Lafarge WAPCO had paid its shareholders N1 per share in 2020
despite being one of the top pandemic winners due to higher spending on capital
expenditure by the Nigerian government.
As part of efforts to reposition the brand, its margin
dilutive subsidiary was sold and the cash was reinvested following a hefty
balance sheet deleveraging. Before paying off its high ticker debts, the cement
company had expended huge among on finance costs due to squeezed cash position.
Now, Lafarge Africa is cash-rich with the potential to deliver optimal returns,
according to analysts.
The re-organisation has helped the company re-invent itself
with a studier capital investment outlay to drive future earnings growth. A
better cash position has also pulled back the size of its finance costs,
according to the recent earnings release.
Most equity analysts see now see upside potential with a
bucket of buy ratings as projection shows that the company could see earnings
jump and expectation for increased dividend has however resurfaced.
Is Lafarge Africa going to pay a higher dividend in
financial 2021? That could be subjected to further debate. However, it is clear
that the company’s shareholders deserve a better dividend payout treat.
Markets Africa had reported that Some investment banking
analysts have started to feed the bull.
A number of equity analysts have lifted estimates on the future earnings
performance on Lafarge Africa after successful re-organisation that unfold its
earnings capability and potential among Nigeria’s cement oligarchs.
Wielding strategic influence on the corporate direction, two
major shareholders, Caricement BV (56.04%) and Associated International Cement
Limited U.K (27.77%) own 83.81% of Lafarge Africa shares outstanding as of the
first half of the financial year 2021.
As of the first half of the financial year 2021, WAPCO’s
maintains a 16.19% free float in compliance with the Nigerian Exchange’s
requirements for companies listed on the Premium Board.
Valued at N376.117 billion on 16.107 billion shares
outstanding, the company share price closed at N23.35 on Friday from N28 at the
beginning of the week following the strong rally seen in the market.
WAPCO has been developing additional capacity as demand for
cement continues to rise due to heavy capital spending by Federal Government
and housing developers in what appears to be trending among the competing
brands in the space.
There is an upside to the share price when compare market
price with equity analysts’ expectations.
WAPCO is heavily on buy recommendations with different price
expectations.
Vetiva Capital sets N33.01 target price for the company’s
stock with a buy rating. Meristem, ARM Securities, Atlass Portfolios among
others also keep the stock in their buying order lists.
In an equity report, Cowry Asset Securities said Lafarge
Africa appears to be set for strong performance in 2021 after it had gone
through different business combinations and re-organisations in the past few
years.
Recall the cement company disposed of its Lafarge South
Africa Holdings Limited business and issued additional capital to significantly
reduce its borrowings – a move that birthed stronger and higher quality balance
sheet and increased profitability, according to analysts.
Speaking to the numbers, the company’s profit after tax
increased by 21.40% to N28.32 billion in the first half of 2021 amid higher
revenue and significant declines in finance costs.
Analysts think Lafarge Africa’s impressive performance was due
to the relative ease in lockdown, amid sustained improvement in COVID-19
vaccination, especially in major states such as Lagos, Ogun, Abuja and Kano
where daily consumption of cement is relatively high.
Hence, the company’s revenue increased considerably by
20.30% to N145.01 billion in H1-2021, albeit gross profit margin fell to 33.13%
from 34.60% printed a year ago amid rising input costs.
Due to steep inflation rate reading, by-products and
electrical energy expenses expanded in the first half of the year.
Further break down of the revenue components showed that the
company’s segment revenue from cement which constituting 97.52% of the total
income rose by 19.26% to N141.43 billion.
Also, segment revenue from aggregate and ready-mix concrete
that comprises 2.48% of the total revenue ballooned by 83.49% to N3.59 billion
in H1-2021.
Analysts at Cowry Asset expect WAPCO’s increased
profitability to be sustained, amid increasing demand for housing
infrastructure, commercial constructions and government projects which include
roads and railways.
The investment firm also noted that the cost lines should
boost margins, especially the declining net finance costs. “We recommended a
moderate buy on WAPCO’s shares despite the “D” performance rating”
WAPCO Expanding Capacity
With cement production plants in Ewekoro and Sagamu in the
South West (4.5MMT production capacity), Mfamosing in the South-South (5MMT
production capacity) and Ashaka (1MMT production capacity) in the North East of
Nigeria, totalling 10.5MMT, WAPCO is well positioned across the country to
further increase its revenue, Cowry Asset noted in the report.
It said Lafarge Readymix Nigeria Limited, with an installed
annual capacity of over 400,000 cubic meters, is one of the subsidiaries of the
group and a market leader in quality concrete solutions operates in three
strategic regions of the country.
Analysts said Ready Mix operations provides Mobile Plant
Services which can be set up within a short lead time to support projects in
remote and logistically challenging sites, anywhere in Nigeria
“Lafarge Africa’s balance sheet looks tidier and well
positioned to deliver optimal returns to its shareholders”, Cowry Asset said.
WAPCO’s borrowing significantly reduced to N19.75 billion as
of H1-2021 from N54.95 billion and N275.26 billion printed as at H1-2020 and H1
2019 respectively, using the proceeds from the sale of its foreign subsidiary
(US$317 million).
Hence, the group’s total liability effectively fell to
N139.86 billion from a high of N143.66 billion, even as its net debt position
changed to net cash of N38.09 billion as at H1-2021, from net debt of N15.07
billion as of H1 2020 amid significant improvement in cash position, especially
cash from operations.
Analysts said the net cash position accounted for the lower
finance costs, which stood at N2.66 billion in H1-2021 from N4.43 billion in
H1-2020. “We expect the company to further widen its margin amid lower interest
rate environment and low debt level”, Cowry Asset said.
Interestingly, the investment said out of the total assets
worth N511.72 billion, shareholder value accounted for 72.67% (N371.85 billion)
while other stakeholders’ claims on the total asset were only 27.33% (N139.86
billion) – hence, passing through a chunk of the operating profit to the equity
holders as the company operates on low leverage.
Consequently, shareholders value per share rose to N23.09 as
at H1-2021 from N21.86 and N8.65 respectively recorded as at H1-2020 and H1
2019 respectively.
Given WAPCO’s huge cash position worth N57.84 billion and
the low debt level, analysts at Cowry Asset expects Lafarge Africa to reward
its shareholders by increasing dividend payout from the N1.00 it paid for 2020.
Launches a New Product Line
Recently, the company launched a new product line, Supafix
Tile Adhesive in order to drive earnings amidst rising competition in the
industry. Lafarge Supafix is a cementitious tile adhesive made of cement
aggregates, as well as organic and inorganic additives that are specifically
designed for tiling.
“With the new product line, the company would further boost
its market penetration and increase its revenue going forward”.
Lafarge Africa Plc was incorporated in Nigeria on 26
February 1959 and commenced business on 10 January 1961. The Company, formerly
known as Lafarge Cement WAPCO Nigeria Plc, changed its name after a special
resolution was passed by the shareholders at an Annual General Meeting held on
Wednesday 9 July 2014.
The change of name became effective with the acquisition of
shares in Lafarge South Africa Holdings (Proprietary) Limited (LSAH), which
were disposed of in 2019, United Cement Company of Nigeria Limited (UNICEM),
AshakaCem Ltd (AshakaCem) and Atlas Cement Company Limited (Atlas).
Lafarge Africa is in the business of manufacturing and
marketing of cement and other cementitious products such as Ready-Mix Concrete,
Aggregates, Fly-Ash etc. On July 15, 2016, Lafarge S.A. France and Holcim
Limited, Switzerland, two large global players, merged to form LafargeHolcim
Group, based in Zurich, Switzerland.
Consequently, Lafarge Africa is now a subsidiary company of
LafargeHolcim – now Holcim Group, by virtue of a name change resolution passed
by the shareholders at an Annual General Meeting held on 4 May 2021.