This observation is that of Ahmed Rochd, Director of Research at Valoris Securities who spoke in a webinar organized by the Professional Association of Brokerage Companies (APSB) and the Casablanca Stock Exchange this week.
The manager recalls the current economic situation in the construction sector: a global context marked by the acceleration of inflation and a drop in demand. “As an example, we note a growth rate of real estate loans over 12 rolling months limited to 2.3% at the end of April 2022, against 3.4% in February 2020 before the crisis”. And this, despite the fall in the index of real estate assets over this period, making prices more affordable.
At the same time, the deterioration in the economic situation and the slowdown in the progress of construction sites weighed on the level of national cement consumption, with monthly consumption struggling to exceed 1.2 million tonnes per month since the start of the year 2022.
Long-term growth drivers
Ahmed Rochd cites a few growth drivers that should drive activity in the years to come. These include the development of the Agadir-Dakhla axis and more generally the policy of reviving the State which should, as in the past, be favorable to the construction industry. According to the analyst, the state has always relied on the sector to quickly create growth and employment. We saw it after the subprime crisis and after the Arab spring. History should repeat itself. Moreover, he points out, the rate of execution of public investments in 2022 reached 34% at the end of April, i.e. a level almost similar to the levels of past years, which reflects a proactive policy by the public authorities, despite the current context.
Disparate expectations for companies in the sector
For Ahmed Rochd, the listed cement operators (LafargeHolcim and Ciments du Maroc) should be under less pressure on their sales than the rest of the operators, due to their presence in southern Morocco. That said, “Given the increase in the cost of inputs, we anticipate a drop in the EBIT margin of 4 points for cement operators, the effect of which should be partially offset by the increase in selling prices”.
The other stocks operating within the listed construction sector should experience a depreciation of their sales in volume. “However, the rapid increase in the prices of imported products should enable these companies to improve their margin level”. This is particularly the case for Sonasid, which should benefit from the reduced room for maneuver of importers due to the rise in the price of the billet.
Revenues and profits
In the end, Ahmed Rochd warns investors that the general increase in turnover among construction companies is not synonymous with improved profits, insofar as the recent inflation could well affect sales in volumes and margins.
According to him, the most solid players will be able to take advantage of the situation to improve their market shares (Sonasid and TGCC in particular) to be in good shape for recovery when demand picks up and inflation dissipates.