Event

Lafarge Africa Plc (‘the Group’) financial performance in Q3 2023 was characterised by the challenging FX environment. It is noteworthy to state that in the preceding quarters of 2023, the Group had not reported FX losses, owing to its practice of valuing FX liabilities at a blended exchange rate of N751.00 before the Naira devaluation as disclosed by the management. However, a shift occurred in Q3 2023, as Naira worsened above the Group’s benchmark. Consequently, the depreciation exerted negative influence on the Group’s profitability.

Revenue grew by 10% to N91.40 billion in Q3 2023 from N83.27 billion in Q3 2022, attributable to higher pricing. We posit that the Group experienced a decline in volume sales during the period. This is discernable in the Group’s reduced selling and marketing expenses, which contracted by 18% to N20.56 billion in Q3 2023 from N25.00 billion in Q3 2022.

The Group’s net finance cost escalated to N11.22 billion in Q3 2023 from N938.00 million in Q3 2022. This astronomical growth primarily emanated from the Group’s FX loss which surged to N9.42 billion in Q3 2023 from N182 million in Q3 2022, as Naira averaged N764.70 to a dollar in the official market, and N895.03 to a dollar in the more accessible market (parallel market) in Q3 2023.

In conclusion, the Group’s profit after tax declined by 49% to N3.83 billion in Q3 2023, from N7.49 billion in Q3 2022

Outlook

Lafarge Africa’s recent introduction of electric powered trucks reflects a strategic pivot towards sustainable operations. This move is anticipated to yield a reduction in distribution cost and maintenance costs, showcasing the management’s commitment to cost efficiency.

Furthermore, with its sustained strong liquidity position, the Group remains positioned to pursue growth opportunities. We retain our HOLD recommendation for the stock, adjusting the fair value to N27.71 (previous: N26.78). With the current price at N29.60, the stock offers a total return of 1%.

Please follow the link “Lafarge Q3 2023 – Further Naira Depreciation Dampens Profitability” to view the whole report.

Thank you.