August 17, 2021/Proshare

by FBNQuest Research  

EPS over the ’21-23f period up by around 34%

Lafarge delivered a strong Q2 ’21 performance. Earnings were up 26% y/y to N19.2bn. While unit volumes were up by double-digits y/y to c.1.6 million metric tonnes (mmt) during the period, we estimate that average net prices rose by c.9% y/y to N47,500/tonne. Going forward, we have raised our EPS outlook over the ’21-23f period by 34%. For FY’21, we have adjusted our sales forecast by 7% to N284.6bn, reflecting higher pricing and the better-than-expected cement demand. In terms of strategic objectives, unlike competition, which is focused on expansion and development of cement production capacity, Lafarge intends to sweat its facilities by increasing capacity utilisation and debottlenecking existing plants.

According to management, the debottlenecking project for Ashaka and Ewekoro is expected to unlock additional capacities of 2mmt over the next 2 years. Compared with peers, Lafarge posted capacity utilisation of 57% in H1 vs. DangCem (63%) and BUA Cement (>60%) respectively. On its Q2 ’21 analysts’ conference call, management stated, that fx volatility continues to place upward pressure on costs. We noticed a similar impact on peers’ Q2 financials. This is unsurprising, given the heavy reliance on USD-linked fuels. The escalation on production costs is driven by higher prices and the naira’s devaluation. We expect that conditions will be little changed in H2, and as such, we have raised our operating expenses forecast by 13%. Additionally, we have lowered our interest expense forecast by 32%, as management appears satisfied with its deleveraged balance sheet.

Overall, our earnings estimate for FY’21 is up by around 52%. Our new price target of N27.6 is up 26% and implies a potential upside of 26% from current levels. We have therefore, upgraded our rating on the stock to Outperform from Neutral. Lafarge shares are trading on a ’21f EV/EBITDA multiple of 3.7x compared with 8.9x for DangCem. Year-to-date, Lafarge shares have gained +6.2% vs. the NSE ASI’s -1.9% decline.

Strong Q2 ’21 performance driven by y/y improvements across the P&L

In Q2, sales improved by around 29% y/y and 3% q/q respectively to N73.5bn. This was driven by both y/y price increase and unit volume growth. PBT of N24.0bn was up 24% y/y while PAT advanced by around 26% y/y to N19.2bn. Profitability was helped by a strong performance on the other income line, which grew by 177% y/y to NGN958m following the disposal of Lafarge’s investment in CBI Ghana in June 2021 and a -77% y/y decline in net finance expenses declined by c.77% y/y to NGN365m. Compared with our estimates, sales and PBT beat by 6% and 42% respectively.