Monday, March 21, 2016 10:05AM /Vetiva Research
As we had earlier guided after WAPCO increased its stake in UNICEM to 50%, the company has received the go ahead from parent company LafargeHolcim to start consolidating UNICEM results starting 31 December 2015. The consolidated FY’15 revenue increased marginally 2% y/y to N267.2 billion despite security challenges which disrupted production at ASHAKCEM, technical challenges and flood at UNICEM, and price pressure in Nigeria cement market in Q4.
FY’15 PAT was however down 20% y/y to N27.0 billion following one-off expenses (group restructuring cost and FX losses in UNICEM) totaling N14.6 billion. If we strip out UNICEM’s numbers and adjust for one-off expenses, group proforma revenue rose 3% y/y to N212.9 billion, 4% ahead of our estimate whilst PAT rose 11% y/y to N41.6 billion, 11% ahead of our estimate.
The Board of Directors proposed a dividend of N3.00/share (FY’14: N3.60) on this result and a bonus share of 1-for-10.
High margin UNICEM to improve group earnings
Notwithstanding the one-off items that plagued profitability and contribution of UNICEM in 2015, we see the consolidation of the company as a boost to WAPCO earnings going forward. Apart from taking the group’s total immediate capacity to 11.5 million MT (Ex-UNICEM and ASHAKACEM expansions), UNICEM also comes in with a strong EBITDA margin (buoyed by gas utilization) that hovered around 40% up until Q4’15 when the plant operation was disrupted by technical issues and floods.
Although UNICEM comes with huge debt on its books (FY’15: N136 billion), we believe a large chunk of the debt would have been taken to finance its ongoing expansion project to double capacity to 5 million MT and expect the project to self-liquidate the debt. The expansion is scheduled for completion by Q4’16.
By FY’17, we estimate UNICEM’s revenue at N81.2 billion, potentially contributing 27% of group revenue (Current: 20%). Risks to our estimates on UNICEM include volatility in exchange rate as we note that almost half of the company’s debt is foreign currency denominated.
Consolidated group valuation incites a BUY rating
After considering our overall positive outlook of cement consumption in 2016, the return to normalcy in operations at ASHAKCEM and UNICEM, the increasing construction activities in the North-East region, the projects pipeline in the ReadyMix segment, and lower cement pricing, we estimate WAPCO’s FY’16 revenue at N277.0 billion, a 3% growth over FY’14.
Also, whilst we expect finance costs to remain high amidst the group’s current high leverage, we believe synergies will taper other controllable cost lines. Overall, we see the group’s FY’16 PAT at N31.7billion (FY’15: N26.9 billion) and revise our target price to N121.38 (Previous: N108.10).
Click Here to Download PDF Report