Like the tourism and hospitality sectors, construction has been hard hit by the Covid-19 pandemic.
As a result, the construction sector saw a 30% collapse in the second quarter of 2020.
But it looks like the construction sector has started to see a recovery at last. In 2020, the Afrimat Construction Index dropped to below 70 - from a 2019 average of just above 120. Indicating a huge drop in confidence and volumes in the construction sector. Since then, it recovered to more than 110 - indicating a huge recovery in the sector.
Q2 2020 building material sales saw a crash to around R600 million monthly sales - and by Q3 2020 it has already recovered back to R900 million - with 2019's high being more than R1 billion in monthly sales.
What's more - wholesale trade sales in the construction industry actually rose to more than the high's they saw for each year of 2017, 2018 and 2019… Simply put - a recovery is on the cards.
But right now, there's a specific catalyst that could prove a massive opportunity for cement producers… And one specific penny stock might benefit hugely.
No ordinary stock recommendation…
We do go on about the state of the economy and financial markets.
But as an investment publisher, our bread and butter is investment recommendations.
When it comes to ‘stock tipping’, you need to be prepared to lose money if you’re wrong. No matter how much research you do.
Every now and then, though, a stock recommendation comes across my publishing desk for signoff that REALLY gets my attention.
Government projects will require use of locally produced cement in future
The 2021 Budget Review released last week revealed that government has a programme to spend R791.2 billion on infrastructural investment over the next three years.
And right now, Cement and Concrete SA (an industry body representing local producers) has applied with the Department of Trade and Industries for a designation with National Treasury.
What this means is that government will require all future infrastructure projects to use locally produced cement, instead of imports.
A recent Moneyweb
report states that: “According to [the dtic], it has been approved but still has to go through the chief procurement officer or something like that to be formally gazetted. In principle, designation has been approved”
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A tiny penny stock that stands to benefit big-time!
Sephaku Holdings owns Metier, a ready-mix concrete producer, and Sephaku Cement. Sephaku Cement (SepCem) owns a brand new, state of the art cement factory – which can produce at much better prices than competitors like PPC can.
Due to Covid, SepCem experienced an 8.5% contraction in cement sales for the six months ending June 2020.
What is amazing is that for an entire month, it wasn’t allowed to sell during level 5 lockdown. That means it saw an 8.5% decrease in sales even though it wasn’t allowed to sell for more than 16% of the financial period in question.
This means that for the remainder of the period – cement sales would actually have been HIGHER!
Third quarter sales increased 82% on second quarter sales and were 33% higher than corresponding 2019 sales.
Clearly there’s already a big recovery on the cards at SepCem.
Now add in the effect of government ONLY buying local cement – and a subsequent crash in imports – and the company could see volumes rise even more as it isn’t even close to producing at maximum production capacity.
This is definitely a stock to at least keep an eye on… And if government actually comes to the table with this new catalyst for the industry, it could be a screaming buy.
Here’s to unleashing real value
Editor, Red Hot Penny Shares