July 29, 2021/CSL Research
Following an improved performance in Q1 2021, Lafarge Africa Plc sustained growth in its H1 2021 earnings results, reporting a 20.3% y/y increase in Revenue to N145.0bn from N120.5bn in H1 2020. Growth from both Cement Sales (up 19.3% y/y to N141.4bn) and Aggregates & Concrete (up 83.5% y/y to N3.6bn) drove the improved topline. Similarly, on a q/q basis, Revenue grew by 2.9% q/q to N73.5bn driven by better outturn in both Cement Sales (up 2.3% q/q to N71.5bn) and Aggregates & Concrete (up 31.4% q/q to N2.bn). Despite the production delay in its Ewekoro Line 1 plant, the firm defied all odds, placing itself on a solid path to growth. Meanwhile, the pent-up demand from individual homebuilders provided support to the growth seen in Revenue.
Growth in Cost of Sales (adjusted for depreciation) grew faster than Revenue growth, up 26.9% y/y (vs. Revenue growth of 20.3%) to N83.5bn in H1 2021. The y/y increase in Cost of Sales was driven by a 17.8% y/y growth in variable costs, 53.2% y/y rise in production costs, 69.9% y/y increase in maintenance costs and 189.1% y/y growth in distribution fixed costs. Consequently, Gross Profit grew by 12.4% y/y to N61.5bn in H1 2021 while Gross Margin dipped by 300bps to 42.4% in H1 2021 from 45.4% in H1 2020.
Similarly, Operating Expenses (adjusted for depreciation) was up 12.1% y/y to N9.3bn in H1 2021 from N8.3bn in H1 2020. The increase was solely driven by a 16.2% y/y growth in Administrative Expenses (adjusted for depreciation) as Selling & Marketing Expenses tapered (down 6.2% y/y to N1.5bn). Nevertheless, gains from the reversal of previously written-off debts on trade receivables of N521.5m coupled with Revenue growth led to a 13.0% y/y increase in EBITDA to N53.0bn in H1 2021 from N46.9bn in H1 2020. Overall, EBITDA margin declined by 237bps to 36.5% in H1 2021 on the back of increased Opex. Operating Profit remained resilient, up 16.5% y/y to N38.2bn in H1 2021 amidst a modest 4.7% y/y increase in Depreciation & Amortization to N14.7bn in H1 2021 from N14.1bn in H1 2020.
Net Finance Costs declined significantly, down 43.3% y/y to N2.3bn in H1 2021 from N4.1bn in H1 2020, reflective of the company’s continued deleveraging efforts. It is noteworthy to highlight that the N33.6bn corporate bond which was the major debt was liquidated in June 2021, indicating an improved leverage position going forward. We believe the company’s future funding plans will be a key area of interest at the next analysts’ conference call. The steep decline in Net Finance Costs was driven by a 39.9% y/y decrease in Finance Costs despite a 3.8% y/y fall in Finance Income. Consequently, Pre-Tax profit increased, up 27.8% y/y to N36.7bn in H1 2021, also supported by gains of N826.9m from disposal of investment in joint venture compared with nothing in the prior period.
Effective tax rate rose to 22.9% in H1 2021 from 18.9% in H1 2020. As a result, the company reported a Tax Expense of N8.4bn in H1 2021 compared with N5.4bn in H1 2020. All in, Net Income was up 21.4% y/y to N28.3bn in H1 2021 compared with N23.3bn recorded in H1 2020. Earnings per share grew 21.4% y/y to N1.76/s in H1 2021, when compared with N1.45/s reported in H1 2020.
We have a Buy rating on the stock and a target price of N31.86/s. Current Price N22.90/s.