By Siaka Momoh
Renaissance Capital remains positive on Lafarge’s outlook for 1Q15 as the defective units return to service, and the Nigerian market resumes its growth trajectory following the recent elections.
“We remain positive on its outlook as the defective units return to service, and the Nigerian market resumes its growth trajectory following the recent elections. We maintain our BUY rating TP NGN105,” the report says.
It says Lafarge Africa’s 1Q15 results were behind expectations on a run rate basis, negatively impacted by a combination of plant stoppages, and the impact of the weaker currency in Nigeria.
“The group however increased volumes ahead of the market, and improved both price realisation and cash generation over the period.”
For RenCap, “Strong top line eroded by one-offs and currency. For 1Q15, Lafarge Africa reported fully diluted EPS of NGN1.84, down 20% YoY (16% of our FY15E). Revenue was up 15% YoY (24% of FY15E), EBITDA down 3% at NGN14.9bn (20% of FY15E) while cash generated from operations improved 7% to NGN14.6bn. The key driver of the decline in earnings was the impact of the weaker currency on debt held at its Unicem associate, as well as production stoppages at both Ashaka and the South African business. Excluding these one-offs, EBITDA would have been up 10% for the period, or up 32% with Unicem fully consolidated.”
It notes that the legacy WAPCO business grew revenues 25% to NGN32.7bn on the back of 15% growth in volumes, while EBITDA improved 17% to NGN12bn, with a slightly lower margin on account of higher freight, sales and marketing costs as the business grew its market share. “Pricing was also strong over the period, allowing for recoupment of cost inflation and mitigation of the impact of the weaker exchange rate. Capacity utilisation is now above 90% for this business.”
It says Ashaka and SA were impacted by maintenance-related stoppages. It explains: “Despite higher prices and better coal utilisation, Ashaka was negatively impacted by lower volumes (-35%) due to pre-election security concerns, and repairs to its Mill 2 which were only completed in late February. SA was hurt by the overhaul of its Kiln 3, resulting in the need to import clinker, as well as a generally softer market.”
It notes that outlook remains positive saying “Management expects stable prices and growing volumes in Nigeria, particularly over 2H15, with both SA and Ashaka now fully operational. We continue to forecast EPS of NGN11.3/NGN11.5/NGN14.6 for FY1E/16E/ FY17E representing a three-year 26% EPS CAGR for the group. At its current 8.1x P/E to December”.