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LAFARGE AFRICA PLC Q1'22 Earnings Release - Sustained demand drives topline growth

Lafarge Africa PLC recently released its unaudited Q1’22 results, reporting a strong bottom-line growth of 92% to ₦17.5 billion, underpinned by sustained volume growth and strong demand.The current administration’s plan to complete construction activities ahead of the election period and the sustained demand for housing infrastructure supported cement volumes during the period, buoying topline by 27% y/y to ₦90.6 billion. On the other hand, cost of sales jumped by 20% y/y to ₦48.4 billion, as the cement producer faces continuous cost pressures fueled by the rising inflation and FX liquidity issues. Despite the jump in cost of sales, gross profit improved 20% y/y to ₦42.1 billion, with gross profit margin increasing by 3ppts to 47%. The margin expansion was driven by sustained cost optimization and a more efficient energy mix.

Furthermore, despite an 18% increase in operating expenses to ₦20.2 billion (which was mainly from a 21% y/y jump in admin expenses to ₦5.2 billion), EBIT rose by 50% y/y to ₦22.1 billion. Consequently, EBIT margin climbed 3ppts to 24%. Further down the income statement, Interest on borrowings declined by 77% to ₦388.8 million as the company paid up a significant chunk of its debt in FY’21. Consequently, Net finance cost declined by 66% y/y to ₦675 million, despite the fall in interest income to ₦26.1 million. Supported by a decline in finance cost and a slower increase in tax expense (+8% y/y to ₦3.9 billion), PBT and PAT jumped 68% and 92% y/y to ₦21.4 billion and ₦17.5 billion respectively.

Rising levels of rainfall to slow demand Although we expect the FG’s continued investment in infrastructure to support demand, the rising levels of rainfall may dampen cement demand in the Q2 period. Additionally, we expect continuous pressure on cost lines, fueled by consistent FX challenges and the upward trend in inflation. All in, we forecast a revenue growth and PAT growth of 8% y/y and 23% y/y to ₦317.2 billion and ₦62.8 billion respectively. We value WAPCO at a 12-month TP of ₦35.41 and place a BUY rating on the stock.