August 2, 2023/CSL Research

In its recently released H1 2023 results, Lafarge Africa reported a 5.9% y/y Revenue growth to N197.6bn in H1 2023 from N186.5bn in the prior period (H1 2022). Similarly, on a q/q basis, Revenue was up by 15.3% to N105.8bn in Q2 2023 from N91.8bn in Q1 2023. The broad-based growth in cement sales (up 10% to N102.4bn) and aggregate and concrete sales (up 23.2% to N3.3bn) contributed to the marginal increase in topline growth in H1 2023, despite a decrease in other products (down 51.9% to N85.4bn). While no information has been provided on the Revenue breakdown, we attribute the company’s top-line growth to the effect of the Q4 2022 price increases, which helped protect margins.

Despite a y/y increase in production fixed costs (up 11.5% y/y to N30.7bn) and production variable costs, Cost of Sales (adjusted for depreciation) declined, down 3.7% y/y (vs. Revenue growth of 5.9%) to N81bn in H1 2023. We are happy with the company’s effort to keep cost down despite the impact of FX devaluation on imported raw materials, persistent inflationary pressures, and rising energy costs. Consequently, Gross profit grew 13.9% y/y to N116.6bn in H1 2023, while Gross margin rose by 4.1ppts to 59.01% in H1 2023.

Operating Expenses (adjusted for depreciation) increased by 90.1% y/y to N51.5bn in H1 2023 from N27.09bn in H1 2022. The increase was driven by both Administrative Expenses adjusted for depreciation (up 14.6% y/y to N10.87bn) and Selling & Distribution Expenses (up 7% y/y to N40.27bn). Other Income was also up significantly by 112% to N425m. Despite the cost pressures, EBITDA increased by 8.1% to N65.92bn in H1 2023.  Consequently, EBITDA margin increased by 0.7ppts to 33.35% in H1 2023 from 32.68% in H1 2022. Depreciation and Amortisation was up to N13.6n while Operating Profit grew by 7.7% y/y to N52.2bn from N48.54bn in H1 2022.

Lafarge recorded a 281.6% increase in Net Finance Income to N3.02bn in H1 2023. The significant increase reflects a 24.4% y/y decline in Finance cost amidst a significant growth in Finance Income. We note that the growth in Finance Income was driven by a significant increase in Interest income from short term fixed deposits and current accounts. Pre-Tax profit was up by 18% y/y to N55.3bn in H1 2023.

Due to the expiration of the tax holiday on the company’s profit from the Mafamosing line 2 plant in Calabar. Tax Expenses increased to N19.83bn in H1 2023 from N9.46bn in H1 2022. Consequently, Net Income declined by 5.2% y/y to N35.47bn in H1 2023 from N37.41bn in H1 2022. Earnings per share also declined by 5.2% y/y to N2.20/s for H1 2023 from N2.32/s in H1 2022.

We have a target price of N45.96/s for Lafarge Africa with a Buy recommendation. Current Price; N26.6/s.

Source: Company data, CSL Research