Ashaka Cement: Q1’15 results fail to impress

Early this month, Ashaka Cement plc (AshakaCem) released its first-quarter (Q1) 2015 results at the Nigerian Stock Exchange (NSE). The company’s top-to-bottom line figures declined remarkably. Revenue dropped from N6.5 billion in Q1 2014 to N4.5 billion in Q1 2015.

The unaudited statement of cash flows for the Q1’15 period also shows profit after tax declined to N889.01 million from N1.919 billion in the corresponding Q1 of 2014.

AshakaCem is the fourth largest cement manufacturing facility in Nigeria. Today, AshakaCem is a subsidiary of Lafarge Africa plc.

The company told shareholders recently at its 40^th annual general meeting that it planned to invest in a significant expansion of its cement production capacity to about 4 million metric tons from the current approximately 1 million metric tons, partly with internally generated funds.

The ground-breaking ceremony of the AshakaCem expansion project was laid last year.

Though, in their first reaction to AshakaCem Q1 results, analysts at FBN Capital Limited said “the results came in weak across the profit and loss (P&L) and showed that PBT fell by 59 percent year-on-year (y/y) to N1.2 billion.”

The analysts attributed the y/y decline in PBT to a combination of factors including a 30 percent y/y reduction in sales to N4.6 billion, a 1,319 basis points (bp) contraction in gross margin to 35.7 percent and -N211 million in other operating expense (compared with a nil charge on the same line in Q1 2014).

They added: “At current levels, on our published estimates, the shares are trading on a 2015E P/E multiple of 7.3x for a -10 percent decline in EPS in 2016E. These compare with an 8.6x multiple for a -12 percent decline in EPS in 2016E that Lafarge Africa is trading on. We expect the market’s reaction to be slightly negative and would not be surprised to see a mild sell-off in the shares.

“To a lesser extent, a 48 percent y/y reduction in net interest income also contributed to the y/y decline in PBT. These negatives completely offset a 39 percent y/y decrease in opex. Thanks to a lower tax rate of 23.4 percent compared with 31.9 percent in Q1 2014, the decline on the PAT line narrowed slightly relative to that on the PBT line to 54 percent y/y.

“Sequentially, the results came in better, but only because the Q4 2014 numbers reflect the fact that Ashaka’s operations were hampered by insurgents attacks on the company’s plants. Consequently, sales advanced by 19 percent q/q, while PBT of N1.2 billion was better than the pre-tax loss of –N436 million reported by the company in Q4 2014,” the research analysts said.

“Although Q4 2014 PAT was a positive N201 million, thanks to a tax credit of N637 million, Q1 PAT still grew by 342 percent q/q. Compared with our forecasts, while sales missed by 25 percent, PBT and PAT missed by 44 percent and 43 percent, respectively,” FBN Capital analysts also noted.

Further in their view, the analysts insisted that “the ongoing challenges with Ashaka Cement are not structural. As such, we expect the firm to return to normalised operational levels going forward. We also believe that the increased substitution of coal for low-pour-fuel-oil (LPFO), which is now above 80 percent, will impact positively on gross margins. Indeed, Lafarge’s management stated that the challenges with Ashaka’s operation have been resolved.”

 

Iheanyi Nwachukwu