October 31, 2023/CSL Research

In its recently released 9M 2023 results, Lafarge Africa reported a 7.1% y/y growth in Revenue to N289.08bn in 9M 2023 from N269.85bn in the prior period (9M 2022). On a q/q basis, Revenue was down 13.7% to N91.40bn in Q3 2023 from N105.86 in Q2 2023. The broad-based growth in cement sales (up 7% to N279.77bn), aggregate and concrete sales (up 10.9% to N8.87bn), and other products (up 14% to N437m) contributed to the marginal increase in topline growth in 9M 2023. While no information has been provided on the Revenue breakdown, we attribute the company’s top-line growth to the effect of price increases.

Despite a y/y increase in production fixed costs (up 21.3% y/y to N19.71bn) and maintenance fixed costs, the muted growth in the company’s variable cost, caused Cost of Sales (adjusted for depreciation) to increase only marginally, up 3.0% y/y (vs. Revenue growth of 7.1%) to N121.13bn in 9M 2023 from N117.55bn in 9M 2022. The company continues to manage its cost effectively despite the impact of FX devaluation on imported raw materials, persistent inflationary pressures, and rising energy costs. Consequently, Gross profit grew 10.3% y/y to N167.95bn in 9M 2023 while Gross margin rose by 1.7ppts to 58.10% in 9M 2023 from 56.44% in 9M 2022.

Operating Expenses (adjusted for depreciation) decreased by 0.15% y/y to N74.39bn in 9M 2023 from N74.51bn in 9M 2022. While Administrative Expenses adjusted for depreciation grew 14.4% y/y to N13.56bn, Selling & Distribution Expenses which contributed much higher to opex, declined 2.3% y/y to N60.84bn. Other Income which compromises gains on disposal of property, plant and equipment, government grants and sale of scraps, and other miscellaneous income also grew significantly, up 92.1% y/y to N541m from N281m in 9M 2022. Despite the cost pressures, EBITDA increased by 20.4% to N94.09bn in 9M 2023. Consequently, EBITDA margin increased by 3.6ppts to 32.55% in 9M 2023 from 28.95% in 9M 2022. Depreciation and Amortisation was up to N24.74n while Operating Profit grew by 22.6% y/y to N69.35bn from N59.56bn in 9M 2022.

Lafarge recorded a 214.2% increase in Net Finance Income to N8.19bn in 9M 2023. The significant increase reflects a 280.32% y/y increase in Finance cost amidst a significant growth in of 403.85% 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. While the growth in Finance costs was due to a rise in Interest on borrowings and a significant increase in Net FX losses. The company reported FX losses of N9.4bn in 9M indicating a significant rise of 869% from the 967m reported in 9M 2022. We note that this is the first time the company is reporting a Net FX loss position since the naira devaluation in June 2023. Pre-Tax profit was up by 13.4% y/y to N61.16bn in 9M 2023 from N53.95bn in 9M 2022.

Due the expiration of its Pioneer Status Incentive in 2022, Tax Expense increased to N21.85bn in 9M 2023 from N9.056bn in 9M 2022. Consequently, Net Income declined by 12.5% y/y to N39.31bn in 9M 2023 from N44.90bn in 9M 2022. Earnings per share also declined by 12.5% y/y to N2.44/s for 9M 2023 from N2.79/s in 9M 2022.

We have a target price of N45.96/s for Lafarge Africa with a Buy recommendation. Current Price; N27.20/s.

LAFARGE AFRICA 9M 2023

Source: Company data, CSL Research

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