· Lafarge WAPCO Plc reported a 59.3% YoY rise in Q1 2012 revenue to N22.6 billion falling in line with our N22.4billion forecast, with growth significantly ahead of its 5-year average rate of 11.8%.
· Strong growth in revenue reflects stronger volumes as a result of production at its 2.2 MT Lakatabutu plant, which has reached full production capacity compared to Q4 2011. Q1 2012 revenues also rose 26% QoQ, reflecting improving capacity utilization at the new plant.
· Figure 1: Quarterly contribution to annual revenue (5-year average)
Margins reflect improved energy efficiency
· Q1 2012 cost of goods sold rose 16.4% YoY to N42.9 billion. The company is probably benefiting from improved energy efficiency during the period- both from lower energy cost as a result of improved gas supply during the quarter—which contrasts with extensive use of the more expensive LPFO in Q1 2011--and improved utilization at its new and more efficient Lakatabutu plant.
·This resulted in 15.7ppts YoY rise in gross profit margin to 57.4%; significantly ahead of our 37% forecast which did not fully anticipate this level of improvement.
·PBT rose 185% and 261% YoY and QoQ to N5.97 billion, well ahead of our N2.3 billion forecast primarily on the back of the significant efficiency gains highlighted earlier, putting PBT margin at 26.4%, an 11.7ppts and 17ppts YoY and QoQ rise.
·Effective tax rate rose sharply to 31.7% which is significantly higher than the 16.7% recorded in FY2011. Our forecast for tax rates were in line with FY figures in anticipation of benefits from the company’s 5-year tax shelter, which we expected to kick in with Lakatabu’s inauguration. The variance induced by the charge is appreciable and may reflect one off tax settlements. Our forecasts still incorporate the benefits of the shelter, though we will seek further clarification on this. Nevertheless, PAT rose 151% and 48% YoY and QoQ respectively to N4.07 billion, significantly ahead of our N1.9billion forecast. This result translated to a PAT margin of 18%, a 6.6ppts YoY rise—well ahead of its 5-year average PAT margin of 15%.
Figure 2: Lafarge Wapco’s Margins
We revise our price target higher · We believe the company is on track to match our N87.6 billion FY 2012 revenue forecast and we project a 3-year CAGR of 16.1% on the back of improved capacity utilization, as the Lakatabu plant approaches full utilization. In addition, the company’s enhanced distribution network helps unlock new markets to underpin sales.
· Furthermore, we believe efficiency gains from more consistent gas supply and newer production units should bolster gross margins over the long run and have adjusted COGS forecasts lower to reflect this shift.
·We thus revise our current TP upwards to N53.06 from the previous N49.20, putting current market price a 26% discount to prospective fair value. WAPCO currently trades at a 2012 forward P/E of 7.14x and P/B of 2.11x compared to an industry average of 7.15x and 2.09x respectively. On the back of TP revisions we upgrade our rating for the stock to a BUY from the previous overweight.
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