Lafarge Africa Q1 2021 Results Review: Negligible Changes to Our Earnings est. Over 2021-23f Period

Proshare

Friday, May 21, 2021 / 10:09AMby FBNQuest Research Header Image Credit: Lw Devoir

 

Proshare Nigeria Pvt. Ltd.


Downgrading to Neutral from Outperform

Lafarge's Q1 '21 earnings grew 13% y/y to NGN71.5bn, supported by a 12% y/y rise in prices. Cement volumes were flattish y/y at 1.44 million metric tonnes (mmt) during the quarter as production capacity was limited by the scheduled Electrostatic Precipitator (ESP) Bag Filter Upgrade Project on Ewekoro Line 1. The upgrade is commendable, given the impact it is expected to have on the local environment's air quality. According to management, full operations in Line 1 is expected in H2. Ewekoro Line 1 has an installed capacity of 1.4 million metric tons. We therefore, expect Lafarge's cement sales to benefit from solid local demand over the course of the year.

 

Nonetheless, we note that rising interest rates could hurt real estate appetite in the medium term. We estimate cement sales growth for Lafarge of around 7% y/y to 5.4mmt. This implies a capacity utilisation projection of c.50%. Looking ahead, we do not see further increases to cement pricing. We have also raised our cogs forecast by c.10%, reflecting the impact of the naira's devaluation on gas (a major contributor to Lafarge's fuel mix) prices, while lowering our operating cost forecasts by 8%. Lafarge has no intention to increase borrowings this year. Overall, we have made negligible changes to our EPS outlook over the '21-'23f period. However, our new price target of N21.9 is down -15% because we have raised our risk-free rate assumption by +150bps to 12.5% due to a higher interest rate environment. Our price target implies a potential upside of 9% at current levels. While peers embark on expansion and new projects, Lafarge is focused on increasing capacity of current facilities via debottlenecking.

 

According to management, the debottlenecking project for Ashaka and Ewekoro, which is expected to unlock additional capacities of 2mmt over the next 2 years, is progressing well. Management also stated a Q3 deadline to sell its 35% stake in CBI Tema, Ghana. Lafarge shares are trading on a '21f EV/EBITDA multiple of 3.3x compared with 6.6x for DangCem. Year-to-date, Lafarge shares have shed -4.0% vs. the NSE ASI's -4.8% decline. We downgrade our rating on the stock to Neutral from Outperform.  

 

Q1 '21 earnings missed our estimate by around 8%

Lafarge posted Q1 '21 earnings growth of 13% y/y and 253% q/q respectively. Overall, profitability was primarily driven by an improved topline (up 12% y/y to NGN71.5bn). While cement volumes were flattish y/y, average prices were up by around 12% y/y. To a lesser extent, operating costs and net finance expenses, which declined by -14% y/y and -21% y/y respectively, also helped profitability.

 

In particular, administrative expenses fell -15% y/y to NGN4.3bn. Compared with our estimates, sales and PBT were slightly ahead by 5% and 3% respectively. However, earnings missed by around 8% because of an effective tax rate of 28.5% vs. the 20% we were modelling.

 

Proshare Nigeria Pvt. Ltd.

 

Related News

  1. Lafarge Africa Q1 2021 Result: Rising Profits Hit Tight Working Capital
  2. Lafarge Africa Q4 2020 Results Review: 13% Reduction to our EPS Forecast Over the '21-23f Period
  3. LafargeHolcim Announces Successful Acquisition of Firestone Building
  4. Lafarge Africa Plc FY2020 Results: Bottom-line Rises as Pandemic Gets Plastered
  5. Lafarge Africa Declares N30.8bn PAT in 2020 Audited Results, Proposed N1 Final Div; (SP:N22.50k)
  6. Lafarge Africa Q3 2020 Results Review: Moving to Neutral from Outperform
  7. Lafarge Africa Declares N28.2bn PAT in Q3 2020 Results, (SP:N17.90k)
  8. Lafarge Forum Explores Ideas for Upscaling Infrastructure Finance
  9. Lafarge Africa Expects A Positive Long-Term Outlook Despite H1, 2020 Performance
  10. Lafarge Africa Q2 2020 Results Review: Business Optimisation Enhances Earnings Outlook
  11. Lafarge Africa Plc H1 2020 Result: A Fall In Expenses Buoy Earnings
  12. Lafarge Africa Plc Declares N23.33bn PAT in Q2 2020 Results, (SP:N10.95k)
  13. Lafarge Africa FY'19 and Q1'20 Results Review: Pre-tax Earnings Improves as Finance Cost Drops
  14. Lafarge Africa Plc Records 92% Growth In PAT For FY 2019, Pays Shareholders 100k Dividend
  15. Lafarge Africa Maintained Outperform Rating in Q1 2020
  16. Lafarge Africa Plc FY'20 - Coronavirus: A Spanner in the Works?

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


READ MORE:
Related News
SCROLL TO TOP