Lafarge Africa Plc (WAPCO: TP N24.2 – BUY) reported a profit after tax of N20.6 billion from continuing operations in 9M’19. Significant savings on input costs and lower finance expenses supported the impressive performance in the review period.
Some positives:
- We highlight the significant plunge in operating cost in Q3’19 consequent on the sale of the old and relatively inefficient South African production lines. Specifically, the company reported the lower cost of raw materials (-78.2% YoY) and haulage costs (-45.7% YoY) in the quarter. The 76.2% YoY moderation in administrative and technical expenses also drove the operating margin to 17.1% in Q3’19 (Q3’18: 3.9%).
- Interest expense moderated by 71.7% YoY to N3.1 billion in Q3’19. The lower finance cost was largely driven by a significant contraction in WAPCO’s borrowings. This comes after the company paid off most of its related party borrowings from the proceeds of LSAH sale.
- Consequently, its debt to equity ratio now favourably stands at 18.4% compared to the 89.3% reported at the end of H1’19.
Some concerns:
- Revenue declined by 37.0% YoY in Q3’19, largely due to the 21.9% contraction in cement volumes (-5.0% YoY) and the stripping out of LSAH operations. Additionally, we posit that WAPCO may have faced increased competition in the Northern region of the country as CCNN pushed our more volumes amid additional capacity (4x increase in existing capacity in 2018).
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