March 1, 2022/CSK Research

In its recently released audited FY 2021 results, Lafarge reported a 27.1% y/y increase in Revenue to N293.1bn from N230.6bn in FY 2020. On a q/q basis, Revenue was down marginally by 0.4% to N73.9bn in Q4 2021 from N74.2bn in Q3 2021. The broad-based growth in Cement Sales (up 26.1% y/y to N285.1bn), sale of Aggregates & Concrete (up 77.7% y/y to N7.6bn) and Others (up 231.1% y/y to N0.3bn) drove the improved topline performance in FY 2021. While no information has been provided on the Revenue breakdown, we believe, just as in the previous quarters of the year, that both growth in price and volume supported the Revenue growth, with the former being stronger than the latter. The persistent inflationary pressures presented opportunity for the company to implement higher prices as of 9M 2021 to neutralize the cost impact.

Cost of Sales (adjusted for depreciation) rose slightly faster than Revenue, up 27.6% y/y (vs. Revenue growth of 27.1% to N120.3bn in FY 2021. The increase in Cost of Sales was driven by growth across major cost components; variable costs (up 45.5% y/y to N88.5bn), maintenance costs (up 67.1% y/y to N14.6bn, and impairment of property, plant and equipment (up 302.5% y/y to N4.8bn). We believe FX devaluation impact on imported raw materials as well as USD priced energy sources spiked costs. Nevertheless, Gross profit grew 26.8% y/y to N120.3bn in FY 2021 while Gross margin contracted by 15bps y/y to settle at 58.% in FY 2021.

Operating Expenses (adjusted for depreciation) increased by 22.5% y/y to N75.6bn in FY 2021 from N61.7bn in FY 2020. The moderate growth was driven by both an upward pressure in Administrative Expenses adjusted for depreciation (up 17.4% y/y to N18.7bn) and Selling & Marketing Expenses (up 24.3% y/y to N57.0bn). Notably, in a bid to appropriately classify its expenses, the company retrospectively reclassified distribution costs from Cost of Sales to Selling and Distribution Costs for comparison purposes. Given the robust Revenue growth, EBITDA increased by 29.6% to N97.8bn in FY 2021 from N75.5bn in FY 2020. EBITDA margin increased by 63bps to 33.4% in FY 2021 from 32.7% in FY 2020. Operating Profit grew strongly, up 42.6% y/y to N65.1bn.

Since the repayment of its major debt in June 2021, the company has maintained a low leverage position reflected in the 58.6% y/y decline in Net Finance Cost to N3.5bn in FY 2021 from N8.5bn in FY 2020. The impact of a 45.7% y/y decline in Finance Cost and 48.0% increase in Finance Income drove the steep decline in Net Finance Cost. As a result, Pre-Tax profit increased, up 65.7% y/y to N62.3bn in FY 2021, also supported by Share of Profit from Joint Venture of N0.7bn, a 57.8% y/y increase compared to the previous period.  

Effective Tax Rate moved slightly up to 17.3% in FY 2021 from 16.9% in FY 2020. Still, Net Income grew significantly, up 64.9% y/y to N51.5bn in FY 2021 from N31.2bn in FY 2020. Earnings per share was also up 65.4% y/y to N3.17/s for 2021 from N1.91/s in 2020.

The Board proposed a final dividend of N1.0/s, bringing the total dividend for the year to N2.0/s compared to N1.0/s in 2020. FY 2021 dividend yield comes to 7.7% based on the last closing price of N26.0/s.

 We have a target price of N34.87/s with a BUY recommendation on the stock. Current Price; N26.00/s. 

Source: Company data, CSL Research