NIGERIA | CEMENT | LAFARGE AFRICA

Flash Note: Huaxin Cement acquires majority stake in Lafarge Africa Plc

Lafarge Africa Plc has notified the Nigerian Exchange (NGX) that its majority shareholder, Holcim Group, has entered into an agreement to sell its entire 83.81% stake in the company to Huaxin Cement, a leading Chinese cement manufacturer. The transaction, valued at approximately US$1 billion, marks Holcim's exit from the Nigerian market. Following the completion of the deal, Huaxin Cement will assume majority ownership of Lafarge Africa Plc with an 83.81% stake. The transaction, which is subject to regulatory approvals, is expected to be finalized in 2025.

Following the completion of this transaction, Lafarge Africa Plc will remain listed on the NGX. Additionally, Huaxin Cement, subject to regulatory approvals, plans to launch a mandatory takeover offer (MTO) in compliance with applicable laws and regulations. Under Nigerian securities laws, a company acquiring a controlling stake (in this case, Huaxin Cement acquiring 83.81% from Holcim) must offer to purchase the remaining shares from other shareholders. This gives minority shareholders the option to sell their shares if they do not wish to remain invested under the new ownership.

To estimate the price per share for the transaction, we divide the total implied equity value of US$1 billion by the number of shares acquired by Huaxin Cement. With Lafarge Africa Plc having 16,107,796 shares in issue, this translates to a transaction price of approximately US$0.07/s. Using Friday's closing exchange rate of ₦1,672.69/US$, this equates to about ₦123.90/s.

We anticipate that the announcement of the transaction terms will generate significant interest and potentially drive Lafarge Africa's share price closer to the acquisition price. This presents an attractive investment opportunity for investors seeking to benefit from Lafarge Africa's strong market position and growth prospects. We currently maintain a Buy rating on the stock, with estimates under review.

Possible outcomes after the MTO

If a significant number of minority shareholders accept the MTO, Huaxin Cement could increase its ownership stake. However, the company would need to maintain a minimum "free float" (the proportion of shares held by the public) as required by NGX rules to avoid delisting.

If the free float falls below the NGX's threshold, Lafarge Africa Plc may either take measures to restore compliance (e.g., selling shares to the public) or voluntarily delist.

Who is Huaxin Cement?

Huaxin Cement is a leading Chinese cement and building materials company with its headquarters in Wuhan, Hubei Province. Founded in 1907, it is one of China's oldest cement manufacturers, recognized for its innovation and steady growth. The company is publicly listed on the Shanghai Stock Exchange and operates under partial state ownership, with significant oversight from the Chinese government.

Core Business Areas:

"¢ Cement Production: Manufacturing ordinary Portland cement, clinker, and specialty cement.

"¢ Concrete and Aggregates: Supplying ready-mix concrete and construction aggregates.

"¢ Environmental Services: Providing waste treatment and co-processing solutions.

Huaxin Cement has a strong international presence, operating in nine countries outside China, including Kazakhstan, Tajikistan, Nepal, Uzbekistan, Serbia, Rwanda, Tanzania, and Mozambique. The company is known for its focus on high-growth emerging markets, leveraging expertise in sustainable and efficient operations.

Strategic Expansion

The acquisition of Lafarge Africa Plc aligns with Huaxin Cement's strategy to expand its footprint in regions with significant infrastructure and construction demand. This move is part of its ambition to become a leading global cement producer. By investing in Africa's rapidly growing markets, Huaxin Cement aims to capitalize on the region's strong growth potential and enhance its global portfolio through this strategic acquisition.

Why is Holcim divesting?

Holcim's decision to sell its stake in Lafarge Africa to Huaxin Cement is not a reflection of concerns about the company's current operational performance, which remains strong in our view. Rather, the sale aligns with Holcim's strategic objective to streamline its portfolio and prioritize core markets and high-growth regions.

According to Holcim, this divestment is part of its broader commitment to sustainable growth, focusing on higher-margin products, green building solutions, and strategic infrastructure investments. By exiting the Nigerian market, Holcim aims to reallocate resources to regions with greater potential for long-term value creation.

Brief financial performance of Lafarge Africa

Lafarge Africa has maintained steady Revenue growth, driven by robust market demand and operational efficiency. According to its recently released unaudited 9M 2024 results, the company achieved a significant 65.9% y/y Revenue growth, rising to N479.49 billion from N289.08 billion in 9M 2023. On a q/q basis, Revenue increased by 16.6%, reaching N183.92 billion in Q3 2024 compared to N157.80 billion in Q2 2024.

Despite operating in a challenging macroeconomic environment characterized by high inflation and persistent currency devaluation, which has notably increased costs and led to significant FX losses, Lafarge Africa has taken proactive measures to safeguard its bottom line. By leveraging its strong cash position, the company settled a substantial portion of its foreign-denominated obligations by the end of 9M 2024. Additionally, it has prioritized sourcing materials locally to reduce exposure to FX-related risks.

These strategic actions have translated into a notable improvement in profitability. Pre-tax profit surged by 54.2% y/y to N94.33 billion in 9M 2024, compared to N61.16 billion in the same period of 2023, showcasing the company's resilience and effective cost management.

Outlook

We maintain a positive long-term outlook for Lafarge Africa, as the company's fundamentals and operating performance remain robust. Although there has been limited activity in the stock in recent times, news around the acquisition has generated renewed interest and led to a rally in the stock. The stock gained c.50.65% in November, primarily driven by news inflows around the likelihood of the acquisition.

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Mustapha Umaru

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