Culled—Proshare
April 23, 2018/FBNQuest Research
Event: Lafarge Africa reports Q1 2018 results
Implications: Downward revision to consensus 2018E PBT forecasts likely; shares expected to sell-off
Positives: No obvious positives
Negatives: Lafarge reported a pretax loss of –N2.9bn, driven by a combination of gross margin contraction and spike in opex and net interest expense
This morning Lafarge Africa (Lafarge) published its Q1 2018 results which showed pre-tax and post-tax losses of –N2.9bn and –N2.0bn respectively. The weak earnings were driven by a combination of factors including a significant gross margin contraction of 338bp y/y to 22.3%, a 41% y/y rise in opex and a 133% y/y spike in net interest expense. Sales came in flat y/y but grew 7% q/q. The pre-tax and after tax losses compare with pre-tax and after-tax losses of –N35.1bn and –N29.4bn that the company reported in Q4 2017. Compared with our forecasts, sales were in line with our N81.2bn forecast. However, PBT and PAT missed our forecasts because of negative surprises in gross margin, interest expense and opex.
On its Q4 2017 conference call, management had stated that it still expected more one-off expenses related to its SAP enterprise resource planning software to feature in its 2018 numbers. We believe that these related costs are likely responsible for the significant y/y contraction in gross margin. Lafarge’s 2017 financial statements showed an increase in debt of around N195bn due to the portion of shareholder loans (mainly dollar denominated) that were not converted to equity. Conseqnuently, we believe that this was primarily responsible for the sharp rise in interest expense.
Lafarge’s Q1 2018 PBT tracks well behind consensus FY2018 PBT forecast of N18.6bn. Consequently, we expect to see marked downward revision to consensus 2018E earnings forecast and a significant sell-off in the shares over the next few days.
We rate Lafarge Neutral. Our estimates are under review.
Lafarge Africa Q4 2017 results: actual vs. FBNQuest Capital Research estimates (N millions) 
