WAPCO Q1'16 Results - Marked Downward Revisions to Consensus 2016 PBT Forecast Expected

Proshare

Thursday, April 28, 2016 3:37PM/ FBNQuest Research

Event: Lafarge Africa reports Q1 2016 results

Implications: Marked downward revisions to consensus 2016 PBT forecast expected

Positives:  Opex declined by 15% y/y
Negatives: Lafarge declared pretax and after tax losses of N2.2bn and -N6.4bn respectively  

This afternoon the NSE published Lafarge Africa (Lafarge) Q1 2016 which showed marked declines across key headline items and an after-tax loss of -N6.4bn. Sales declined by -29% y/y to N52.4bn
, driven by a combination of production challenges and benign cement prices.


Although opex declined by -15% y/y and finance charges were flattish y/y, the weakness on the topline, combined with a gross margin contraction of -1,876bps y/y to 14.9% resulted in a pretax loss of –N2.2bn (vs. N6.1bn in Q1 2015).

Further down the P&L, the after-tax loss widened to -N6.4bn (vs. N5.1bn  Q1 2015), due to a negative result of –N5.5bn on the other comprehensive line. The sequential trends are not comparable due to the consolidation of UNICEM into the group for the first time in Q4 2015.

Compared with our forecasts, sales missed by 21.4%. We had forecasted PBT and PAT of N9.1bn and N7.5bn respectively, compared with the losses delivered by the company.       


According to the statements released by the company, unit volumes in Nigeria declined across almost all key categories. While cement unit volumes declined by 5% y/y in Nigeria to 1.7mmt, the overall volumes for ready mix declined by around 9% y/y. Lafarge’s y/y volume decline in Nigeria is at variance with its major rival Dangote Cement whose unit volumes grew by around 45% y/y to 4.5mmt.

As such, we believe that Lafarge’s market share declined to about 25% in Q1 2016 from around 29% in Q4 2015. Apart from the y/y decline in unit volumes in Nigeria, softer cement prices following the pricing action of market leader Dangote also hurt sales. Although volume and market share numbers for South Africa operations were not provided, the segment grew cement unit volume by around 11% y/y. On the severe gross margin contraction, we would be looking to management for more clarity on today’s conference call.  

Management has disclosed that it is set to embark on a bond issue of around N60bn to refinance third party debts of its subsidiary company UNICEM. The company also intends to issue a tender offer to minority interest holders on the balance of Ashaka Cement shares.   

Given that Lafarge’s results currently track behind consensus 2016 forecast (PBT of N36.9bn), we expect to see marked downward revisions to consensus 2016 PBT forecast and a negative reaction from the market. Lafarge shares have underperformed the ASI this year. Ytd they have shed -27.3% compared with the -12.1% loss delivered by the ASI.

Our estimates are under review. We rate Lafarge Outperform.
Lafarge Africa Q1 2016 results vs. FBNQuest estimates (N millions)



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9.      WAPCO Declares N26.99bn Profit in 2015 Audited Result,(SP:N84.00k)

10.  Lafarge Africa Plc Appoints Mr. Michel Puchercos as New Group MD CEO Effective 1st April 2016

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12.  Lafarge Africa Pre-tax and After-Tax Margins Contract by Over 200bps in Q3 2015

13.  WAPCO EBIT Falls by 46 in Q3 15 Financials

14.  WAPCO Net Interest Expenses Rises as PBT and PAT Fall in Q3 15 Result

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