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Wednesday, July 17, 2019 / 01:20PM / By Proshare Research / Header Image Credit: Lafarge Africa Plc
Introduction
As noted in our earlier report on Nigeria’s Cement Market Battles, the cement market in Nigeria is such that the companies have different regions which they serve. Although the effect of competitiveness is about to disrupt this trend, CCNN has its largest customer wallet share in the North while DANGCEM and WAPCO are more dominant in the southern part of the country.
According to Chapel Hill Denham’s report on, The
Transformational Story of Lafarge Cement Wapco Nigeria Plc, in 2014,
Lafarge Cement WAPCO Nigeria Plc, announced a
transformational transaction involving the transfer of Lafarge Group’s
shareholdings in its South African and Nigerian businesses to WAPCO. For South
Africa, Lafarge Group’s 100.00% shareholding in Lafarge South Africa Holdings
(Pty) Limited (“LSAH”) was transferred to WAPCO. In Nigeria, Lafarge Group
transferred its 58.61% shareholding in AshakaCem Plc (“AshakaCem”), 35.00%
shareholding in United Cement Company of Nigeria Limited (“UNICEM”) and 100.00%
shareholding in Atlas Cement Company Limited (“Atlas”) to WAPCO. The deal was
valued at US$1.35bn at the time. WAPCO then paid cash consideration of US$200mn
and issued 1.402bn new shares to the Lafarge Group. Upon completion of the
transaction, the company adopted a new name, WAPCO- Lafarge Africa Plc
(“Lafarge Africa”).
As
at Q1 2019, WAPCO has four subsidiaries they include:
With
plants in Ewekoro and Sagamu in the South West, Mfamosing in the South-South and
Ashaka in the North East of Nigeria, WAPCO currently
has an installed cement production capacity of 10.5MTPA and boasts of 27.3% of
the market share as at Q1 2019. It is a member of the LafargeHolcim Group – the
biggest building and concrete solutions company in the world, and it is also
the second-largest cement maker in Nigeria. In terms of market CAP, it is the
12th most capitalized company on the NSE with a 1.54% contribution to the
overall market CAP as of 9th July 2019.
Financials
The
earning profile of WAPCO over the quarters from Q1 2018 to Q1 2019 reveals that except Q1 2018
and Q1 2019, revenue growth was positive over the five quarters under review. A
look into the financials of the company indicates that negative growth in
revenue in Q1 2018 was as a result of its South African business continuing to
drag business operations and extending the poor financial runs of FY 2017.
However, despite recognizing a tax credit of N1.00bln, the company still
recorded N2.00bln loss in Q1 2018, which was quite disappointing when compared
with N5.00bln PAT recorded in Q1 2017. Despite recording a revenue decline of 2.60%
in Q1 2019, WAPCO still made a PAT of N3.15bln thanks to a boost in finance
income of N1.30bln (Q1 2018: N308.16m), improved operating performance as well
as a tax credit of N3.02bln.
Table 1- Change in WAPCO Revenue and PAT from Q1 2018 to Q1 2019
Chart 1- Growth in WAPCO Revenue from Q1 2018 to Q1 2019
Source: Proshare Research
The Q1 2019 financial result of WAPCO
shows that the company recorded revenue of N78.512bln in Q1 2019, an
unimpressive decline of 2.60% when compared with Q1 2018 result and also given
the fact that the company has been recording growth in other quarters. This
revenue represents the sale of cement during the period, with N1.05bln coming
from the sale of fly ash, ready-mix pump sales and other mineral components
from South African operations.
Chart 2- WAPCO Revenue from Q1 2018 to Q1 2019
Source: Proshare Research
In Q4 2018, WAPCO
recorded a growth of 3.1% in revenue, which represents N308.43bln as against
N299.15bln recorded as revenue in Q4 2017. In Q3 2018, revenue also increased
but by more than the increase in Q4 2018 as revenue growth rate YoY was 4.75%
to N234.30bln. Furthermore, revenue also increased by 4.80% in Q2 2018.
Chart 3- Growth in WAPCO PAT from Q1 2018 to Q1 2019
Source: Proshare Research
Despite improvements in revenue, PAT declined in
2018. The cause of this is not far-fetched as finance cost was a major cause of
concern during the period. For example, in Q4 2017, the finance cost of the
company was N43.22bln while N45.97bln was reported as finance cost in Q4 2018
with interests on borrowings totalling N29.60bln. The finance charge of the
company ate into its profits, thereby nudging it to declare losses throughout
2018. However, this narrative changed in Q1 2019 as the company was able to
reduce its finance cost to the sum of N9.58bln while leveraging on lower
administrative expenses to drive bottom line upward. The company posted a PBT
of N122.82mln.
Chart 4- WAPCO PAT from Q1 2018 to Q1 2019
Source: Proshare Research
Share Price Movement
With Weak FY’18 fundamentals, WAPCO
emerged top loser of the 109 losers in 2018 on the NSE with a share
price decline of 72.27%. It opened the year with a share price of N44.89 and
closed the year with a share price of N12.45. This showed that the decline
moved alongside the NSE-ASI as the ASI shed 17.81% in 2018. When compared with
the performance of the NSE industrial index in 2018, WAPCO
still underperformed as the industrial sector recorded 38.29% decline
representing the highest drop among other sectorial indices. However, WAPCO
share price has increased marginally by 9.64% from N12.45 at the beginning of
the year to N13.65 as at 12th July, 2019
Visit Lafarge Africa Plc IR Page in Proshare MARKETS
Graph – One Year Share Price
Movement
Peer Review – Share Price, Financials
WAPCO Share Performance Compared with Peers
In
2018, there was weak sentiment towards the Nigerian stock market, and so, the
NSE Industrial index shed 38.29 over the period. Except for CCNN
which outperformed the market in 2018, both DANGCEM
and WAPCO
recorded a decline in share price over 2018 with WAPCO
recording the highest decline of 72.27%.
However, while WAPCO
has seen a positive movement in its share price, its peers have seen a decline
in share price movement YTD as there has been the negative sentiment on their
shares.
Table 4: Peer Analysis on Share Price Performance
On a Q-o-Q basis, WAPCO has the worst share
performance among its peers has it recorded negative share price movement over
the five quarters under review. While its peers declined YTD in 2019, WAPCO recorded a marginal
increase of 9.64% in share value. Overall in 2018, CCNN emerged the top
gainer while WAPCO topped the losers
list.
Chart 5- YTD Share Price Performance of WAPCO Compared with Peers
Source: Proshare Research
WAPCO Financials Compared with Peers
Table 5: Peer Analysis on Financials
Although the effect of merger reflected in the
result of CCNN, WAPCO
has been able to increase its net asset by 44% from N156.15bln in Q1 2018 to
N225.04bln in Q1 2019. Overall, the bottom line results of the company improved
QoQ as assets and Net assets grew by 6% and 44% respectively while total
liability declined by 8% QoQ. However, the top line was not impressive QoQ as
the company recorded a marginal decline in revenue during the period.
Balance Sheet Financials Compared with Peers
Table 5 above shows that with the exception of PAT
where WAPCO
topped its peers, CCNN emerged
the leader in other financial metrics reviewed in this analysis.
Chart 6- Q1 2018 & Q1 2019 Total Assets of WAPCO and Peers
Source: Proshare Research
DANGCEM has more
assets that CCNN
and WAPCO
combined as its total assets grew by 1% to N1.74 Trillion at the end of Q1
2019. However, CCNN
has been impressive in terms of recording impressive growth in its financials
especially in its assets growth as it recorded 1223% in asset growth QoQ while,
WAPCO
experienced a marginal increase of 6% in its asset from N562.56bln recorded in
Q1 2018 to N597.19bln recorded in Q1 2019.
Chart 7- Q1 2018 & Q1 2019 Total Liabilities of WAPCO and
Peers
Source: Proshare Research
Chart 8- Q1 2018 & Q1 2019 Net Assets of WAPCO and Peers
Source: Proshare Research
Top-line and Bottom-line Compared with Peers
In terms of revenue, DANGCEM and WAPCO
recorded 1% and 3% decline respectively in revenue during Q1 2019 while WAPCO
recorded 257% growth in PAT by declaring profit of N3.15bln as a result of
effectively managing and reducing the companies cost of sales and operating
expenses as well as an income tax credit of N3bln during period.
However, the revenue profile of CCNN
at the end of Q1 2019 reveals a surge in the revenue growth rate from 23.97% in
Q1 208 to 213% in Q1 2019. Attributed to this was the increase in the sale of
cement as a result of an increased expansion accompanied by the use of
alternative sources of energy. Therefore, gross sale of cement in Q1 2019 was
N19.02bln up from N5.98bln recorded from gross sale of cement in Q1 2018.
Chart 9- Peer Analysis on Growth in Revenue and PAT
Source: Proshare Research
Chart 10- Q1 2018 & Q1 2019 Revenue of WAPCO and Peers
Source: Proshare Research
Chart 11- Q1 2018 & Q1 2019 PAT of WAPCO and Peers
Source: Proshare Research
Conclusion
The financial results of the 3 listed cement
companies in Nigeria: WAPCO,
DANGCEM
and CCNN
shows that competition is increasing in the cement industry with increasing
volumes thereby denoting a case of price war taking a toll on margins of the
firms.
When compared to its
financial performance in 2018, the performance of WAPCO in Q1 2019 was an impressive one as it reflects significant reduction in net debt
while operating profit was up by 35% with profitability
improved in all business segments.
In
terms of share price movement, WAPCO
tops its peers as it is the only one with a positive share price growth YTD.
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