Hope for Lafarge African earnings

Lafarge Africa’s net income closed in the red at N–2.00bn in the first quarter of 2018, an equity research report by Morgan Capital indicated. The report however stated that revenues are projected to advance by about 10% in FY2018.

In a briefing held on May 2^nd, 2018, the company disclosed that “in addition to the negative impact of higher prices to volume growth, production disruptions were witnessed in the Mfamosing plant in March as a result of some technical challenges associated with mastering a new line”.

 

Analyst at Morgan Capital expects revenue to advance in full year 2018 as earnings and projections of a return of positive sentiments on the counter are expected to set target price at N54.00, representing an upside of 27.36 per cent from its closing price on the 25^th of April, 2018.

 

Net sales declined by 1.53 per cent, owning to low productivity in the South African operations of the company. This according to analysts at Morgan Capital can be attributed to declining construction market witnessed since 2012 and increasingly aggressive competition from major players in the sector.

 

“However, given the expected ramp up in productivity in the South African region from the ongoing turn-around plans, we expect to witness a boost in operational efficiencies” Morgan Capital noted.

 

Following the decline in volumes observed in the Nigerian operations (Cement: -5.24%, Ready-mix: -30.61%) due to price increases, total revenue pared 0.82% to N80.64 billion in Q1 2018.

 

However, rising costs are expected to be curtailed by the current energy optimization plans, with an increased utilization of coal and gas in the east and north regions.

 

Following the liquidation of Nigerian Cement Holdings in 2017, an outstanding quasi-equity instrument of $344.00 million was incorporated in the loan books of Lafarge Africa. As a result, some outstanding debt obligations were settled in a debt to equity conversion in December 2017.

 

Variable costs advanced by 49.23% in the period, settling its contribution to total cost of sales higher at 59.08% from 41.05% in Q1 2017.

A closer look at some of the  variable components show that while total raw materials and inventory costs moderated by 11.68 percent and 1.08%, prepaid gas spiked 8.59% to N10.68 billion in the period but moderation  are expected as the company intensifies its drive towards the use of cheaper fuel alternatives