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Renaissance Capital, a Russian investment bank, said today that it remains optimistic on the performance of Nigeria’s cement sector given the improved availability of foreign exchange to cement producers.

The Moscow-based firm provided its outlook after interacting with the leadership of major cement companies during its recently-concluded investors conference, which was held from May 8-12 in Lagos.

“Sentiments were much better this year, given investors are more optimistic, especially with the new FX window,” Rencap said in a note to investors written by Temilade Aduroja, the bank’s Materials/Oil & Gas Analyst.  “Feedback is that the cement market in Nigeria remains resilient and individual homebuilders are still building. FX access for raw materials at the official rate is less cumbersome and gas disruptions have reduced.”

Rencap said the management teams of cement producers are expecting a flat 2017 with the cement market returning to growth in 2018. The investment firm said Dangote Cement’s shares remained its preferred stock with a “market perform” rating.

“Upside could come from government spending on infrastructure, which the companies expect in 2018 given it is a pre-election year. Albeit a tough operating environment last year, significant price increases by end-2016 have reduced margin strain and cement players have returned to strong pre-devaluation EBITDA margins,” Rencap said.

As for the oil and gas sector, Rencap said it is cautiously optimistic about the upstream sector given that the Trans Forcados Pipeline (TFP) – which has been on force majeure owing to militant activities – will become operational soon.

“Management teams believe a re-opening is imminent but cannot confirm the TFP’s status until Shell makes an official announcement,” Rencap said. “According to the oil & gas names we met, militant activity has eased as Vice-President Yemi Osinbanjo has been in talks with groups in the Niger Delta. In addition, we are impressed that Lekoil has sold first oil from the Otakikpo field, recording its first cash flow. Overall, we find the sector more stable than it was last year, and the players seem to us to prefer working with a more transparent government.”

Based on this premise, Rencap said it has assigned a “market outperform” rating to Seplat Petroleum and Development Company given that the oil and gas firm will record significant cash flows once the TFP force majeure is lifted.

Rencap said the low-margin downstream oil and gas sector still has a lot of restructuring and reform to undergo before it might be attractive to investors.

“Fuel has not been “deregulated” or “partially deregulated”, as we assumed last year, but the subsidy has moved up the chain from the marketers to the Nigerian National Petroleum Corporation (NNPC),” the investment firm said. “We view this subsidy as unsustainable. We do not see any respite in the short term unless there is proper deregulation, which would hurt consumers. However, in the long term we think Dangote’s refinery will release the government from this import burden.”