billion bond commenced in FY’24, following the expiration of the three-year moratorium, with N28.8 billion already paid.
These repayments will continue over the next three years, gradually easing the company’s overall debt burden. Finance costs are expected to moderate by 29.5% YoY to N42.4 billion on account of reduced loan obligations. This, alongside stronger revenue growth and moderated FX losses, should lift PBT margin by 9.1 percentage points to 20.5% in 2025, CardinalStone said. FG Tasks NBTI on Research-Based Solutions to Insecurity, Agric Sector Challenges
