Thursday, March 23, 2017 8:59 AM / FBNQuest Research
Event: Lafarge Africa reports Q4 2016 results
Implications: Upward revisions to consensus 2017E PBT forecasts likely
Positives: PBT swung to N17.5bn, driven by sales growth of 12% y/y and a 1758bps expansion in gross margin to 38.4%
Negatives: Opex grew 15% y/y
This afternoon, Lafarge Africa (Lafarge) published its Q4 2016 results which showed that the company delivered PBT and PAT of N17.5bn and N43.3bn respectively compared with pre-tax and after-tax losses of -N7.2bn and –N2.4bn in Q4 2015. The numbers are even more surprising when viewed from the context of the 9M 2016 performance which showed pre-tax and after tax losses of –N40.4bn and –N25.0bn respectively.
Although the strong y/y growth in PBT was underpinned by a 12% y/y growth in sales and a gross margin expansion of 1758bps y/y to 38.4%, PAT accelerated to N43.3bn, thanks to a tax credit of N36.8bn. Sequentially, sales were up by 9% q/q. However, the PBT and PAT compare with pretax and after tax losses of -N11.6bn and -N56bn that the company delivered in Q3 2016. Compared with our forecasts, sales missed by 21%. However PBT and PAT came in significantly better than the losses of –N625m and –N236m that we had modelled due to the positive surprises in gross margin and taxation.
On a full year basis, sales fell by 18% y/y to N219.7bn. Although Lafarge reported a pretax loss of -N22.8bn, a tax credit of N39.7bn for the full year resulted in PAT coming in at N18.3bn (-9% y/y). Relative to our numbers sales missed by around 7% y/y. However, the pre-tax loss of -N22.8bn was significantly lower than the –N41bn loss that we had modelled. Management has proposed a dividend per share of N1.05, which is about -65% lower than the N3.00 that the company declared in 2015 and implies a yield of 2.8%. The proposed dividend is around 10% higher than our N0.95 dividend per share forecast.
Pending management comments, we attribute the stellar results in Q4 to a) better pricing due to a +40% price hike in Q3 2016, and b) a reduction in energy costs (i.e. a higher gas-to-total fuel ratio) following improvements in gas supply and the resumption of operations at UNICEM and Ewekoro due to the completion of maintenance works in Q3 2016.
Lafarge’s 2016 PBT also surprised positively relative to consensus full year PBT forecast of -N30bn. Although we would expect the market to react positively to the Q4 results over the next few days, a focus on the full year numbers might lead to an initial sell-off. We also expect to see marked upward revisions to consensus 2017 PBT forecasts. Ytd Lafarge shares have shed -12.1%, compared with the -4.9% return delivered by the index.
We rate Lafarge Outperform. Our estimates are under review.
Lafarge Africa Q4 2016 results: actual vs. FBNQuest Research estimates (N millions)
Source: NSE; FBNQuest Estimates
1. WAPCO Declares N16.9bn PAT in 2016 Audited Results(SP:N37.80k)