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Tuesday, October 10, 2017/ 1:27 PM /Vetiva Research
·
Lafarge to
raise ₦131.65
billion via Rights issue
·
EPS dilution
imminent in near-term amidst
·
Post-rights
target price estimated at ₦62.06
Rights details out; price set at ₦42.50
Following the conclusion of the Extra-Ordinary General Meeting, the
Board of Lafarge Africa PLC announced the details of its planned Rights issue.
Lafarge Africa plans to raise ₦131.65 billion by issuing 5 new shares for every 9
shares held by investors at a Rights price of ₦42.50, a 25%
discount to current price of ₦56.89.
Assuming a completely successful issue, the company’s shares outstanding
would increase by 3.1 billion to 8.6 billion units of ordinary shares. As
previously approved at the AGM, shareholders are allowed to use any outstanding
obligations due to them from Lafarge Africa to offset payment for the Rights
taken up.
EPS dilution remains a risk, but transaction provides some benefits
Whilst EPS dilution is imminent in the near term amidst the capital
raise, we reiterate a couple of upsides from this move, particularly stemming
from the expected liquidation of the outstanding $286.7 million quasi-equity
instrument (previously shareholder loan) on Lafarge Africa’s balance sheet.
Firstly, the payment of the dollar denominated quasi-equity instrument will
make Lafarge Africa less susceptible to the impact of currency volatility.
Also, with earnings just recovering from 2016 lows, the 6% annual
dividend payable to holders of the quasi-equity instrument (FY’17E: ₦6
billion) would no longer be required - freeing up cash for possible
reinvestment. Meanwhile, we should highlight that excluding quasi-equity
instrument, the company still has dollar-denominated obligations of $308.4
million. We understand that the cement giant hedged $88.4 million at NGN275/USD
with one-year non-deliverable forwards.
According to management, the balance of $220 million was also hedged at
the NAFEX window at an undisclosed rate. Assuming full subscription to the
Rights, we expect a net cash of c.₦24 billion
which could be used to pay down part of these dollar liabilities.
Post-rights,
the quasi equity instrument would no longer be treated as part of minority
interest. The consequent increase in our equity valuation would taper the
impact of the expected 56% increase in number of outstanding shares (assuming
full subscription to the issue) on our valuation per share (target price). Upon
completion of the issue, we expect FY’17 EPS to fall from our current estimate
of ₦6.50
to ₦4.20.
Modelling a full subscription, our target price would potentially fall to ₦62.06
from our current ₦79.26. Pending the conclusion of the Rights, we
maintain our current target price.
Related News
1. Lafarge Africa Plc Appoints KPMG as External Auditors
2. Lafarge Africa Plc Set to Raise N131.65bn by Way of a
Rights Issue; Approval Process Ongoing
3. Lafarge Africa Notifies NSE of Its Board Decision to
Merge with UniCem & Atlas Cement Company Ltd
4. Lafarge Africa Plc Announces
Commencement of Closed Period
5. Lafarge Africa Plc - Q2-17 PAT; Strong Delivery, Amidst
Energy and Leverage Challenges
6. WAPCO Declares N19.73bn PAT in Q2 2017
Result,(SP:N54.60k)
7. Lafarge Africa Plc Appoints Mrs. Edith Onwuchekwa as
Company Secretary
8. Lafarge Africa Plc Announces Resignation of Directors
9. Lafarge Africa Requests Approval of Rights Issue at AGM
10. Lafarge Africa Q1 2017 Results Review - Downgrading to
Neutral
11. Lafarge Africa Plc Opts for Rights Issue amidst debt
restructuring
12. Lafarge Africa Plc to Present a Resolution to Raise
N140bn by Way of a Rights Issue