Buying Lafarge’s Recovery Story as Profit Jumps by 158.96%…


Lafarge Africa Plc recorded strong operating performance in H1 2020 as its Profit After Tax (PAT) rose by 158.96% to N23.33 billion due to significant declines in finance costs and administrative expenses.

Lafarge Africa’s impressive performance was despite the COVID-19 pandemic which nearly shut-down economic activity, especially in the cement sector, amid Federal Government’s imposed lockdown on some states such as Lagos, Ogun, Abuja and Kano where daily consumption of cement is relatively high; and, the dwindling revenue from its cementitious products such as aggregate and ready-mix concrete.

The cement company’s revenue increased marginally by 2.25% to N120.54 billion in H1 2020, hence increasing profit margin to 19.35% from 13.44% printed in H1 2019.

The increase in revenue was chiefly from the company’s segment revenue from cement (constituting 98.38% of the total revenue) which rose by 3.47% to N118.58 billion; however, segment revenue from aggregate and ready-mix concrete (comprising 1.62% of the total revenue) plunged by 26.20% to N1.44 billion in H1 2020.

Notably, the third largest cement company in Nigeria stepped on the path of recovery after disposing its foreign subsidiary, Lafarge South Africa Holdings (Proprietary) Limited – which was a drain on the group’s profitability given its relatively thin gross margins –, in July 2019 at a gain of N108.97 billion.

Lafarge South Africa Holdings, before it was sold in July 2019, printed loss after tax of N6.83 billion in H1 2019, despite the N42.41 billion revenue recorded in the same period.

Going forward, we expect WAPCO’s increased profitability to be sustained, amid further ease in restriction of movements – which should stimulate the use of cement – and reduced cost lines, especially finance costs.

Hence, Financial Ratios H1 2020 H1 2019
Industry Average Gross Profit Margin 34.60% 33.47% 46.10% 34.63% 12.04%
8.48% 13.01 -102.32 0.42 17.90% 1.72 3.00x 2.50x
Operating Profit Margin 27.22% 23.62%
Return on Equity 9.49% 5.47%
Return on Total Assets 6.30% 4.83%
Interest Coverage Ratio 7.41 2.09
CCC (in days) -126.37 52.44
Quick Ratio 0.45 0.21
Debt to Capital 13.50% 66.39%
Equity Multiplier 1.41 3.92
Debt to Cash 1.38x 14.08x
Debt to EBITDA 1.17x 6.31x
Source: Company Financials, Cowry Research
Investment Ratios FY 2019 Industry Average
EPS TTM 1.39 5.16
F’ EPS 2.90 6.59
NAV 21.86 25.67
EV/EBITDA 4.46x 14.69x
PER TTM 8.66x 13.57x
Weighted PER 0.44x 14.46x
P/B 0.55x 2.35x
Dividend yield at suggested entry price 8.69%
our “MODERATE BUY” recommendation on WAPCO’s shares.

Key: EPS – Earnings Per Share; NAV – Net Asset Value; PER – Price to Earnings; P/B – Price to Book; F’ – Full Year Forecast; TTM – Trailing Twelve Months; CCC – Cash Conversion Cycle