Some negatives, few positives…but nothing’s changed
Recently, Lafarge Africa released another unimpressive result, this time reporting a Loss after tax of ₦6.5 billion in Q3’18 and taking 9M’18 bottom line to a ₦10.4 billion loss position. The story is little changed for WAPCO, with the South African business still dragging Group EBITDA margin (9M EBITDA margin: -13%, Nigeria: 27%, Group: 15%) and the group reporting yet another batch of one-off costs, totaling ₦4.6 billion in Q3. We understand that the one-offs were related to redundancy costs in Nigeria and South Africa, SAP implementation in Nigeria and the closure of a site in SA. Driven by these, 9M Group EBITDA fell 20% y/y to ₦36.0 billion (Vetiva: ₦38.0 billion, Nigeria: ₦45.5 billion, SA: -₦9.2 billion) and LBT came in at -₦14.4 billion (Vetiva: -₦7.8 billion) as finance costs remained elevated, rising 21% y/y to ₦33.5 billion. Overall, bottom line came in at the lowest 9M earnings since 9M’16 and a far cry from the ₦0.9 billion profit reported in 9M’17 (Vetiva: -₦4.8 billion).
We do not see much improvement in Q4 and have made a number of changes to our estimates, taking into account the 9M results. First, we cut our FY’18 revenue estimate for Nigeria to ₦225.6 billion (Previous: ₦228 billion), reflecting the roll-back of prices in the quarter, even as we maintain our 5.0 million MT volume forecast for the region. Meanwhile, we cut our revenue projection for South Africa to ₦90.3 billion from ₦96.0 billion, given sustained volume challenges. Overall, we forecast Group revenue at ₦315.9 billion (Previous: ₦323.6 billion), representing a 6% y/y growth. After adjusting our operating costs, finance charges and tax estimates to reflect changes in the quarter, we arrive at a reduced FY’18 bottom line of -₦11.7 billion (Previous: -₦5.3 billion) and a target price of ₦31.99 (Previous: ₦39.16). We maintain a HOLD on WAPCO.
Lafarge Africa PLC is a subsidiary of LafargeHolcim, a world leader in building materials. The company has operations in Nigeria - Ewekoro and Sagamu plants in Ogun State, Ashakacem in Gombe State, Mfamosing in Cross Rivers State, Atlas cement in Rivers State and Ready-Mix Nigeria and varied operations in South Africa and Ghana with total group capacity of around 14 million MT.
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