BUA cement to increase production to 20mtric tons

BUA Cement Plc presents a compelling investment opportunity driven by significant capacity expansion, strong revenue growth, and robust earnings performance. With plans to scale production to 20 million metric tons per annum by Q1 2027, the company is positioning itself as a formidable player in Nigeria's cement market amid rising infrastructure demand. Despite macroeconomic headwinds, the business has shown operational resilience and continues to reward shareholders through an aggressive 94% dividend payout ratio, a testament to its sound financial health.

✅ Strengths

1. Aggressive Capacity Expansion as Catalyst
   • Commissioning of new lines in Edo and Sokoto raised installed capacity from 11mmtpa to 17mmtpa.
   • A greenfield 3mmtpa plant in Ososo, Edo State will bring total capacity to 20mmtpa by Q1 2027.
   • This solidifies BUA’s position to capture growing domestic cement demand and export potential in West Africa.
2. Strong Revenue & Profit Growth
   • FY 2024 revenue grew by 90.5% to ₦876.5 billion.
   • Profit before tax rose by 48.2% to ₦93 billion, despite FX headwinds.
   • Q1 2025 PAT of ₦81 billion implies a potential FY25 PAT projection of ₦250 billion.
3. Attractive Dividend Yield
   • With a ₦2.05/share dividend and a 94% payout ratio, BUA stands out for income-seeking investors.
4. Cost Efficiency and Energy Transition Strategy
   • The company is investing in alternative energy sources to reduce production costs and environmental footprint.
5. Favorable Long-term Industry Trends
   • Federal and state infrastructure spend, urbanisation, and housing deficit continue to drive cement consumption.
   • Ongoing foreign exchange market reforms and naira stabilisation are expected to improve margins.

❌ Weaknesses & Risks

1. FX Volatility Risk
   • Devaluation pushed FX losses to ₦9.3 billion in 2024; cost of imported equipment and inputs remains a concern.
   • A reversal in naira stability could erode future profitability projections.
2. Execution Risk on Expansion Projects
   • Delay in completion of the Ososo plant or cost overruns could affect output targets and returns.
   • Energy projects meant to cut costs may face regulatory or infrastructural delays.
3. Regulatory & Competitive Pressure
   • Rising regulatory scrutiny on cement pricing amid inflationary pressure could cap pricing power.
   • Competitors such as Dangote Cement and Lafarge may engage in price wars or capacity upgrades.
4. High Dividend Payout Sustainability
   • While attractive now, sustaining a 94% payout ratio may constrain capital reinvestment if margins tighten.

📊 Assumptions & Forecast

• Revenue Projections: Assuming a 20% CAGR from the 2024 base of ₦876.5bn due to expansion and pricing power, revenue could reach ~₦2.2 trillion by 2029.
• Earnings Forecast: Assuming margin expansion from 10.3% (2024) to 13-15% on FX moderation and scale benefits, earnings could exceed ₦300 billion by 2029.
• Valuation Outlook (2029):
  • At a conservative forward P/E of 12x, this implies a market cap potential of ₦3.6 trillion.
  • With 33.86bn shares outstanding, that projects a fair value of ₦106/share (vs ~₦90 today).

🧾 Conclusion & Recommendation

BUA Cement is well-positioned for long-term growth, supported by production scale-up, strong financial execution, and strategic cost reduction efforts. While FX and execution risks exist, the company’s high earnings visibility, dividend attractiveness, and market share momentum justify a BUY rating for long-term investors seeking exposure to Nigeria’s infrastructure and construction boom.

BUY | Target Price (2026-2027): ₦105 – ₦115/share Risk Rating: Medium Time Horizon: 3 – 5 years