Lafarge 1Q14 profit surges on high demand for cement

Background

Lafarge WAPCO Cement plc (WAPCO) is a 60 percent-held subsidiary of Lafarge SA, located in Ogun State, in the South-Western region bordering Lagos. WAPCO is the second-largest cement manufacturer in the country, with c.15 percent share of total industry production capacity.

The business became a part of the Lafarge Group following the acquisition of the Blue Circle Group by Lafarge in 2001.

Today, Lafarge holds a strong position in the Nigerian cement industry, with investment in companies that had a total production capacity of 8.5 million tons per annum in 2013.

The Group currently offers three brands of cement: Elephant Cement (its flagship brand), Elephant SupaSet (which caters to the block-making and construction industry), and Lafarge PowerMax (a premium brand suitable for large civil engineering projects).

Lafarge Wapco has 3 billion shares outstanding and with a shareholder funds of N101.12 billion at the end of March 2014.

Financial performance for March 31, 2014

Lafarge Wapco released its first quarter 2014 results, which show the company recording an impressive performance at both top- and bottom-line level. For the three months through March 2014, Lafarge’s gross revenue rose by 16 percent y/y to N27.033 billion from N23.23 billion in the same period of the prior year (1Q13).

The infrastructural deficit and rapid urbanisation have been driving the demand for cement in Nigeria, which explains Lafarge’s double-digit growth in revenue. Profit before tax (PBT) in the review period surged by 20 percent y/y to N8.62 billion compared with N7.20 billion recorded 1Q14.

Profit after tax (PAT) also followed the same impressive trend as it spiked by 34 percent y/y to N8.14 billion in 1Q14, from N6.07 billion in 1Q13.

Earnings per share (EPS) in the review period was spiked by 34 percent to 271k as against 202k in 1Q13. The higher margins and improved profitability of Lafarge can be attributable to the state-of-the-art technologies in its new plant and relatively cheap gas, which help to reduce overhead cost.

Cost-of-sales margin jumped by 55 basis points to 57.61 percent in the review period, while gross margin increased by 14.86 percent y/y to N11.44 billion in 1Q14.

Operating expenses increased by 20.88 percent y/y to N2.35 billion in 1Q14 compared with N1.94 billion in 1Q13, while operating expenses ratio increased by 6 basis points to N2.35 billion.

Net profit margin, a measure of profitability and efficiency rose to 30.11 percent in 1Q14, as against 26.11 percent in 1Q13, while gross margins fell by 56 basis points to 42.31 percent.

Returns on average assets and return on average assets were 31.26 percent and 18.20 percent, respectively.

Sales turn in the review period climbed to 26.73 percent from 24.73 percent in 1Q13. It means Lafarge generates 0.26k for one N1 invested in net assets. It total assets were up 6.08 percent y/y to N170.87 billion in 1Q14, from N161.07 billion in 1Q13.

Share performance and outlook

The share price of Lafarge has increased by 60.60 percent in the past year to close at N110.50, April 29, 2014, on the floor of the Nigerian Stock Exchange, and earnings per share (EPS) have been forecast at N8.74/N10.12 for financial year 14/15, representing a three-year CAGR of 27 percent in EPS.

The company had a market capitalisation of N330.17 billion on the same day. It also has a price-to- book ratio of 3.56 xs and a price-to-sales ratio of 3.35 xs.

Current P/E ratio and estimated current P/E ratio were 11.67x and 10.97x, respectively.

Following its 2011 expansion, WAPCO secured its position as the second-largest cement manufacturer in the country, by both production and sales, and is now repositioning itself to become a national player.

BALA AUGIE