Monday, May 04, 2015 9:49 AM / FBN Capital Research
Event: Ashaka Cement (Ashaka) reports Q1 2015 results
Implications: Market reaction may be slightly negative
Positives: Opex declined by 39% y/y to N448m
Negatives: Sales, PBT and PAT fell by 30% y/y, 59% y/y and 54% y/y respectively
Last week, the NSE published Ashaka Cement’s (Ashaka) Q1 2015 results. Broadly speaking, the results came in weak across the P&L and showed that PBT fell by 59% y/y to N1.2bn. The y/y decline in PBT was driven by a combination of factors including a 30% y/y reduction in sales to N4.6bn, a 1,319bp contraction in gross margin to 35.7% and -N211m in other operating expense (compared with a nil charge on the same line in Q1 2014). To a lesser extent, a 48% y/y reduction in net interest income also contributed to the y/y decline in PBT.
These negatives completely offset a 39% y/y decrease in opex. Thanks to a lower tax rate of 23.4% compared with 31.9% in Q1 2014, the decline on the PAT line narrowed slightly relative to that on the PBT line to 54% y/y. Sequentially, the results came in better, but only because the Q4 2014 numbers reflect the fact that Ashaka’s operations were hampered by insurgents attacks on the company’s plants. Consequently, sales advanced by 19% q/q, while PBT of N1.2bn was better than the pre-tax loss of –N436m reported by the company in Q4 2014.
Although Q4 2014 PAT was a positive N201m thanks to a tax credit of N637m, Q1 PAT still grew by 342% q/q. Compared with our forecasts, while sales missed by 25%, PBT and PAT missed by 44% and 43% respectively.
Ashaka Cement Q1 2015 results: actual vs. FBN Capital Research estimates (N millions)
According to the management of Lafarge Africa (Ashaka’s parent company), Ashaka’s unit volumes declined by 35% y/y because its cement mill no 2 was out of commission until mid-February when repairs were completed. Assuming cement prices of around US$163 per tonne (N/US$ rate of 199) for Ashaka, we estimate that cement dispatches by the company were around 0.14 million metric tonnes or approximately 56% of its quarterly installed capacity.
In our view, the ongoing challenges with Ashaka Cement are not structural. As such, we expect the firm to return to normalised operational levels going forward. We also believe that the increased substitution of coal for low-pour-fuel-oil (LPFO) which is now above 80%, will impact positively on gross margins. Indeed, Lafarge’s management stated that the challenges with Ashaka’s operation have been resolved.
Although the shares closed flat on Friday, given the results, we expect the market’s reaction to be slightly negative and would not be surprised to see a mild sell-off in the shares. Ashaka’s shares have underperformed the index this year.
They have shed -8.9% ytd compared with the flattish return (0.1%) on the index. At current levels, on our published estimates, the shares are trading on a 2015E P/E multiple of 7.3x for a -10% decline in EPS in 2016E. These compare with an 8.6x multiple for a -12% decline in EPS in 2016E that Lafarge Africa is trading on.
We rate the shares Neutral. Our estimates are under review.