23, 2019 11:14AM / ARM Research / Header Image Credit: Lafarge Africa Plc
Positive performance, but weak top line
Late yesterday, Lafarge Africa Plc (Lafarge) released Q2 19 results, which showed EPS grew to N0.36 from loss recorded in Q2 18. This mirrored support from lower operating expense and lower finance costs, but of which supported the flattish top line.
Revenue was relatively flat at N81.8 billion, supported by 1% YoY increase in Nigeria which offset the 2% YoY decline in South Africa (LSAH). On the former, the N150/50 kg bag increase in prices in April, made up for the decline in volume (-1% YoY to 1.3 MT). However, group volume expanded 5% YoY to 1.7MT emanating from LSAH (+35% YoY to 397 kt), the impact of which was muted on the topline due to lower prices. Elsewhere, COGS declined 2% YoY to N59.2 billion, with savings on cost emanating from lower cost of power (N3,093 to N822/ton) and raw materials (N7,530 to N5,850/ton). The foregoing resulted in gross margin of 27.6% (+191bps YoY).
Also supporting earnings was the 22% YoY decline in Opex to N8.6 billion, owing to lower admin (-22% YoY) and marketing (-21%) expenses. As a result, opex margin contracted 293bps YoY to 10.5% in the quarter, reflecting payoff of SAP module acquired last year. EBITDA margins increased 297bps to 22.4%, mostly reflecting reduced negative contribution from LSAH (to -5.9% from -14.6% in Q2 18), while Nigeria advanced 49bps to 32.2%. The sale of LSAH will be completed in July.
In addition, finance cost dropped 61% YoY to N5.6 billion, following the restructuring of loans in the prior year and paydown of short-term loans using proceeds of the right issue. Thus, together with a 7% YoY increase in finance income, net finance cost printed N13.5 billion in Q2 18.
A culmination of the foregoing resulted in PBT of N20.3 billion (Q2 18: -N3.4 billion), while a tax charge of N3.3 billion translated to a PAT of N5.9 billion. The lower effective tax rate reflects the pioneer tax credit (H1 19: N2.9 billion) on the Mfamosing plant.
Lafarge currently trades at EV/EBITDA of 7.9x compared to Nigeria and MEA peers of 8.2x and at 16.5x respectively. Our last communicated FVE of N18.07 translates to a BUY rating on the stock.