Nigeria’s Cement Market Battles: Lafarge Africa Plc in Focus

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Wednesday, July 17, 2019   / 01:20PM / By Proshare Research / Header Image Credit: Lafarge Africa Plc


Introduction

As noted in our earlier report on Nigeria’s Cement Market Battles, the cement market in Nigeria is such that the companies have different regions which they serve. Although the effect of competitiveness is about to disrupt this trend, CCNN has its largest customer wallet share in the North while DANGCEM and WAPCO are more dominant in the southern part of the country.

According to Chapel Hill Denham’s report on, The Transformational Story of Lafarge Cement Wapco Nigeria Plc, in 2014, Lafarge Cement WAPCO Nigeria Plc, announced a transformational transaction 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”) was transferred to WAPCO. In Nigeria, Lafarge Group transferred 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 was valued at US$1.35bn at the time. WAPCO then paid cash consideration of US$200mn and issued 1.402bn new shares to the Lafarge Group. Upon completion of the transaction, the company adopted a new name, WAPCO- Lafarge Africa Plc (“Lafarge Africa”).

 

As at Q1 2019, WAPCO has four subsidiaries they include:

  1. Ashaka Cement Plc
  2. Lafarge Ready Mix Nigeria Limited
  3. Lafarge South Africa Holdings (Pty) Limited (“LSAH”)
  4. Wapsila Nigeria Limited

With plants in Ewekoro and Sagamu in the South West, Mfamosing in the South-South and Ashaka in the North East of Nigeria, WAPCO currently has an installed cement production capacity of 10.5MTPA and boasts of 27.3% of the market share as at Q1 2019. It is a member of the LafargeHolcim Group – the biggest building and concrete solutions company in the world, and it is also the second-largest cement maker in Nigeria. In terms of market CAP, it is the 12th most capitalized company on the NSE with a 1.54% contribution to the overall market CAP as of 9th July 2019.

 

Financials

The earning profile of WAPCO over the quarters from Q1 2018 to Q1 2019 reveals that except Q1 2018 and Q1 2019, revenue growth was positive over the five quarters under review. A look into the financials of the company indicates that negative growth in revenue in Q1 2018 was as a result of its South African business continuing to drag business operations and extending the poor financial runs of FY 2017. However, despite recognizing a tax credit of N1.00bln, the company still recorded N2.00bln loss in Q1 2018, which was quite disappointing when compared with N5.00bln PAT recorded in Q1 2017. Despite recording a revenue decline of 2.60% in Q1 2019, WAPCO still made a PAT of N3.15bln thanks to a boost in finance income of N1.30bln (Q1 2018: N308.16m), improved operating performance as well as a tax credit of N3.02bln.

 

Table 1- Change in WAPCO Revenue and PAT from Q1 2018 to Q1 2019

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Chart 1- Growth in WAPCO Revenue from Q1 2018 to Q1 2019

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Source: Proshare Research

 

The Q1 2019 financial result of WAPCO shows that the company recorded revenue of N78.512bln in Q1 2019, an unimpressive decline of 2.60% when compared with Q1 2018 result and also given the fact that the company has been recording growth in other quarters. This revenue represents the sale of cement during the period, with N1.05bln coming from the sale of fly ash, ready-mix pump sales and other mineral components from South African operations.

 

Chart 2- WAPCO Revenue from Q1 2018 to Q1 2019

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Source: Proshare Research

 

In Q4 2018, WAPCO recorded a growth of 3.1% in revenue, which represents N308.43bln as against N299.15bln recorded as revenue in Q4 2017. In Q3 2018, revenue also increased but by more than the increase in Q4 2018 as revenue growth rate YoY was 4.75% to N234.30bln. Furthermore, revenue also increased by 4.80% in Q2 2018.

Chart 3- Growth in WAPCO PAT from Q1 2018 to Q1 2019

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Source: Proshare Research


Despite improvements in revenue, PAT declined in 2018. The cause of this is not far-fetched as finance cost was a major cause of concern during the period. For example, in Q4 2017, the finance cost of the company was N43.22bln while N45.97bln was reported as finance cost in Q4 2018 with interests on borrowings totalling N29.60bln. The finance charge of the company ate into its profits, thereby nudging it to declare losses throughout 2018. However, this narrative changed in Q1 2019 as the company was able to reduce its finance cost to the sum of N9.58bln while leveraging on lower administrative expenses to drive bottom line upward. The company posted a PBT of N122.82mln.

 

Chart 4- WAPCO PAT from Q1 2018 to Q1 2019

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Source: Proshare Research


Share Price Movement

With Weak FY’18 fundamentals, WAPCO emerged top loser of the 109 losers in 2018 on the NSE with a share price decline of 72.27%. It opened the year with a share price of N44.89 and closed the year with a share price of N12.45. This showed that the decline moved alongside the NSE-ASI as the ASI shed 17.81% in 2018. When compared with the performance of the NSE industrial index in 2018, WAPCO still underperformed as the industrial sector recorded 38.29% decline representing the highest drop among other sectorial indices. However, WAPCO share price has increased marginally by 9.64% from N12.45 at the beginning of the year to N13.65 as at 12th July, 2019

 

Visit Lafarge Africa Plc IR Page in Proshare MARKETS

 

Graph – One Year Share Price Movement

 

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Peer Review – Share Price, Financials

WAPCO Share Performance Compared with Peers

In 2018, there was weak sentiment towards the Nigerian stock market, and so, the NSE Industrial index shed 38.29 over the period. Except for CCNN which outperformed the market in 2018, both DANGCEM and WAPCO recorded a decline in share price over 2018 with WAPCO recording the highest decline of 72.27%.

However, while WAPCO has seen a positive movement in its share price, its peers have seen a decline in share price movement YTD as there has been the negative sentiment on their shares.

 

Table 4: Peer Analysis on Share Price Performance

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On a Q-o-Q basis, WAPCO has the worst share performance among its peers has it recorded negative share price movement over the five quarters under review. While its peers declined YTD in 2019, WAPCO recorded a marginal increase of 9.64% in share value. Overall in 2018, CCNN emerged the top gainer while WAPCO topped the losers list.

 

Chart 5- YTD Share Price Performance of WAPCO Compared with Peers

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Source: Proshare Research

 

WAPCO Financials Compared with Peers

Table 5: Peer Analysis on Financials

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Although the effect of merger reflected in the result of CCNN, WAPCO has been able to increase its net asset by 44% from N156.15bln in Q1 2018 to N225.04bln in Q1 2019. Overall, the bottom line results of the company improved QoQ as assets and Net assets grew by 6% and 44% respectively while total liability declined by 8% QoQ. However, the top line was not impressive QoQ as the company recorded a marginal decline in revenue during the period.

 

Balance Sheet Financials Compared with Peers

Table 5 above shows that with the exception of PAT where WAPCO topped its peers, CCNN emerged the leader in other financial metrics reviewed in this analysis.

 

Chart 6- Q1 2018 & Q1 2019 Total Assets of WAPCO and Peers

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Source: Proshare Research


DANGCEM has more assets that CCNN and WAPCO combined as its total assets grew by 1% to N1.74 Trillion at the end of Q1 2019. However, CCNN has been impressive in terms of recording impressive growth in its financials especially in its assets growth as it recorded 1223% in asset growth QoQ while, WAPCO experienced a marginal increase of 6% in its asset from N562.56bln recorded in Q1 2018 to N597.19bln recorded in Q1 2019.


Chart 7- Q1 2018 & Q1 2019 Total Liabilities of WAPCO and Peers

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Source: Proshare Research


Chart 8- Q1 2018 & Q1 2019 Net Assets of WAPCO and Peers

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Source: Proshare Research

 

Top-line and Bottom-line Compared with Peers

In terms of revenue, DANGCEM and WAPCO recorded 1% and 3% decline respectively in revenue during Q1 2019 while WAPCO recorded 257% growth in PAT by declaring profit of N3.15bln as a result of effectively managing and reducing the companies cost of sales and operating expenses as well as an income tax credit of N3bln during period.

However, the revenue profile of CCNN at the end of Q1 2019 reveals a surge in the revenue growth rate from 23.97% in Q1 208 to 213% in Q1 2019. Attributed to this was the increase in the sale of cement as a result of an increased expansion accompanied by the use of alternative sources of energy. Therefore, gross sale of cement in Q1 2019 was N19.02bln up from N5.98bln recorded from gross sale of cement in Q1 2018.

 

Chart 9- Peer Analysis on Growth in Revenue and PAT

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Source: Proshare Research

 

Chart 10- Q1 2018 & Q1 2019 Revenue of WAPCO and Peers

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Source: Proshare Research

 

Chart 11- Q1 2018 & Q1 2019 PAT of WAPCO and Peers

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Source: Proshare Research

 

Conclusion

The financial results of the 3 listed cement companies in Nigeria: WAPCO, DANGCEM and CCNN shows that competition is increasing in the cement industry with increasing volumes thereby denoting a case of price war taking a toll on margins of the firms.

When compared to its financial performance in 2018, the performance of WAPCO in Q1 2019 was an impressive one as it reflects significant reduction in net debt while operating profit was up by 35% with profitability improved in all business segments.

In terms of share price movement, WAPCO tops its peers as it is the only one with a positive share price growth YTD.

 

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Related News

  1. Nigeria’s Cement Market Battles: Dangote Cement in Focus
  2. Nigeria’s Cement Market Battles: CCNN in Focus
  3. Lafarge’s U-turn on LSAH and Valuation Implications
  4. Lafarge Africa Q4’18 and Q1’19 Results Review: Positive Earnings Outlook Post Divestment of LSAH
  5. Lafarge Africa Plc: Equity Update
  6. Lafarge Africa Plc Redeemed Its N26.4 Billion Series 1 Bond Due On June 15, 2019
  7. Lafarge Africa Releases Q1 2019 and Q4 2018 Results; Declares N3.15bn PAT in Q1,(SP:N9.55k)
  8. NSE Identifies Lafarge, Conoil, 32 Others As Companies That Fell Short of Minimum Listing Standard
  9. Lafarge Africa Notifies of Further Delay in Filing of Its 2018 AFS
  10. WAPCO Announces Delay in Filing of the Company’s Q1 2019 Unaudited Financial Statements
  11. WAPCO Declares N2.0bn Loss in Q1 2018 Result,(SP:N45.95k)
  12. WAPCO Declares N937.91 million PAT in Q3 2017 Corporate Earnings for the Week Ending 210717 – WAPCO Declares N19.73bn PAT in Q2 2017 Result(SP:N56.00k)
  13. WAPCO Declares N19.73bn PAT in Q2 2017 Result,(SP:N54.60k)
  14. WAPCO Declares N5.16bn PAT in Q1 2017 Result,(SP:N46.00k)
  15. WAPCO Declares N16.9bn PAT in 2016 Audited Result,(SP:N37.80k)
  16. WAPCO Declares N37.41bn Loss in Q3 2016 Result,(SP:N47.50k)

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