May 2, 2023/CSL Research

Lafarge Africa reported a 1.3% y/y increase in Revenue to N91.82bn in its recently released Q1 2023 unaudited results from N90.61bn in Q1 2022. On a q/q basis, Revenue decreased by 11.2% to N90.61bn in Q1 2023 from 103.39bn in Q1 2022. The broad-based growth in Cement Sales (up 1.7% y/y to N89.46bn) contributed to the marginal increase in topline growth in Q1 2023, despite decreases in sales of Aggregates & Concrete (down 10% y/y to N2.26bn) and other products (down 30.5% y/y to N0.1bn).  According to the Management, volume growth was affected by the Q1 cash crunch but the multiplier effect from the Q4 2022 price increases protected margins.

Cost of Sales (adjusted for depreciation) declined despite a slight increase in Revenue, down 8.7% y/y (vs. Revenue growth of 1.3%) to N38.43bn in Q1 2023. This could be attributed to a y/y decrease in production fixed costs (down 7.6% y/y to N5.60bn) and production variable costs. We believe that despite the impact of FX devaluation on imported raw materials, persistent inflationary pressures, and rising energy costs, the company has effectively managed its costs. Consequently, Gross profit grew 10.1% y/y to N53.39bn in Q1 2023, while Gross margin rose by 4.6ppts at 58.1% in Q1 2023.

Operating Expenses (adjusted for depreciation) increased by 11.7% y/y to N22.29bn in Q1 2023 from N19.95bn in Q1 2022. The increase was driven by pressure on both Administrative Expenses adjusted for depreciation (up to N5.62bn from N4.93bn in 2022) and Selling & Distribution Expenses adjusted for depreciation (up to N18.67bn from N15.02bn in 2022). Given the marginal Revenue growth, EBITDA increased by 2.0% to N29.29bn in Q1 2023 from N28.70bn in Q1 2022. EBITDA margin increased marginally by 0.2ppts to 31.9% in Q1 2023 from 31.7% in Q1 2022. Operating Profit also grew marginally, up 0.8% y/y to N22.24bn.

Net Finance Income was up 140.8% y/y to N242.31m in Q1 2023 from N594m in Q1 2022. This is because of a significant increase in Interest income (1020.5% y/y to 913.88m in Q1 2023) amidst a decline in Interest expense, down by 0.6% y/y to 671.57m in Q1 2023. Pre-Tax profit increased, up 4.7% y/y to N22.48bn in Q1 2023. Tax Expenses increased significantly to N7.55bn in Q1 2023 from N3.91bn in Q1 2022, with effective tax rate increasing to 34% in Q1 2023 from 18% in Q1 2022. The significant growth in tax expense could be attributed to the expiration of the tax holiday of the company’s profit on the Mafamosing line 2 plant in Calabar. Consequently, Net Income declined by 14.9% y/y to N14.93bn in Q1 2023 from N17.56bn in Q1 2022.  Earnings per share also declined by 14.9% y/y to N0.93/s for Q1 2023 from N1.09/s in Q1 2022.

We have a target price of N34.87/s for Lafarge Africa with a BUY recommendation. Current price; N24.00/s.

Source: Company data, CSL Research