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LAFARGE AFRICA PLC Q1'18 - Still navigating murky waters

Still navigating murky waters                                                                    

Extending the poor run from FY’17, Lafarge Africa recently released its Q1’18 result reporting weak earnings in the period. The disappointing performance was on the back of poor contributions from both Nigeria and South African businesses. Although Nigerian operations remained relatively stable with Q1’18 EBITDA margin coming in at 29% (FY’17: 30%, Q1’17: 30), the region’s PBT however declined 72% y/y to ₦3 billion due to high Net finance costs (up 193% to ₦8 billion) and a one-off charge of ₦0.7 billion from the implementation of ERP software. Performance of the South African operations was however more disappointing, with EBITDA coming in negative at ₦4 billion, worse than the ₦156 million recorded the prior year. Similar to recent trend, the region’s dismal numbers dragged the Group’s earnings before tax to a loss of ₦3 billion (Q1’17: ₦9 billion PBT). Overall, Group’s Revenue was flat at ₦81 billion, whilst EBITDA fell 33% y/y to ₦12 billion. Despite recognizing a tax credit of ₦1 billion, the Group’s bottom-line came in negative at ₦2 billion, quite disappointing when compared with Q1’17 PAT of ₦5 billion and our ₦1 billion LAT estimate.                                                                               

Overall, we raise our FY’18 group revenue expectation to ₦312 billion (Previous: ₦307 billion), translating to a 4% y/y growth. Meanwhile, after adjusting for the one-off charge of ₦0.8 billion relating to the implementation of ERP software in Q1’18, we raise our FY operating expenses figure, reflecting higher Q1 run rate. We therefore arrive at a reduced FY’18 EBITDA of ₦54 billion (Previous: ₦56 billion). After making the revisions, we arrive at a reduced FY’18 PAT estimate of ₦2 billion and a lower target price of ₦57.63 (Previous: ₦63.15).