Lafarge Africa Doing Well, Balance Sheet Remains Healthy
A member of the Holcim group, Lafarge Africa Plc, is doing well in terms of earnings performance amidst heavy rivalry among the cement oligarchs after the company’s cleaned up its balance sheet (statement of financial position).
Consequent to low pressures on financial position except for hot competition with rivals for market share, the company’s share price continues to enjoy buying recommendation among a slew of equity analysts.
WSTC Securities has Lafarge (Ticker: WAPCO) in its buying bucket after upward adjustments to its estimates. By market valuation, Lafarge WAPCO is the smallest among the top three cement companies listed on the Nigerian Exchange, according to data.
In the first quarter of the financial year, Lafarge Africa breaks earning ceiling and crossed the rooftop on the back of an increased sales volume and upward price adjustment allowed by rising inflation in Nigeria.
The company’s revenue grew by 27% year on year to N90.61 billion, making it the fifth consecutive quarter of double-digit revenue growth, according to analysts. READ: Lafarge Africa’s Huge Cash, Low Debt to Influence Dividend Payout
WSTC Securities Limited said in an equity report that the sustained revenue growth is attributed to the solid fundamentals of the cement industry, driven by both private and public sector demand.
“We believe that higher volumes contributed more to the revenue growth”, the investment firm’s analysts stated. While the company is pushing ahead for earnings growth, the management did not lose sight of the need to control its cost profile and keep a higher margin.
As noted by WSTC Securities, the Company’s previous efforts in optimising costs through plant efficiency yielded positive results in Q1-2022. A review of the company result shows that the cost margin declined by 300 basis points to 53% in the first quarter of the year.
Analysts expressed the view that increasing economies of scale was another factor that was responsible for the lower cost margin, as higher volumes were sold during the quarter.
In the first quarter of 2022, the unaudited results showed that Lafarge Africa’s gross profit grew by 35% year on year to N42.17 billion following the ability to keep a tab on the costs profile.
Low leverage position due to adjustment made to capital structure when the company paid off debt obligation help its ongoing market re-positioning. A look at the income statement shows that operating expenses grew by 22% year on year to N20.22 billion in Q1 2022, accounted for by a 21% administrative expense increase and a 17% increase in selling and distribution expense.
WSTC analysts linked these increases to a higher scale of operations during the period, and the result was reflected in the topline growth. Despite the increase in operating expenses in absolute terms, the operating expense margin declined by 100 basis points to 22% in Q1 2022, according to the equity report.
Therefore, operating profit spiked by 50% to N22.12 billion. Analysts said the strategic effort by the Company to deleverage its balance sheet led to a 68% decline in finance costs. Notably, a bond matured in Q4-2021 and that meant that interest payment on that bond was not incurred in Q1-2022 relative to Q1-2021.
Down the line, Lafarge’s profit before tax grew by 68% to N21.47 billion while profit after tax grew by 92% to N17.56 billion, due to a lower effective tax rate in Q1-2022.
Looking into the future, equity analysts at WSTC Securities are expecting the growth momentum to persist into the subsequent quarters of 2022, driven by sustained product demand.
“We also expect sustained cost optimisation to drive bottom line growth”. WSTC Securities said that based on Lafarge Africa’s current financial position, there is sufficient liquidity to carry on operations in the near to medium term.
Analysts said they do not expect to see a material rise in debt levels. Having incorporated the higher-than-anticipated Q1 2022 performance and revising growth expectations for the remaining quarters of the year, analysts said they now have revised earnings per share (EPS) projection of N4.39 for 2022, an upgrade from the previous estimate of N4.01.
Consequent to a healthier earnings outlook, analysts’ dividend expectation for the financial year 2022 has been raised to N2.50 from N2.20 earlier projected. Stock fair value has been upgraded to N37.80 from N31.02.
Rated buy, analysts said based on the investment firm’s fair value, the stock offers a 58% total return -inclusive of a 10% dividend yield. #Lafarge Africa Doing Well, Balance Sheet Remains Healthy