In its FY 2022 financial result, Lafarge Africa Plc (‘the Company’) recorded a revenue of N373.25bn, translating to a 27% YoY growth from N293.09bn in FY 2021. Like its competitors, Lafarge implemented price increases during the reporting year to mitigate the impact of continuously increasing input costs.
On the back of global inflationary pressures experienced during the year, the Company incurred an 18% rise in its cost of goods, with raw materials & consumables, and energy prices being major drivers as they accounted for 63% of the costs. Gross margin, however, improved by 400bps to 53% from 49% in FY 2021, indicating an effective pricing implementation to offset input costs.
The Company’s net profit was pressured by a significant rise in finance costs, which increased by 203% to N15.98bn from N5.23bn in 2021. The primary factor behind this spike was the FX loss incurred during the reporting year, which accounted for 82% of the total finance costs.
Profit after tax stood at N53.65bn up 5% from N51.00bn in 2021. The Company proposed a N2.00 final dividend for FY 2022 (FY 2021: N1.00). The dividend qualification date is April 10, 2023, while the payment date is April 28, 2023.
Lafarge’s Balance Sheet is Relatively Strong
Total assets grew by 14% year-on-year to N600.71bn, largely driven by higher cash balances. This was due to Lafarge’s strong cash generation – cash balance closed at N118.39bn in FY 2022 (FY 2021: N85.85bn). The drivers of the increased cash were improved earnings from operations, positive working capital, and higher net borrowings. However, the Company’s debt-to-equity ratio remained low at 0.09x (industry average: 0.58x). Therefore, we posit that financial risk is low for the Company.
We expect a moderated growth in volume during the first two quarters of 2023 due to electoral activities and government transition in the country. Nonetheless, we foresee a resurgence in volume in Q3 and Q4. We maintain our positive view on the cement industry’s solid fundamentals, and we expect sustained operational efficiency to deliver a strong financial performance in the medium term.
Cost pressures are likely to persist in FY 2023, but we posit that the degree will be lesser than what was experienced in the previous year. . The cost components that we expect to be under pressure are energy costs, raw material costs, and distribution costs. We also expect another year of FX losses. However, we see the possibilities of another effective pricing to totally or partly mitigate these cost pressures.
Overall, we project a 12% revenue growth to N416.63bn in FY 2023, with a 16% net margin – 200 basis points higher than FY 2022. Owing to increased profits expected in FY 2023, we estimate a 25% increase in dividend to N2.50. Our fair value for the stock is N28.16 which implies a justified Price-to-earnings (P/E) multiple of 6.60x – we note that this is below the stock’s three-year historical P/E average of 7.07x. At the current price of N25.50, the stock offers a 20% total return. Hence, we recommend a BUY.
Please follow the link “Lafarge Africa Plc FY 2022 Earnings Update – High Growth Prospects Backed by a Strong Balance Sheet” to view the whole report.
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