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LAFARGE AFRICA H1'20 - Proves Teflon to pandemic pressure

Lafarge Africa recently released its H1’20 results, reporting a 47% y/y jump in Net profit to ₦23.3 billion, significantly outpacing our ₦12.7 billion expectation. The earnings beat was largely supported by strong cost containment and a drastically reduced finance cost base in the second quarter, even as Q2 topline mildly moderated. Notably, the cement giant reported a 5% y/y moderation in Revenue to ₦56.8 billion in Q2’20 (Vetiva: ₦43.4 billion), dragged by a 4% y/y moderation in cement sales to 1.3 million MT (Vetiva: 1.03 million MT). That said, combined with a strong Q1, Revenue expanded by 2% y/y to ₦120.5 billion in H1’20 (Vetiva: ₦107.1 billion). In spite of the slowdown in sales, Q2’20 Gross profit however jumped 10% y/y to ₦24.1 billion (Gross margin expanded 5.9ppts to 42.4%), supported by strong cost containments across Raw materials, Energy and Production costs. Cost/tonne moderated across all three lines.

In spite of significant pressure from the lockdown, economic uncertainty and increased competition across areas of operation, Lafarge Africa’s earnings have shown resilience. To reflect this, we have made a number of adjustments to our forecasts; first, we have raised our FY’20 volume forecast to 5.2 million MT and our average revenue/tonne forecast to ₦44,117. Overall, we forecast a 22% y/y growth in Revenue to ₦238.9 billion in FY’20. Taking into account the cost run rate in Q2’20, we have adjusted our FY’20 EBITDA estimate to ₦94.2 billion. After accounting for Interest and Tax, we arrive at an FY’20 PAT of ₦42.3 billion, almost triple the earnings in FY’19. We value WAPCO at ₦34.08 and place a BUY recommendation on the stock.