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RenCap Rates Dangote Cement Positive, Projects N200 Share

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  • RenCap Rates Dangote Cement Positive, Projects N200 Share

Rencap Securities (Nigeria) Limited has maintained its ‘outperform’ rating on shares of Dangote Cement Plc (DCP) has projected that the shares will hit N200 each. DCP closed at N167 per share last Friday.

But Rencap said after a recent meeting with the management and Group Chief Financial Officer of DCP, Mr. Brian Egan, to discuss recent increase in cement prices and volume impact in Nigeria and other operations in Africa, “we maintain our outperform rating and N200 target price.”

According to Rencap, DCP expects strong revenue growth in full year 2016, given the solid demand seen in Nigeria.

“Earnings before interest, tax, depreciation and amortaisation EBITDA) margins, as we expected, will likely be lower from the impact of naira depreciation and increased use of low-pour fuel oil (LPFO) due to gas shortages. Management said gas supply is now stable in Nigeria (a surprise to us) following the conversion of its kilns to be coal-compatible. DCP said it planned to buy coal domestically from mines operated by Dangote Industries Limited (DIL) in Kogi from April. However, we are cautious on this move as locally sourced coal does not burn as fast as imported coal and is therefore less efficient,” the investment banking firm said.

Rencap added that the DCP said the capital expenditure of $400 million in 2016 was mainly used to: fund the Congo plant, complete the Tanzania plant, and convert the Obajana, Ibese and Unicem plants to be coal-compatible.

“In Nigeria, foreign exchange (fx) sourcing challenges remain, although to a lesser extent than previously. Dangote gets a portion of its required FX from exports and money abroad, but says repatriation also remains a challenge,” it said.

Rencap explained that the South African market remains fragmented, with EBITDA margins under 20 per cent (27-29 per cent target from second half of 2016 onwards according to Dangote’s South African subsidiary Sephaku Cement), with cement prices down to $50/t.

“Cement prices remain depressed in Zambia, and while infrastructure investment in Ethiopia continues to drive volume growth, intra-regional political instability poses a risk. To address the problem of repatriating fx to Nigeria from Ethiopia, management is working on an alternative that will see it obtain naira for its birr in a deal with Ethiopian Airlines. Following the ban on the importation of coal in Tanzania, there is a shortage of viable coal, as the local coal supplier, Tancoal, cannot supply the entire market. Management (DCP) is therefore working on obtaining gas from April. Congo’s integrated plant (1.5mn tpa) will be operational in February, while Sierra Leone’s import facility (0.7mn tpa) will come on stream in 1Q17,” Rencap said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.

The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.

According to Michael McCarthy, the Chief Market Strategies, CMC Markets, the surged in gold price is a result of the projected drop in dollar value or uncertainty.

He said, “The key factor appears to be the (U.S.) currency.”

As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.

Also, the effectiveness of the vaccines can not be ascertained until wider rollout.

Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.

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Crude Oil

Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

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Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.

Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.

While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.

On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”

“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.

Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.

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Crude Oil

Crude Oil Pulled Back Despite Joe Biden Stimulus

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Crude Oil Pulled Back Despite Joe Biden Stimulus

Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.

Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.

On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.

OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.

The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.

But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.

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