Investors urged to finance Dangote and Lafarge Africa growth

Following last month's approval of a NGN9.1trn (US$25bn) budget for 2018, Nigeria is set to go on a massive infrastructure spending spree. Eager to be at the forefront of cement supply, Dangote Cement and Lafarge Africa are urging foreign investors to get onboard.

The budget is the nation's biggest-yet spending plan, says Bloomberg, with almost a third of it going into roads, rail, ports and power. Furthermore, with a major housing gap of 17m, which is expected to increase in line with a burgeoning population, the potential of residential cement demand is assured. At present, the country has 11 cities with a population of over 1m and 77 per cent of inhabitants are under 35 years old. All will require housing and infrastructure over the next few decades.

Dangote Cement
Dangote Cement, controlled by Africa's richest man, Aliko Dangote, is looking to raise US$500m from a eurobond sale and will also issue NGN300bn in local-currency bonds to refinance debt and boost expansion. This expected to be followed by a London initial public offering to raise a further US$1bn funds. Raising foreign currency will enable Dangote to meet capital expenditure needs in other African subsidiaries, said Omotola Abimbola, Afrinvest equity analyst.

Dangote Cement's management has set a growth target of 7-10 per cent in 2018 for the group with stable cement prices and an improved economic outlook predicted to advance the company's performance in its domestic market. Dangote is also expected to benefit from volume recovery and continued energy savings from coal substitution in Nigeria, says Cordros Research.

In addition, to further boost its sales the cement producer launched an online sales platform with Jumia Nigeria last December for customers to purchase a minimum order of 300 50kg bags online. This could see significant orders if it is expanded from its current restrictions that only enable orders from Lagos, Abuja and Port Harcourt.

"We are starting with Minimum Order Quantity (MOQ) of 300, 600 and 900. We may increase depending on demand surge as times goes on, " said Dangote's Key Account, Chux Mogbolu.

Lafarge Africa
Meanwhile, Lafarge Africa (LafargeHolcim group) is seeking to raise about NGN100bn through equity or debt on top of a rights issue of about NGN131.6bn late last year. The company now has six cement plants, having bought the 5Mta Mfamosing cement plant in Calabar, southeastern Nigeria, in 2016. However, Lafarge Africa's net debt in Nigeria was already at NGN243.6bn last September and the company is aiming to reduce this to nearer NGN200bn by the end of 2018.

While 70 per cent of its revenue is derived from its Nigerian operations, Lafarge Africa is also investing in its South African operation, increasing cement capacity to 17.5Mta from 14.1Mta across the continent (Nigeria, Ghana and South Africa). Its big advantage in Nigeria is that it is the only vertically-integrated cement company in the country and it will also benefit from the Ashaka power plant coming on-stream in 4Q18.

South Africa
In South Africa, where both Dangote Cement and Lafarge Africa also have operations, fixed investment expanded in 4Q17 in the run-up to President Cyril Ramaphosa winning control of the ANC and becoming national leader in February.

"Across the region in the last one or two years, we are seeing improving macroeconomic fundamentals driven by the upturn we are seeing in commodity prices," says Omotola Abimbola.

"Improvement plans in Nigeria delivered strong operational performance while turnaround actions will be consolidated further in 2018 through energy optimisation as well as commercial and logistic improvement," Michel Puchercos, Lafarge Africa CEO, said. He is optimistic that favourable pricing in Nigeria coupled with gains from logistic and commercial initiatives will sustain market share.
 
"The target is to significantly build EBITDA margins. The South Africa economy is expected to grow in 2018 which should impact on our South Africa operations. Our turnaround plan in South Africa which is focused on cost containment, commercial transformation and industrial stabilisation is expected to return our SA business to profitability," said Mr Puchercos.

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