Dangote, Lafarge Snub BUA Cement Price Cut
Indications have emerged that other members of cement oligarchs, Dangote Cement Plc, and Lafarge Africa are not planning to cut their respective prices anytime soon.
Some market analysts have predicted that BUA Cement Plc’s decision to cut the ex-factory price to N3,500 would be followed by price actions by other players in the industry.
This week, Dangote Cement Plc denied that the company reduced its price following a number of online news reports that the company is now running promotions in response to the subtle price war in the industry.
Asking if Lafarge Africa is planning to retaliate, “We remain committed to ensuring our products are available for our customers at the right price. We maintain our promise of ensuring the consistent quality of all our products and solutions, Ginikanwa Frank-Durugbor Communications, Head of Corporate Communications told MarketForces Africa.
In its market update, CSL Stockbrokers said BUA cement’s +17.2% year-on-year revenue growth in the first half of 2023 was primarily driven by an upward price adjustment amidst stable sales volumes.
In the period, BUA Cement reported increases in prices with the average cement price rising to N67,192 per ton from N56,454/ton in the corresponding period in 2022. In the first half result, the cement company sales volumes settled at 3.29 million MT from 3.34MT a year earlier, indicating a 1.5% year-on-year decline.
The cement company increased capital spending to boost capacity with the construction of lines 3 and 5 at the Obu and Sokoto plants in a bid to bolster volume.
The lines are planned to begin operations in the first half of 2024, adding another 6 MT to the company’s production capacity, and raising the total production capacity to 17 MT from the present 11 MT. However, the company’s net Income increased by 3.7% year on year to N63.62 billion in the period from N61.36 billion in the first half of 2022.
CSL Stockbrokers said price adjustments would be necessary to support profit margins in the second half of 2022, though analysts said they understand management’s intention to reduce prices.
“In our view, a reduction in prices will lead to a decline in revenue amidst low sales volumes. We estimate a 9% year-on-year growth in price per tonne for 2023 while projecting a 5% year-on-year volume growth”.
Overall, analysts said they expect BUA Cement revenue from the Nigerian operations to increase by 25% year on year to N451.89 billion in 2023 from the N360.99 billion recorded in the financial year 2022.
Analysts at CSL Stockbrokers expressed concern about the company’s capacity to effectively manage its costs, particularly its selling and distribution costs.
“We believe this will hamper bottom-line performance”, the investment firm said in its equity note on BUA Cement. However, given the industry wide decline in demand levels, an increase in production capacity may not automatically lead to an increase in volumes sold, according to analysts.
“We further note that due to consumers’ preference for its competitors’ products, the company may not be well-positioned to benefit immediately from an increase in demand”, CSL Stockbrokers said in a report.
In the note, CSL Stockbrokers downgraded BUA Cement to sell at N80.50 target price, which implies a 16% downside potential from the last closing price of N96.15 per share in the stock market. #Dangote, Lafarge Ignore BUA Cement Price Cut