Stock & Analyst Updates | |
Stock & Analyst Updates | |
3457 VIEWS | |
![]() |
Saturday, June 29, 2019 /
10:34AM / By FSDH
/ Header Image Credit: FSDH
Lafarge Africa Plc is embarking on aggressive business and capital
restructuring that should deliver great value to its shareholders in the
short-to-medium term. The company is selling its loss-making South African
subsidiary to its parent company, LafargeHolcim Group. It plans to use
the proceeds of this divestment to pay down its foreign loans and its
accumulated interest. It also concluded a Rights Issue in March 2019 to reduce
its loan and subsequently the interest expenses.
FSDH Research believes these initiatives will change the focus of the
business going forward and enable the company to deliver a strong financial
performance for its shareholders.
Our analysis of Lafarge Africa Plc in Q1 2019 shows that the financial
performance of the Nigerian operations, as a standalone business, was
substantially different and better than the performance of the whole company
when combined with that of the South African business operations. The Nigerian
operations recorded Earnings Before Interest Depreciation and Amortisation
(EBITDA) of N20.31bn, the combined (Nigerian and South African) business
recorded N18.69bn.
The operating profit for the Nigerian operations stood at N11.49bn while
that of the combined business stood at N8.43bn. The Profit Before Tax (PBT) and
Profit After Tax (PAT) of the Nigerian operations stood at N4.56bn and N6.30bn
respectively; that of the combined entity stood at N123mn and N3.15bn
respectively.
The company recorded tax credit income during the period, therefore the
PAT was higher than the PBT.
Our analysis shows that the company is better off with the Nigerian
operations as a standalone business entity going forward. The company expects
to receive US$317million from the proposed sale of its South African
subsidiary; this will be used to completely pay off the shareholder loan of
US$293million and the accumulated interest as at 31 July 2019.
Subsequently, Lafarge expects the annual interest expenses for the
Nigerian business to drop substantially by about N10bn, while cash-fow and
profitability should grow significantly.
This reorganization should help the company aggressively pursue measures
to expand local operations and deliver better growth than historical growth
levels. This should, in turn, increase dividend payments to its shareholders.
Lafarge Africa faces stiff competition in Nigeria from a strong
competitor, Dangote Cement Plc, which is a market leader in the industry.
However, Lafarge has years of experience in the business of cement
manufacturing and can tap from the technical expertise of its parent company,
LafargeHolcim, who is the world leader in cement manufacturing and marketing.
The profit margin of Dangote Cement is higher than that of Lafarge.
Dangote derives this advantage through the use of modern technology, economies
of scale, and plant advantage with respect to availability of raw materials.
Therefore as a price-setter, Dangote may be able to reduce price which will
lower the profitability of Lafarge in the Nigerian market. This is the major
risk that Lafarge faces in Nigeria.
However, Lafarge competes well in some regional markets in the country.
The poor transport network in the country gives players certain advantages in
regions where production plants are located.
FSDH Research notes that as the Nigerian economy continues to grow the
demand for cement will grow and players in the industry will get a better share
of this growth.
Valuation –Our forecast and valuation are based on the assumptions that
the company will excecute the business and capital restructuring successfully
in 2019. Therefore, turnover and interest expenses will drop in 2019 compared
with 2018 while profits will increase.
We employed relative valuation method using Enterprise Value (EV) to
EBITDA multiple.
Applying the EV/EBITDA multiple of 8.58x on EBITDA for the forecast
period, we arrived at N29.33 per share as the fair value. Our target price for
one year investment period is N20.53.
Related
News
1.
Lafarge Africa Divests From SA
Operations; Approves Merger Proposal For ReadyMix Business Segment –
Jun 20, 2019
2.
Lafarge Africa Plc Redeemed
Its N26.4 Billion Series 1 Bond Due On June 15, 2019 – Jun 19, 2019
3.
Lafarge Africa Releases Q1
2019 and Q4 2018 Results; Declares N3.15bn PAT in Q1,(SP:N9.55k) –
Jun 19, 2019
4.
NSE Identifies Lafarge, Conoil,
32 Others As Companies That Fell Short of Minimum Listing Standard –
Jun 18, 2019
5.
Lafarge Africa Notifies of
Further Delay in Filing of Its 2018 AFS – jun 10, 2019
6.
LAFARGE Notifies of the Resignation
of Dr. Shamsuddeen Usman, CON,OFR from the Board of the Company –
Apr 02, 2019
7.
Lafarge Africa Plc Notifies of
Late Filing of 2018 Audited Financial Statements – Mar 29, 2019
8.
Lafarge Africa Plc Lists
7.43bn Additional Shares From Its Rights Issue on NSE – Mar 27, 2019
9.
Lafarge Africa Plc Announces
Board Changes And Adjournment of Board Meeting – Mar 22, 2019
10. Lafarge Africa Plc Announces
Rights Issue Result – Mar 11, 2019
11.
Lafarge Africa Board of
Directors Approve Rights Issue Allotment Proposal For SEC Clearance
– Feb 19, 2019
12. Lafarge Africa Records 0.40%
YTD Gains as Right Issue Closes – Jan 29, 2019
13. Lafarge Africa Plc Extends
Rights Issue Closure Date To Monday January 28, 2019 – Jan 22, 2019
14. Lafarge Africa Plc 2018-19
Rights Issue – Trading Below Its Rights Issue Price By 5.42% - Jan
07, 2019
15.
Lafarge Africa 2018 Rights
Issue - To Accept or Renounce? – Dec 19, 2018
16. Lafarge Africa Plc Holds
Emergency Board Meeting to Consider The Rights Issue Price – Dec 03,
2018
17.
Lafarge Africa Plc Notifies of
Changes On Its Board – Nov 08, 2018
18. Lafarge Africa Plc Issues
Explanatory Note on Q3 2018 Results Modifications – Oct 30, 2018
19. 5 Key Takeaways - Lafarge
Africa Plc Q3 2018 Conference Call and Earnings Presentation -
Oct 18, 2018
20. Lafarge Africa Q3 2018 Results
- Revenue Grows By 4.8% To N234.3bn (SP:N21.00k) – Oct 17, 2018
21. Lafarge Africa Plc Holds
Emergency Board Meeting; Notifies of Closed Period – Oct 16, 2018
22. Lafarge Africa Loan
Restructuring - Silver Lining Or Same Old Story – Sept 04, 2018
23. Lafarge Africa Plc to Hold
Extra-Ordinary General Meeting on Sep 25 2018 – Aug 27, 2018
24. Lafarge Africa Plc Series 7
Commercial Paper Closes Today – Aug 03, 2018
25. Lafarge Africa Plc Q2 2018 -
Remain Cautious on Near-Term Headwinds – Aug 02, 2018
26. Lafarge Africa Plc Series 7
Commercial Paper Now Open – Aug 02, 2018
27. Understanding Lafarge’s H1
2018 Results – Oct 16, 2018
28. Lafarge Africa PLC - H1 Fails
to Flatter, Rights Issue to Provide Reprieve – Jul 26, 2018
29. Lafarge Africa Plc Q2''18
Results - Unchanged Rhetoric, As Earnings Remain Depressed – Jul 25,
2018
30. Lafarge Africa Plc H1 2018
Conference Call and Earnings Presentation - The Key Takeaways -
Jul 25, 2018
31. Lafarge Africa Plc Announces
Resignation of Mr Jean Carlos as Non-executive Director - Jul
24, 2018
32. Lafarge Absorbs South Africa
Operations’ Loss Off N162.29bn Revenue in H1 2018, (SP:N32.50k) –
jul 25, 2018
33. Lafarge Africa Plc - Still
Navigating Murky Waters - Jul 17, 2018
34. Lafarge Africa Q1 2018 Results
-Earnings Muted By Leverage and Weakness in SA OPS – Jun 25, 2018
35. LAFARGE Africa Plc: Still
Navigating Murky Waters, BUY Rating – Apr 25, 2018
36. Lafarge Africa Plc Reports a
Pretax Loss of N2.9bn in Q1 2018 Results – Apr 23, 2018
37. Lafarge Africa Plc - One-Offs
Weighed On Q4 2017 Earnings – Apr 19, 2018
38. NSE Migrates Access Bank,
Lafarge, Seplat and UBA to Premium Board – Apr 16, 2018
39. Lafarge Africa Plc Proposes
N1.50k Per Share Dividend – Apr 11, 2018
40. What To Expect From The
Markets This Week - 010719
41. Market Review and Round-Up of
Corporate News Announced During The Week Ending 280619