NIGERIA | CEMENT | LAFARGE AFRICA

Quick take: FX losses drag bottom-line.

In its recently released unaudited Q1 2024 results, Lafarge Africa reported a 50% y/y Revenue growth to N137.77bn in Q1 2024 from N91.82bn in the prior period (Q1 2023). Similarly, on a q/q basis, Revenue was up by 18.3% from N116.42bn in Q4 2023. The broad-based growth in cement sales (up 49.14% to N133.42bn), aggregate and concrete sales (up 84.43% to N4.18bn), and other products (up 76.81% to N179m) contributed to the rise in topline growth in Q1 2024. While no information has been provided on the Revenue breakdown, we attribute the company's top-line growth to a mix of price and volume growth.

Given a y/y increase in variable costs (up 61.57% y/y to N45.54bn), production fixed costs (up 86.82% y/y to N11.20bn) and maintenance fixed costs (up 104.84% y/y to N8.70bn), Cost of Sales (adjusted for depreciation) increased by 70.3% y/y to N65.45bn in Q1 2024 from N38.43bn in Q1 2023. We attribute the rise in cost to the impact of the steep devaluation of the currency on the cost of imported raw materials, elevated inflationary pressures, and rising energy costs. Despite the rise in Cost of Sales, Gross Profit grew by 35.5% y/y to N72.32bn in Q1 2024, while Gross margin declined by 5.6ppts to 52.49% in Q1 2024 from 58.14% in Q1 2023.

LAFARGE AFRICA Q1 2024

Source: Company data, CSL Research

Operating Expenses (adjusted for depreciation) increased by 45.44% y/y to N35.31bn in Q1 2024 from N24.28 in Q1 2023. The rise in OPEX was driven by both an increase in Selling & Distribution Expenses adjusted for depreciation (up 46.0% y/y to N27.25bn), and Administrative Expenses adjusted for depreciation (up 43.6% y/y to N8.06bn). Other Income which compromises of gain on disposal of property, plant and Equipment, government grants and sale of scraps, and other miscellaneous income declined by 37.4% to N108m from N173m in Q1 2023. Despite the cost pressures EBITDA increased by 26.8% to N37.14bn in Q1 2024 from N29.29bn in Q1 2023. However, EBITDA margin decreased by 4.9ppts to 26.95% in Q1 2024 from 31.90% in Q1 2023. Depreciation and Amortisation declined by 2.3% to N6.90bn. Consequently, the company's Operating Profit grew by 36.0% y/y to N30.24bn from N22.24bn in Q1 2023.

Lafarge recorded a Net Finance Cost of N21.53bn in Q1 2024 in contrast to the Net Finance Income of N242m it recorded in Q1 2023. The significant rise in Net Finance Costs reflects a steep rise in Finance Cost amidst a moderate growth in Finance Income. We note that the growth in Finance Costs was due to a significant increase in Net FX losses. The company reported an FX loss of N21.80bn in Q1 2023 compared with a gain of N324.45m reported in Q1 2023. Consequently, Pre-Tax Profit was down by 61.3% y/y to N8.71bn in Q1 2024 from N22.48bn in Q1 2023.

The company's Tax Expense decreased to N3.52bn in Q1 2024 from N7.55bn in Q1 2023. Net Income declined by 65.2% y/y to N5.19bn in Q1 2024 from N14.94bn in Q1 2024. Earnings per share also declined by 65.2% y/y to N0.32/s for Q1 2024 from N0.93/s in Q1 2023.

We have a target price of N45.96/s for Lafarge Africa with a Buy recommendation. Current Price; N36.00/s.

Kindly click on the below link to download the full report.

"‹"‹"‹"‹"‹"‹"‹"‹"‹"‹"‹CSL-Lafarge-Africa-Earnings-Quick-Take-Q1-2024.pdf"‹"‹"‹

"‹"‹"‹"‹"‹"‹"‹Kind Regards,

Mustapha Umaru

Email: CSLResearch@fcmb.com"‹

Address: 44 MARINA, LAGOS ISLAND, "‹

Website: www.cslstockbrokers.com