|
Getting your Trinity Audio player ready...
|
Investors may react further to the stock of Lafarge Africa Plc following the cement maker’s recently published first-quarter (Q1) 2018 results which shows negative surprises across key headline numbers.
The company’s first-quarter 2018 results released Monday at the Nigerian Stock Exchange (NSE) showed revenue decreased by 0.8percent to N80.64billion, from N81.3billion in Q1’2017.
The decline in Lafarge revenue growth was accompanied by increases in input costs, operational expenses and a marked increase in finance costs.
Pre-tax losses of N2.9billion, represents a decline of 131.2percent from pre-tax profit of N9.4billion the company recorded in corresponding first-quarter period of 2017.
Lafarge Africa Plc also reported post-tax loss of N2billion in Q1’18 respectively, down by 138.8percent, from N5.16billion post-tax profit in Q1’17.
Investors reacted negatively to these results as sell orders pushed the stock price down to N43.6kobo, nearing a 52-week low of N43.20kobo. The stock price lost 85kobo or 1.91 percent on Monday.
“We expect to see marked downward revision to consensus 2018E earnings forecast and a significant sell-off in the shares over the next few days,” said Tunde Abidoye-led team of research analysts at FBNQuest Capital Research in their April 23 note to investors.
“The weak earnings were driven by a combination of factors including a significant gross margin contraction of 338 basis points (bp) year-on-year (y/y) to 22.3percent, a 41percent y/y rise in operating expenditure (opex) and a 133percent y/y spike in net interest expense,” the analysts added.
The analysts recalled that on its Q4 2017 conference call, Lafarge Africa Plc management said it still expected more one-off expenses related to its SAP enterprise resource planning software to feature in its 2018 numbers.
“We believe that these related costs are likely responsible for the significant y/y contraction in gross margin. Lafarge’s 2017 financial statements showed an increase in debt of around N195billion due to the portion of shareholder loans (mainly dollar denominated) that were not converted to equity. Consequently, we believe that this was primarily responsible for the sharp rise in interest expense,” said Lagos-based FBNQuest Capital Research.
“We note that the company reduced its borrowings during the quarter by N6.5 billion (-2.5percent YoY). Notwithstanding, finance costs remain elevated and paying down these debt will further exert pressure on cash flow, while putting into consideration the company’s current working capital challenges,” according to the research unit of CardinalStone Partners Limited in their Monday note.
According to Michel Puchercos, CEO of Lafarge Africa, “We continued to deliver strong margins in our Nigerian business as a result of our commercial and energy strategies. At the same time, our results were
affected by timing of inventory movements and performance in South Africa. Lafarge Africa’s commercial, logistic and industrial operations in Q1
2018 continued to improve strongly despite inflation.”
The firm said, full-year outlook for the Nigerian cement market remains favourable with positive signs of recovery in March. The overall goal is to create value for shareholders through an attractive growth profile and good margins, Puchercos said.
Combining its operations in Nigeria – Ewekoro and Sagamu plants in Ogun State, Ashakacem in Gombe State, Mfamosing in Cross River State, Atlas Cement in Rivers State and Ready-Mix Nigeria with its varied
operations in South Africa, Lafarge Africa has a current installed cement capacity of 14.1Mtpa.
Iheanyi Nwachukwu
