Initial View - Lafarge Q1 21
Earnings lifted by strong volume and operating efficiency
- Lafarge Africa Plc. recently released its Q1’21 financial scorecard, showing an impressive YoY growth in top line and bottom line by 12.21% and 13.26% to N71.47bn and N9.14bn respectively. A closer look at the result revealed that revenue was primarily supported by increased volumes as gross margin weakened by 96bps YoY to 26.71% while gross profit expanded by 8.32% over the same period. We suspect the lingering inflationary cost pressure and FX scarcity may have continued to impact negatively on the company’s cost line, thus, inducing a 13.69% YoY rise in cost of sales.
- We observed continued operational efficiency as OPEX/Sales ratio printed at 7.09%, down by 220bps YoY, and lowest in the last three quarters. This decline was premised on the reduction in administrative (-14.95%) and Selling & Distribution expenses (-10.58%). Thus, operating profit jumped by 24.19% YoY to N14.70bn, with operating margin also improving by 199bps to 20.57% on the back of improved operational efficiency.
- Furthermore, we noticed a 21.36% YoY decline in net finance cost in Q1’21. This was mostly driven by the 9.46% YoY moderation in the company’s total loans and borrowings which stemmed down interest on borrowing by 20.89% to N1.66bn during the quarter. We noticed the company has continued to pay attention to its financing cost structure, thus keeping financing leverage at levels lower than industry peers. This combined with its improved operating efficiency as highlighted above induced a 36.12% YoY increase in PBT to N12.77bn while PAT grew by 13.26% to N9.14bn, on the back of higher deferred tax charged during the period.
- Finally, we observed material improvement in Lafarge’s cashflow from operations largely supported by significant increase in its trade and other payable during the quarter compared to a reduction in Q1’20. Although management guided towards a $60m to $70m CAPEX spend in 2021, Q1’21 results revealed that not much has been done in this regard as total CAPEX spend printed at N3.48bn. Our last communicated FVE was N28.61, which still implies a STRONG BUY rating on the stock based on the current market price of N22.25. We await management’s conference call on its Q1’21 numbers to adjust our fair value estimate.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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