- Consumer goods sector plagued by foreign exchange shortages, Naira devaluation, rising cost of commodities
Investing in the capital market is basically driven by the desire to earn returns, such rewards classically known as return on investment (RoI) can be achieved either by way of trading the stocks or waiting for dividend payout.
Topically, investors who choose the stock trading option which is usually a short-term investment measure their RoI via the differential in the price of the stock at the point of purchase and sale. Of course, if the difference is positive, the investor makes gain but if negative then it’s a loss.
However, the long-term investor waits for dividend payment over time to recoup the resources invested before making gains.
For these sets of investors, a company’s capacity to make profit is very important as rewards or dividend payment can only be paid when the company is profitable.
Apart from profitability, another vital concern for such investors includes the outstanding shares of the company involved and dividend history.
One of the most viable sub-sectors that have proven to have a huge potential to reward investors proficiently in terms of dividend payment over the years is the Building Materials sub-sector under the Industry Goods sector.
“Dangote Cement’s revenue surged by 62% in 2024 to N3.58 trillion, up from N2.21 trillion the previous year. Lafarge Africa followed with a 72% revenue increase to N696.8 billion. However, BUA Cement led in revenue growth, posting a 91% increase from N460 billion in 2023 to N876.5 billion in 2024”
Listed on the Building Materials sub-sector of the Daily Official List of the Nigerian Exchange Limited are Dangote Cement PLC, BUA Cement PLC and LAFARGE Cement PLC otherwise known as WAPCO PLC.
Review of 2024 financial year performance
As stated earlier, a key requirement for investing in a stock for dividend payment is engineered by the desire to earn returns over a long time. While such investment entitles you as part owners of the firm in question, the fact remains that you are expected to recoup the funds invested and earn rewards.
It’s important therefore for prospective investors to look out for firms with the capacity to consistently deliver profit over time.
In this regard, analysing the latest financial results of the three firms listed in the building material subsector of the NGX offers an insight into their worth with regards to their deliverables as it concerns long-term investors and the prospect of retrieving their investment and getting rewarded for doing so.
Profitability metrics
Dangote Cement’s revenue surged by 62% in 2024 to N3.58 trillion, up from N2.21 trillion the previous year. Lafarge Africa followed with a 72% revenue increase to N696.8 billion. However, BUA Cement led in revenue growth, posting a 91% increase from N460 billion in 2023 to N876.5 billion in 2024.
Despite BUA Cement’s revenue growth, Dangote Cement remained dominant in profitability. It recorded a gross profit of N1.93 trillion, achieving a 54% gross margin. Lafarge Africa followed with N346.7 billion in gross profits and a 50% margin, while BUA Cement trailed with N300.2 billion and a 34% margin.
In operating profit, Dangote Cement led with N1.15 trillion and a 32% margin, outpacing Lafarge Africa’s N193 billion (28% margin) and BUA Cement’s N144.3 billion (16% margin). Net profit figures showed both Dangote Cement and Lafarge Africa posting a 14% net margin, while BUA Cement reported an 8% net margin with N73.9 billion in net profit.
For Return on Assets (RoA), Lafarge Africa led with 12%, followed by Dangote Cement at 9.7%, and BUA Cement at 5.3%. Return on Equity (RoE) saw Dangote Cement at 26%, Lafarge Africa at 21% and BUA Cement at 19%.
Based on the assessed profitability metrics, Dangote Cement emerged as the most profitable cement producer in 2024.
Liquidity metrics
In terms of liquidity, Lafarge Africa holds a significant advantage over Dangote Cement and BUA Cement across all key ratios.
With stronger short-term liquidity, Lafarge Africa is better positioned to meet its financial obligations without relying on asset sales, while Dangote Cement and BUA Cement face greater liquidity constraints—particularly in terms of cash availability.
Efficiency metrics
Lafarge Africa also led in asset turnover ratio, a key measure of how efficiently a company uses its assets to generate revenue. Lafarge recorded a 0.70 asset turnover ratio, outperforming Dangote Cement (0.56) and BUA Cement (0.56).
However, BUA Cement demonstrated the strongest inventory management, achieving an inventory turnover ratio of 4.69, ahead of Lafarge Africa (4.42) and Dangote Cement (3.09). This suggests that BUA Cement cycles through inventory more efficiently than its competitors.
Valuation metrics
With earnings per share (EPS) of N29.74, Dangote Cement recorded a price-to-earnings (P/E) ratio of 16.13 xs. In comparison, BUA Cement, with an EPS of N2.18, had a significantly higher P/E ratio of 42.66 xs.
Lafarge has the lowest price-to-earnings ratio of 12.06x. Among the three, Lafarge Africa appears to be the most attractively valued based on its lower P/E ratio, suggesting a relatively undervalued stock
In terms of price-to-book (P/B) ratio, Dangote Cement stood at 3.70 xs, which is less than half of BUA Cement’s 7.76 xs. Lafarge Africa has a significantly lower P/B ratio of 2.39 xs.
Lafarge Africa appears to be the most attractively valued stock among the three cement producers, with the lowest P/E (12.06x) and P/B (2.39x) ratios, suggesting it may be undervalued relative to its earnings and assets.
Dangote Cement, with a P/E of 16.13 xs and a P/B of 3.70 xs, maintains a balanced valuation, reflecting strong earnings and asset value.
Meanwhile, BUA Cement’s significantly higher P/E (42.66x) and P/B (7.76x) indicate that investors are pricing in strong future growth, despite its lower current earnings and book value.
While Dangote Cement was the most profitable cement producer in 2024, Lafarge Africa stood out in liquidity, efficiency, and valuation metrics.
BUA Cement, despite its strong revenue growth and efficient inventory management, remains the most expensive stock, with high valuation multiples. Investors are clearly pricing in strong future growth potential, but its current fundamentals lag behind its competitors.
Ultimately, Dangote Cement delivered the strongest profitability, Lafarge Africa showed superior financial stability, but BUA Cement remains the priciest stock. Investors will need to weigh growth potential against valuation and liquidity risks when considering these cement giants.
Closing thoughts
The cement business has headroom for growth, but with a relatively slow growing Nigerian economy at 3.84% as of the end of 2024, the volume growth would be relatively tame, but price increases could shore up revenue.
“BUA Foods Plc, Dangote Sugar Plc, Nestle Nigeria Plc, Nascon Allied Industries Plc, Nigeria Breweries Plc, and International Breweries Plc collectively incurred N2.70 trillion in raw material costs, which is 63.64 percent higher than 2023’s N1.65 trillion”
The falling market price of the company reflects this perception.
On a brighter note, with the operation of the Dangote refinery cross organisational debt support could either end or reduce sizably allowing for a gradual debt slow down for the cement company, thereby reducing the company’s forward-looking debt-to-equity ratio (DER).
A lower DER would reduce leverage and improve credit risk rating and potential market price. This could mean a price reversal or market correction over the next quarter.
Consumer goods sector plagued by foreign exchange shortages, Naira devaluation, rising cost of commodities
However, a breakneck rise in the price of raw materials and shortages of key components are creating a logistical nightmare for consumer goods firms whose earnings have been depressed in the face of macroeconomic headwinds.
BUA Foods Plc, Dangote Sugar Plc, Nestle Nigeria Plc, Nascon Allied Industries Plc, Nigerian Breweries Plc, and International Breweries Plc collectively incurred N2.70 trillion in raw material costs, which is 63.64 percent higher than 2023’s N1.65 trillion.
Sector players are vulnerable to fluctuation in commodities prices and exchange rate volatility as they import some of the raw material components needed in the manufacture of their products.
For instance, Dangote Sugar has a dependence on imported raw material as over 90 percent of its raw sugar is imported, which is why the largest producer of the sweetener incurred N208.90 billion in foreign exchange losses that resulted in a loss after tax of N192.61 billion.
While Nestle Nigeria and Cadbury source 80 percent of their raw material locally, they both have seen higher input costs on the back of rising inflation.
Consumer goods sector has been beset by a mirage of challenges such as foreign exchange shortages and the Naira devaluation, lower purchasing power of consumers due to the unabated inflationary pressures, and the rising cost of commodities.
The rate of inflation at the end of December 2024 stood at 34.80 per cent which exceeded the 21.40 per cent that the Central Bank of Nigeria had set as a target for the year.
Other challenges include insecurity in the food producing region, decrepit infrastructure, as supply chain bottleneck exacerbated inflationary pressures.
The Food and Beverage subsector felt the most pang of rising inflation that drove up the cost of production.
A higher cost of production means profit margins for companies are squeezed.
Of course, the devaluation of the currency which brought on foreign exchange revaluation losses battered earnings before interest taxation and amortisation margins.
Further analysis of the financial statement of the consumer goods firms shows BUA Foods spent N914.82 billion on raw materials in December 2024, which is 104.39 percent higher than 2023’s N447.58 billion.
Dangote Sugar Refinery’s raw material cost was up 84.46 percent to N546.05 billion from N296.02 billion the previous year.
Nigerian Breweries’ costs of N615.13 percent make up over 80 percent of total cost of production.
Nestle Nigeria incurs N357.54 billion in raw material costs to end 2024 financial year, which is 114.12 percent higher than 2023’s N166.98 billion.
Nascon Allied Industries’ raw material costs rose by 78.14 percent to N55.88 billion in December 2024 from N31.37 billion the previous year.
Hoarders lose as food prices crash by 40%
Meanwhile, although Nigerians continue to bask in the euphoria of a crash in food prices, traders who have hoarded grains are bemoaning the 40% drop in prices between December and March 2025.
In December, many traders bought grains for storage, intending to sell when prices rose by February-March, as has been the norm in the last two years.
Unfortunately for them, grain prices have continued to decline.
For instance, a 50kg bag of beans that was sold between N100, 000 and N140, 000 has dropped to N75, 000–N85, 000.
Rice, which cost around N114, 000 in December, is now about N52, 000 in some places.
Also, a 50kg bag of soya beans dropped from N120,000 to N60,000, sorghum from N140,000 to about N35,000–N40,000, millet from N70,000 to N40,000, and maize from N120,000 to N45,000.
For tubers, 120 pieces of yam, which sold for about N300,000 last year, are now sold for about N180,000.
A trader from Iseyin, Oyo State, Nike Akanni, lamented her predicament, saying she took a loan of N1.5 million to buy bags of maize in December, hoping that prices would rise by the end of January. However, she is disappointed that the reverse is the case.
She said, “In December 2023, we bought bags of maize for N60,000, and by March, when prices went up, we sold them for around N120,000 and made lots of money. But this year, we were hoping that prices would go up. Now, we have tied our money down because maize is selling for less than what we bought in December.”
Another trader from Katsina, Saleh Abu, also lamented the drop in grain prices, saying, “We don’t understand what is happening. We used all our money to store grain in December, and now we don’t have any money left to buy new stock.”
Adamu Musa from Kano State explained that, as of last year, food companies usually came to mop up their grains, but now most of them no longer do so, adding, “Even when some of them come, they want to buy on credit, but we traders cannot sell to them because our money is already tied up in stored grains.”
Abu attributed the drop in food prices to a lack of money in circulation, as many traders have to sell off their grains just to raise cash for other necessities.
On the part of the trader from Iseyin, she said there is a drop in prices because of the opening of land borders, as the Nigeria Customs Service no longer seizes their goods at the border like they used to, except on a few occasions when they want to extract money from them.
As of December 2024, food inflation had risen to 50%, worsening the cost-of-living crisis and leading to a spike in malnutrition.
In response, the Federal Government announced plans in July 2024 to grant waivers on food importation. Earlier, the government had also reopened land borders to allow food imports from neighboring countries.
While farmers expressed reservations about the policy, arguing that it would negatively impact food security, economists projected that increased food supply would help stabilise prices by reducing the demand-supply gap.
An analyst, Ismael Mohammed, said that the increase in food supply triggered by imports has led to greater food availability, resulting in falling prices.
“The force of supply has been manipulated through importation, making food more available and leading to a drop in prices,” he said.
However, he noted that this method is not sustainable unless the government continues to import food, which is not beneficial for Nigerian farmers.
“Continued importation is not a good long-term strategy for Nigeria’s agriculture sector,” he argued.
It should be noted that food importation has eased the food crisis by increasing availability for consumption and animal feed production.
Nigeria’s food crisis has been worsened by insecurity, preventing many farmers from accessing their lands due to the threat of bandits.
Analysts argue that regardless of the government’s efforts to increase food availability, the most sustainable way to tackle food inflation is by improving security so that farmers can return to their farms.
The Managing Director of Green Sahara Farms, Suleiman Dikwa, also emphasized the need for the government to address post-harvest losses, which have led to 40% of farmers’ produce going to waste.
