Please click the link “Lafarge Africa Plc Q1 2022 – Rollercoaster Run Continues” to access our earnings report on Lafarge Africa Plc.

Rollercoaster Run Continues

Lafarge Africa Plc’s (‘the Company’) recently released its Q1 2022 financial results, with a stellar performance recorded. Revenue grew by 27% YoY to N90.61bn. This makes it the fifth consecutive quarter of a double-digit revenue growth for the Company. The sustained revenue growth is attributed to the solid fundamentals of the cement industry, driven by both private and public sector demand. We believe that higher volumes contributed more to the revenue growth.

Margins Improve on the Back of Cost Optimization

The Company’s previous efforts in optimizing costs through plant efficiency yielded positive results in Q1 2022. Cost margin declined by 300 basis points to 53%. We also believe that increasing economies of scale was another factor that was responsible for the lower cost margin, as higher volumes were sold during the quarter. On the back of the cost efficiency, gross profit grew by 35% YoY to N42.17bn.

Near-Zero Debt Levels Help Maximize Profitability

Operating expense grew by 22% YoY to N20.22bn in Q1 2022, accounted for by a 21% YoY administrative expense increase and 17% YoY increase in selling and distribution expense. We link these increases to higher scale of operations during the period, and the result was reflected in the topline growth. Meanwhile, despite the opex increase in absolute terms, operating expense margin declined by 100 basis points to 22% in Q1 2022. Therefore, operating profit spiked by 50% YoY to N22.12bn.

The strategic effort by the Company to deleverage its balance sheet to further strengthen, led to a 68% YoY decline in finance cost. Notably, a bond matured in Q4 2021 and that meant that interest payment on that bond was not incurred in Q1 2022 relative to Q1 2021. Profit before tax, therefore, grew by 68% YoY to N21.47bn while profit after tax grew by 92% YoY to N17.56bn, due to a lower effective tax rate in Q1 2022.

Outlook

We expect the growth momentum to persist into the subsequent quarters of 2022, driven by sustained product demand. We also expect sustained cost optimization to drive bottom line growth. Based on the Company’s current financial position, there is sufficient liquidity to carry on operations in the near to medium term. Hence, we do not expect to see a material rise in debt levels.

Having incorporated the higher-than-anticipated Q1 2022 performance and revising our growth expectations for the remaining quarters of the year, we now have a revised earnings per share (EPS) projection of N4.39 for FY 2022 from our previous estimate of N4.01. Also, we have a new dividend projection of N2.50 (previous: N2.20).

Accordingly, our fair value for the stock is now N37.80 (previous estimate: N31.02). Based on our fair value, the stock offers a 58% total return (inclusive of a 10% dividend yield). We maintain our BUY recommendation.

Please follow the link “Lafarge Africa Plc Q1 2022 – Rollercoaster Run Continues” to view the whole report.