EUR 4.00 For Business Accounts Only

Initial View - Lafarge Africa Plc - Disposal of LSAH…brink of hope

• After the close of trade yesterday, Lafarge Africa Plc (Lafarge) released its long-awaited FY 18 and Q1 19 results. In line with our thoughts, Lafarge recorded profit in both Q4 18 and Q1 19 quarters, after five consecutive quarters of losses since Q3 2017. The performance in both quarters largely reflected impact of the tax credit earned on the new Mfamosing plant – Q4 18: N6.7 billion and Q1 19: N3.0 billion – which swayed the Q4 18 loss before tax of N5.1 billion to a N1.6 billion profit and pushed Q1 19 PBT of N123 million to a PAT of N3.1 billion. 
• In our Sector Update published in December 2018 (See Report: ), we had guided that the management of Lafarge Africa intends to dispose the South African operation to a willing buyer and in the worst case scenario that the asset would be put back to the parent company. Concisely, the management yesterday released an explanatory note for shareholders approval for the sale of the South African business to LafargeHolcim Limited (LH) at a consideration of $316.3 million. While we had expected actual proceeds of the cash to be used in revamping the moribund Shagamu plant or setting up a new factory at Ashaka, the transaction is being conducted by a set-off of the all the outstanding borrowings (comprising $293 million principal sum and $23.3 million accrued interest as at July 31^st) owed to the LH.
• Accordingly, following the completion of the transaction, all Lafarge Africa FCY loans will be extinguished. As such, we expect significant savings on interest expense in the short to medium term, compared to our earlier estimate of better cash flows following the moratorium that accompanied the refinancing of the FCY loan in August 2018.
• Specifically, going by the refinancing structure of the FCY portion of the loan in 2018 and the expected repayment of expensive short term borrowings from the proceed of the rights issue, we had guided that total interest expense in 2019 will reduce potentially to N29.7 billion from N45.9 billion in FY 18. With the conclusion of the sale in July 31st, we estimate a further reduction in finance expense to c.N22 billion in full year 2019.
• WAPCO currently trades at an EV/EBITDA of 8.3x compared to Bloomberg Middle and East Africa Peers at 14.8x. Our last communicated FVE of N18.07 translates to a BUY rating on the stock. Our model is under review.
• • The management of Lafarge Africa Plc would be holding its Q4/FY 2019 & Q1 2019 Analyst Conference call today at 2:00 PM. See details below.

  Dial in Number(s):

  • France: 01 70 37 71 27
  • Johannesburg Neotel: 011 535 3500
  • Johannesburg Telkom: 010 201 6700
  • Nigeria: 01903 0040
  • UK: 0 333 300 1417
  • USA and Canada: 1 508 924 4325

  Passcode: 6746837

  PIN: 37299