WAPCO | Chasing a margin mirage
Although South African operations broke-even at an operating EBITDA level, the operations achieved a 0.04% EBITDA margin for Q3 '18 (Q3 '17: -22%) compared to Nigeria's 27% (18% for the Group). Even with the improvement, Lafarge South Africa Holdings (LSAH) remains loss-making. We expect poor performance from South Africa and increasing finance costs to lead to a Group loss for FY '18, despite volume growth in Nigeria. Despite improving outlook regarding earnings in South Africa and lower finance costs following the rights issue and debt restructuring (post-FY '18), we are wary of the counter due to the Group's history of poor capital allocation and underperformance relative to targets (e.g. single digit EBITDA margin for LSAH).
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