Lafarge Africa – Cost Optimisation Drive Strong Bottomline Growth

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Lafarge Africa Plc reported a relatively strong Q2’20 performance. Although revenue declined by 5% year-on-year in Q2’20 to N56.85bn from N59.87bn in Q2’19, net income surged by 60% YoY from N9.54bn in Q2’19 to N15.26bn in Q2’20.

The decline in revenue was due to lower volume sold in Q2’20 as a result of the coronavirus pandemic which grounded economic activities.

Meanwhile, cost of sales declined by 14% YoY from N38.00bn in Q2’19 to N32.76bn in Q2’20. The decline in cost of sales was driven by the Company’s cost optimisation strategies. The management emphasised an overhaul and restructuring of costs were done during the period.

We also believe that the investments in fixed assets made by the Company in previous years are beginning to yield a positive result for the Company. Consequent to the 14% YoY decline in cost of sales, gross profit grew by 10% YoY from N21.87bn in Q2’19 to N24.08bn in Q2’20.

Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur

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A significant decline in operating expenses resulted in a 30% YoY increase in operating profit from N16.33bn in Q2’19 to N21.17bn in Q2’20. Specifically, operating expenses reduced by 41% YoY from N6.85bn in Q2’19 to N4.01bn in Q2’20.

The lower operating expenses incurred during the period was driven by a 46% decline in administrative expenses, particularly office and general expenses. In our view, we think that the lockdown directive and ‘work-from-home’ policy resulted in cost-saving for the Group. Also, selling and marketing expenses declined by 12% YoY.

The positive impact of the successful deleveraging efforts of the Company continued to reflect in earnings, as finance cost declined by 69% YoY from N6.21bn in Q2’19 to N1.95bn in Q2’20.

We note that finance cost also declined by 69% YoY in Q1’20. As a result of the lower finance cost incurred in Q1’20, profit before tax spiked by 78% YoY from N10.87bn in Q2’19 to N19.38bn in Q2’20. However, the bottom-line growth was moderated, due to a higher effective tax rate (21% in Q2’20 vs 12% in Q2’19). Profit after tax grew by 60% YoY from N9.54bn in Q2’19 to N15.26bn in Q2’20.

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Outlook

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We revise our earnings expectations for FY’20E, owing to the positive surprise in Q2’20. We, however, note that the higher-than-expected Q2’20 results released by the Company were majorly due to lower-than-expected operating expenses.

Based on our assessment, the significant decline in operating expenses is linked to the ‘work-from-home’ policy induced by the COVID-19 pandemic. In the short term, we expect the Company to keep incurring lower operating expenses.

However, as the economy gradually recovers, and in the mid-term, we maintain that operating expenses will be at normalised levels. Therefore, we upgrade our EPS forecast from N1.87 to N2.27, reflecting our expectation of higher profit on the back of continued cost optimisation.

In addition, we revised our cost of equity used to discount our projected free cash flows and dividend. We made the downward revision of our cost of equity estimate to reflect a lower risk-free rate from 11% in our last earnings report to 8% as of the writing of this report.

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Overall, we arrived at a fair value of N12.78. Based on our fair value estimate, the expected total return (price return and dividend yield) on the stock is 20%. Hence, we upgrade our recommendation to BUY.

Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur

WSTC Research

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Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur

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Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur


The consumers nowadays are very savvy in understanding the technology and features that goes into each smartphone model. One of these considerations is the camera capabilities and the supporting software. TECNO CAMON 17 Pro clear winner with a 48 MP front camera, while both the Samsung A51 and Redmi Note 9 Pro cameras are at 32 MP and 16MP respectively, hence allowing the user of TECNO CAMON 17 Pro to capture selfies with quality that is comparable to even rear cameras on some smartphones. Considering the rear camera, TECNO CAMON 17 Pro and Redmi Note 9 Pro are equipped with 64MP rear ultra quad camera, while the Samsung A51 maxes out at 48MP.

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Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur


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Mobile phone technicalities


Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur


When it comes to visual real estate, size does matter. Amongst the three smartphone models, the Samsung A51 offers the smallest screen real estate, a 6.5 inches full HD screen while the Redmi Note 9 Pro and TECNO CAMON 17 Pro have bigger screens at 6.67 and 6.8 inches, respectively. Here, the TECNO CAMON 17 Pro does have an edge over the rest and what's more, the 90Hz smooth refreshing rate of TECNO CAMON 17 Pro enable the users never worry about any animation rolling issues on the phone, the 90 Hz super-high refreshing rate offers a smooth, snappy and refreshing experience. The CAMON 17 Pro's full HD mobile phone provides the user with more ease in controlling as well as a more comprehensive view of the mobile games and videos on the phone. Additionally, the TECNO CAMON 17 Pro has an operating system of Android 11 whereas the Samsung A51 and Redmi Note 9 Pro are only at Android 10.

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Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur
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TECNO reveals how the highly anticipated TECNO CAMON 17 Pro measure against its competitors

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Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur


The consumers nowadays are very savvy in understanding the technology and features that goes into each smartphone model. One of these considerations is the camera capabilities and the supporting software. TECNO CAMON 17 Pro clear winner with a 48 MP front camera, while both the Samsung A51 and Redmi Note 9 Pro cameras are at 32 MP and 16MP respectively, hence allowing the user of TECNO CAMON 17 Pro to capture selfies with quality that is comparable to even rear cameras on some smartphones. Considering the rear camera, TECNO CAMON 17 Pro and Redmi Note 9 Pro are equipped with 64MP rear ultra quad camera, while the Samsung A51 maxes out at 48MP.

What is more fascinating is that the TECNO CAMON 17 Pro comes with trademarked TAIVOS technology, which stands for TECNO AI Vision Optimization Solution. It provides users with extremely good visuals, even in low-light environments. TAIVOS can blur out the clutter in the background and optimize image clarity, thereby enhancing night photography effects. Therefore, making it difficult for other mobile phones to bring users a brighter experience in dark environments. The TECNO CAMON 17 Pro is great for anyone who loves to take selfies as keepsakes. The CAMON 17 Pro's front cameras are just as outstanding as its rear – TECNO is a pioneer in this industry with a 48MP front camera. The functions of TECNO CAMON 17 Pro are smoother than similar products with both multi-camera and AI camera modes, providing breath-taking visuals.

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Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur


Powerful cameras need equally lasting battery and storage space. The TECNO CAMON 17 Pro has enough space for just about anything with 256GB ROM + 8GB RAM whereas the Samsung A51 and the Redmi Note 9 Pro has only 128GB ROM + 6GB RAM respectively, which is half of what the TECNO CAMON 17 Pro can store.

In addition, the TECNO CAMON 17 Pro has an enormous 5000mAh battery so you do not need to worry about your phone not being able to function when you need it most. The Samsung A51 has a smaller battery whereas the Redmi Note 9 Pro has a slightly bigger battery of 5020mAh, but that difference is negated by CAMON 17 Pro's flash charging technology as the phone's battery can be charged faster. And the 33W fast charger of CAMON 17 Pro enable a quick charge of up to 70% in just 30 minutes, which is an upgrade compared to the 15W charger of the Samsung A51 and 30W charger of Redmi Note 9 Pro.

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Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur


When it comes to visual real estate, size does matter. Amongst the three smartphone models, the Samsung A51 offers the smallest screen real estate, a 6.5 inches full HD screen while the Redmi Note 9 Pro and TECNO CAMON 17 Pro have bigger screens at 6.67 and 6.8 inches, respectively. Here, the TECNO CAMON 17 Pro does have an edge over the rest and what's more, the 90Hz smooth refreshing rate of TECNO CAMON 17 Pro enable the users never worry about any animation rolling issues on the phone, the 90 Hz super-high refreshing rate offers a smooth, snappy and refreshing experience. The CAMON 17 Pro's full HD mobile phone provides the user with more ease in controlling as well as a more comprehensive view of the mobile games and videos on the phone. Additionally, the TECNO CAMON 17 Pro has an operating system of Android 11 whereas the Samsung A51 and Redmi Note 9 Pro are only at Android 10.

So which phone would you prefer after reading the comparisons? After our comparisons, the TECNO CAMON 17 Pro stands out for the young, adventurous generation that is looking for a phone that can not only perform the basic functions well, but also have additional tools that add so much value to a phone. Redmi Note 9 Pro performed slightly worse in the front camera, fast charger and the screen, which could be a second choice with limited budget, while Samsung A51 stands out with its brand impact, and with no other obvious strength.


Lafarge Africa - Cost Optimisation Drive Strong Bottomline Growth - Brand Spur
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