West Africa Pipeline Company | Trouble down south
Lafarge Africa faces internal headwinds in its South African (SA) business with continued EBITDA losses due to operational issues worsened by a fragmented market with intense competition. Despite a new management team in SA, operational risk remains high. We expect SA operations to post a bottom line loss for FY '18 due to a structurally low EBITDA margin of 3% and high finance costs. Whilst the Nigerian operational outlook is favourable, the Group's inability to service its debt is concerning. We also draw attention to the constant flux in capital structure. In our view, poor capital allocation negatively affected return on invested capital to the detriment of shareholders. Therefore, we do not believe the expected return for the counter offers a sufficient margin of safety.
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