The Transformational Story of Lafarge Cement Wapco Nigeria Plc


Friday, June 06, 2014 11:46 AM / Chapel Hill Denham Research



Lafarge Cement WAPCO Nigeria Plc (“WAPCO”) announced a transformational transaction this week involving the transfer of Lafarge Group’s shareholdings in its South African and Nigerian businesses to WAPCO. For South Africa, Lafarge Group’s 100.00% shareholding in Lafarge South Africa Holdings (Pty) Limited (“LSAH”) will be transferred to WAPCO. In Nigeria, Lafarge Group will transfer its 58.61% shareholding in AshakaCem Plc (“AshakaCem”), 35.00% shareholding in United Cement Company of Nigeria Limited (“UNICEM”) and 100.00% shareholding in Atlas Cement Company Limited (“Atlas”) to WAPCO. The deal is valued at c.US$1.35bn. WAPCO will pay a cash consideration of US$200mn and issue c.1.402bn new shares to the Lafarge Group. Upon completion of the transaction, WAPCO will be renamed Lafarge Africa Plc (“Lafarge Africa”). The transaction remains subject to shareholder and regulatory approvals.


Some press reports are currently suggesting Lafarge Africa Plc will be a new company listed on the Nigerian Stock Exchange (“NSE”). Investors should be informed this is not correct: WAPCO will remain listed on the NSE but will undergo a change of name to Lafarge Africa Plc following the completion of this transaction. Furthermore, reports suggesting this is a merger of the entities are somewhat inadequate; WAPCO is purchasing these shareholdings from Lafarge Group. We will comment further on the transaction as more information is made available by management.


An Appealing Deal For Shareholders

A value accretive deal for WAPCO shareholders. The group will become a leading building materials operator in the region, with strong market positions in cement (12MT capacity), aggregates (over 5MT), Ready-Mix (3.5mn m3) and fly ash (4.1MT). Importantly, all the consolidating assets are strong operators in their respective markets and there is considerable scope for sharing of resources and innovation between the entities.

New market exposure. The company will also gain exposure to the strong economic fundamentals in South Africa and across Nigeria – offering robust presence in the two largest economies in Africa.

The enhanced balance sheet and cash flow position of Lafarge Africa will enable the group to rapidly harness opportunities in a growing and changing building materials market – particularly in funding and delivering capital expansion projects quickly.

Compelling value at current levels. The market cap. of Lafarge Africa will be c.US$3.4bn with installed cement capacity of 12MT. This implies a value of US$286/tonne – a tremendous discount to Dangote Cement Plc’s (“Dangcem”) value of US$1,124/tonne. On a forward 2017E basis, Lafarge Africa Plc is valued at US$196/tonne given plans to expand capacity to 17.5mn tonnes – this represents a discount of c.59% to Dangcem, which is valued at US$483/tonne on a 2017E basis. The pro-forma of Lafarge Africa shows a PAT of US$239mn for 2013, which implies a 2013 P/E of 14.4x and reflects a discount of c.26% to Dangcem which is trading 19.4x 2013 earnings. More importantly, the 2013 P/E for Lafarge Africa offers a 29% discount to its African peers that are trading at an average P/E of 20.3x FY-13 earnings. The numbers imply that the 1.402bn new shares issued to Lafarge Group are worth US$1.15bn, which suggests a price per share of US$0.82/ N133.40 versus today’s closing price of N123.71.


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