Wednesday, July 25, 2018 / 04:05 PM / CardinalStone Research
Lafarge Africa Plc (WAPCO) Q2’18 results – revenue for the quarter increased by 11.0% YoY to settle at N81.6 billion. Notwithstanding the growth recorded in top line, higher costs, emanating from direct input costs (+21.4% YoY) and finance costs (+192.4% YoY) weighed on profitability, as the group posted a loss-after-tax of N1.9 billion during the period (vs. Q2’17 after-tax earnings: N14.6 billion).
• Overall revenue grew by 11.0% YoY in Q2’18 to settle at N81.6 billion. Nigeria operations remained resilient in the period under review, as healthy cement volumes growth (+18.7% YoY), accompanied with higher cement prices, drove net sales for the segment higher (+12.4% YoY) to N59.3 billion. On the other hand, South African cement volumes contracted by 7.0% YoY, however, net sales was higher (+7.7% YoY) to print at N22.4 billion – thanks to price increases taken in Q1’18, as well as positive FX translational effect.
• Notwithstanding the growth recorded in top line, production costs grew at a faster pace (+21.4% YoY) during the quarter, weighed by higher general production expenses. Consequently, gross margin declined by 6.4 ppts YoY to settle at 25.7%.
• While Nigerian EBITDA improved by 7.0% YoY to N14.5 billion, overall EBITDA declined by 16.5% YoY to N15.8 billion, as the South African operations recorded a loss of N3.3 billion before interest, taxes, depreciation and amortization. The weak performance of the segment has continuously been attributed to sustained operational challenges in the Lichtenburg plant.
• Over Q2’18, finance costs grew more than two-fold on a year-on-year basis (+192.4% YoY) and +49.5% QoQ to print at N14.2 billion. Consequently, the group recorded a loss-before-tax of N3.4 billion (vs. a profit before tax of N8.7 billion in Q2’17).
Analyst take: For us, the narrative for WAPCO remains largely unchanged. Our major concerns for the company remain i) the struggling South African operations; ii) elevated finance costs which continue to pressure bottom line, as highlighted in our note “Amidst murky waters, any respite in sight?”. The company has placed another card on the table – a proposed refinancing plan to reduce existing FCY related party loan to $293 million; and a rights issue amounting to N90.0 billion to refinance short term debt. We recall that last year, the company conducted a rights issue amounting to N131.65 billion. In our view, another round of the same exercise, barely one year down the line, signals the deep-rooted challenges the company faces in respect to finance costs. Although we see scope for continued buoyancy in the Nigerian operations, the aforementioned factors erode our optimism towards the counter.
Our target price for the counter is currently under review.