Lafarge Africa Plc appears to be set for strong performance in FY 2021 after it had gone through different business combinations and re-organisations in the past few years.
Specifically, Lafarge Africa disposed of its Lafarge South Africa Holdings (Proprietary) Limited business and issued additional capital to significantly reduce its borrowings – a move that birthed stronger and higher quality balance sheet and increased profitability.
Speaking to the numbers, the company’s H1 2021 Profit After Tax (PAT) rose by 21.40% to N28.32 billion amid higher revenue and significant declines in finance costs.
Lafarge Africa’s impressive performance was due to the relative ease in lockdown, amid sustained improvement in COVID-19 vaccination, especially in major states such as Lagos, Ogun, Abuja and Kano where daily consumption of cement is relatively high.
Hence, its revenue increased considerably by 20.30% to N145.01 billion in H1 2021, albeit gross profit margin fell to 33.13% from 34.60% printed in H1 2020 amid rising input costs, such as by-products and electrical energy expenses.
Further break down of the revenue components showed that the company’s segment revenue from cement (constituting 97.52% of the total revenue) rose by 19.26% to N141.43 billion; also, segment revenue from aggregate and ready-mix concrete (comprising 2.48% of the total revenue) ballooned by 83.49% to N3.59 billion in H1 2021.
Going forward, we expect WAPCO’s increased profitability to be sustained, amid increasing demand for housing infrastructure, commercial constructions and government projects which include roads and railways.
Also, the cost lines should boost margins, especially the declining net finance costs.
Hence, we recommended “MODERATE BUY” on WAPCO’s shares despite the “D” performance rating
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, totaling 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.
The Ready Mix operations currently has installed annual capacity of over 400,000 cubic meters.
It provides Mobile Plant Services which can be set up within short lead time to support projects in remote and logistically challenging sites, anywhere in Nigeria.
Lafarge Africa Plc’s Long-term Average Financial Ratios
Robust Balance Sheet Would Further Boost Profitability
Lafarge Africa’s balance sheet looks tidier and well positioned to deliver optimal returns to its shareholders.
WAPCO’s borrowing significantly reduced to N19.75 billion as at H1 2021 from N54.95 billion and N275.26 billion billion printed as at H1 2020 and H1 2019 respectively, using the proceeds from the sale of its foreign subsidiary (USD317 million).
Hence, the group’s total liability effectively fell to N139.86 billion from a high of N143.66 billion, even as its net debt position changed to net cash of N38.09 billion as at H1 2021, from net debt of N15.07 billion as at H1 2020 amid significant improvement in cash position, especially cash from operations.
The net cash position accounted for the lower finance costs, which stood at N2.66 billion in H1 2021 from N4.43 billion in H1 2020 – we expect the company to further widen its margin amid lower interest rate environment and low debt level.
Interestingly, out of the total assets worth N511.72 billion, shareholder value accounted for 72.67% (N371.85 billion) while other stakeholders’ claims on the total assets was only 27.33% (N139.86 billion) – hence, passing through chunk of the operational profit to the equity holders as the company operates on low leverage.
Consequently, shareholders value per share rose to N23.09 as at H1 2021 from N21.86 and N8.65 respectively recorded as at H1 2020 and H1 2019 respectively.
Given WAPCO’s huge cash position worth N57.84 billion (cash per share was N3.59 in H1 2021), and the low debt level, we expect Lafarge Africa to reward its shareholders by increasing dividend payout from the N1.00 it paid for FY 2020.
…Launches a New Product Line – Supafix Tile Adhesive
Lafarge Supafix is a cementitious tile adhesive made of cement aggregates, as well as organic and inorganic additives which is specifically designed for tiling.
With the new product line, the company would further boost its market penetration and increase its revenue going forward.