Investment Recommendation – Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%…

Must Read

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...

List of United Bank for Africa (UBA) Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is held. The sort...

Ogun State Resumes Monthly Environmental Sanitation this Saturday

After a long break due to COVID-19 pandemic, the Ogun state government says the monthly Environmental sanitation exercise will...
- Advertisement -

Lafarge Africa Plc recorded strong operating performance in H1 2020 as its Profit After Tax (PAT) rose by 158.96% to N23.33 billion due to significant declines in finance costs and administrative expenses.

Lafarge Africa’s impressive performance was despite the COVID-19 pandemic which nearly shut-down economic activity, especially in the cement sector, amid Federal Government’s imposed lockdown on some states such as Lagos, Ogun, Abuja and Kano where daily consumption of cement is relatively high; and, the dwindling revenue from its cementitious products such as aggregate and ready-mix concrete.

The cement company’s revenue increased marginally by 2.25% to N120.54 billion in H1 2020, hence increasing profit margin to 19.35% from 13.44% printed in H1 2019.

The increase in revenue was chiefly from the company’s segment revenue from cement (constituting 98.38% of the total revenue) which rose by 3.47% to N118.58 billion; however, segment revenue from aggregate and ready-mix concrete (comprising 1.62% of the total revenue) plunged by 26.20% to N1.44 billion in H1 2020.

Notably, the third-largest cement company in Nigeria stepped on the path of recovery after disposing of its foreign subsidiary, Lafarge South Africa Holdings (Proprietary) Limited – which was a drain on the group’s profitability given its relatively thin gross margins –, in July 2019 at a gain of N108.97 billion.

- Advertisement -

Lafarge Africa Plc. (WAPCO): Basking in Restructuring Gains

Lafarge South Africa Holdings, before it was sold in July 2019, printed loss after tax of N6.83 billion in H1 2019, despite the N42.41 billion revenue recorded in the same period.

Going forward, we expect WAPCO’s increased profitability to be sustained, amid further ease in restriction of movements – which should stimulate the use of cement – and reduced cost lines, especially finance costs.

Hence, our “MODERATE BUY” recommendation on WAPCO’s shares.

…Nigeria’s Huge Infrastructural Gap Presents Opportunity for Lafarge

The huge infrastructural gap in Nigeria presents a huge opportunity for Lafarge Africa Plc, especially for its ready-mix concrete which is well suited for road construction – Lagos State Government constructed part of the Bus Rapid Transport (BRT) roads with WAPCO’s ready-mix concrete.

- Advertisement -

Given the relatively bad state of the roads in Nigeria today, coupled with the quest for stronger and durable roads by the Federal and State governments, we see an increasing opportunity for Lafarge Africa Plc to further grow its revenue. Also, the use of cement is expected to be stimulated by the need to bridge the significant housing deficit in Nigeria
in the face of large population size and the worsened insecurity.

Read Also:  CBN to revoke 154 microfinance banks’ licences, 28 others

…Sale of Foreign Subsidiary Strengthened Balance Sheet Position

WAPCO significantly reduced its debt position to N54.95 billion as at H1 2020 from the humongous N275.26 billion printed as at H1 2019, using the proceeds from the sale of its foreign subsidiary (USD317 million).

Hence, the group’s total liability effectively fell to N143.66 billion from a high of N406.78 billion, even as its net debt position crashed to N15.07 billion as at H1 2020, from N255.72 billion as at H1 2019 amid improved cash position.

The reduced debt position accounted for the lower finance costs, which stood at N4.42 billion in H1 2020 from N13.33 billion in H1 2019 – we expect the company to further widen its margin amid lower interest rate environment and low debt level.

- Advertisement -

Similarly, with the sale of Lafarge South Africa Holdings, and the N89.2 billion rights issue in 2019, shareholder value increased to N352.14 billion, up from N139.38 billion, thus, lifting its shareholder’s value per share to N21.86 as at H1 2020 from N8.65 as at H1 2019.

Read Also:  Headline inflation rate jumps to 13.71% y/y in September-2020

The recent positive developments boosted Lafarge Africa’s financial performance to earn our ‘Bb’ rating, as it ranked favourably compared to other players in its industry.

…Where in the Midst of Players Does WAPCO Stands?

With cement production plants in Ewekoro and Sagamu in the South West (4.5MMT production capacity), Mfamosing in the South-South (5MMT production capacity) and Ashaka (1MMT production capacity) in the North East of Nigeria, totalling 10.5MMT, WAPCO is well positioned across the country to further increase its revenue.

Also, Lafarge Readymix Nigeria Limited, one of the subsidiaries of the group and a market leader in quality concrete solutions, operates in three strategic regions of the country: Lagos, Port-Harcourt and Abuja.

However, Lafarge Africa still needs to up its competitive strategy in order to gain more market share from its competitors such as Dangote Cement Plc (with 29.3MMT production capacity and 60.6% market share) and BUA which is ramping up production capacity to 14MMT by 2021.

Cowry Research

- Advertisement -
Investment Recommendation - Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%… - Brand SpurInvestment Recommendation - Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%… - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Investment Recommendation - Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%… - Brand SpurInvestment Recommendation - Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%… - Brand Spur

Latest News

DFA Awards 2020 Winners Announcement: 3 Design Trendsetters, 16 Young Designers and 197 Outstanding Projects Honoured for Design Excellence

HONG KONG, CHINA - Media OutReach - 30 October 2020 - DFA Awards 2020 is pleased to announce its recipients for the year...

HDBank remains on high growth path in Q3, aids business community amid pandemic

HO CHI MINH CITY, VIETNAM - Media OutReach - 30 October, 2020 - The HCM City Development Joint Stock Commercial Bank (HDBank, HOSE: HDB) reported pre-tax profits...

DFA Awards 2020 Winners Announcement: 3 Design Trendsetters, 16 Young Designers and 197 Outstanding Projects Honoured for Design Excellence

HONG KONG, CHINA - Media OutReach - 30 October 2020 - DFA Awards 2020 is pleased to announce its recipients for the year of 2020. Three design trendsetters have been...

FWD wins Five Awards at Hong Kong Insurance Awards 2020 for outstanding performance and innovation

HONG KONG, CHINA - Media OutReach - 30 October 2020 - FWD Hong Kong ('FWD') won five awards at the Hong Kong Insurance Awards (HKIA) 2020, an event organised...

Logistics Customers in China Select Infor to overhaul business and streamline operations

BEIJING, CHINA - Media OutReach - 30 October 2020 - Infor, a global leader in business cloud software specialized by industry, today announced that Infor Warehouse Management Systems (WMS) continue to be the solution...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Investment Recommendation - Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%… - Brand SpurInvestment Recommendation - Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%… - Brand Spur