Rating: BUY

Current Market Price: N21.15
Latest Cash Dividend: N1.00

Year High: N31.50
Year Low: N19.50
Fair Value: N22.43

Equity Analyst:  Tunde Segun Jeariogbe

Introduction

• This report observed the financial result of Lafarge Africa for the year ended 31^st December, 2020 and compares same with that of 2019 to establish growth and projection where necessary.
• We note that the company is proposing dividend payment out of its earnings for the year, while maintaining earnings growth all through the successive quarters of 2020. This was unlike the previous year when successfully paid dividend from an extraordinary income, arising from the sale of its South African subsidiary. Dividend paid for that year therefore stood above earnings for the period.
• See below for a detailed analysis of the numbers.

Dividend Information

• In its report, the company’s directors proposed a gross dividend of N1.00 (2019: N1.00) on every ordinary share in issue.
• Closure date for the said dividend is 4^th to 7^th May, 2021, following which qualification date is 30^th April, 2021.
• According to the financials under review, the said dividend will be paid on 25^th May, 2021 to all shareholders whose names appear in the register of members as of 30^th April, 2021.
• The said dividend is same as 52.23% of the total amount earned per share of Lafarge Wapco through the 2020 financial year. In our opinion, this an appreciable ratio.
• Nevertheless, the N1.00 dividend is only 4.78% of the price of Lafarge shares on the floor of the exchange as at the time the result was released to investors.
• Unlike the previous year where the sustainable growth rate was negative because the company paid far higher that it earned from its profit, the sustainable growth rate is currently positive at 4.10%.

Statement of Comprehensive Income

• Turnover at the end of the year was N230.57 billion, compared to N212.99 billion in the corresponding year.
• Cost of Sales climbed 4.00% up to N163.33 billion, versus N157.04 billion in the corresponding year.
• Operating profit for the year was N45.67 billion, as against N34.91 billion at the end of the 2019 full-year.
• Operating Expenses adjusted marginally down by 3.83% to N22.52 billion, from N23.41 billion in 2019.
• Finance Cost used through the year was N9.71 billion, far lower than the N20.17 billion in the corresponding year.
• Profit before Tax amounted to N37.57 billion, an outstanding performance when compared to the profit before Tax of N17.89 billion in 2019.
• After all tax liabilities, the company reported N30.84 billion as profit for the year, versus N15.51 billion in the corresponding year.

Statement of Financial Position

• Current Assets at the end of the 2020 financial year was valued at N103.07 billion, a 37.34% growth from the N75.004 billion estimated in 2019
• Non-Current Assets on the other hand is estimated at N404.14 billion, versus N422.10 billion in 2019. Thus, Total Assets is estimated at N507.21 billion as against N497.15 billion in the corresponding year.
• Similarly, Current Liabilities at the end of the year is estimated at N127.55 billion, 51.11% up from the previously estimated N84.41 billion.
• Non-Current Liabilities equally stood at N20.01 billion, same as 70.48% below the N67.82 billion in the similar year. Thus, Total Liabilities is valued at N147.57 billion against N152.23 billion
• Net Assets is estimated at N359.63 billion same as marginal 4.27% above the previous estimate of N344.91 billion in the corresponding year.
• Retained Earnings at the end of the year was worth N170.57 billion, this is 9.49% above the N155.80 billion stated in its 2019 financial

Financial Strength

• Total Liabilities is same as 29.10% of the Total Assets figure for the year. In other words, the Debt Ratio is 0.29x this is 4.99% below the 0.31x in the corresponding year.
• Total Debt to Equity Ratio is currently estimated at 41.03%, as against 44.14% in the previous year, which implies that the Total Debt Value for the year can replicate Equity 0.41 times, this is a lower position when compared to 0.44 times replicate of the previous year.
• Equity Ratio is also valued at 70.90% versus 69.38%, in the corresponding year. When compared to the 2019 estimate, it is a fair improvement in the company’s financial strength.
• Going by the current estimate, shares of Lafarge Africa can be said to be less liquid as its beta value currently stands far below the market beta

Profitability Ratio

• EBITDA Margin is Currently estimated at 19.81% versus 16.39% estimate at the end of 2019 financial year
• Pre-Tax Margin stood at 16.30% as against the 8.40% in 2019.
• Cost of Sales is estimated to be 70.84% of the Turnover Figure this is 3.92% better than the 73.73% in the corresponding year.

Efficiency Ratio

• Operating Expenses is estimated at 9.77% of the Turnover Value, an appreciable improvement in the management efficiency when compared to the 11.00% estimated in 2019
• Turnover Value is 45.46% of the Total Assets Value, the ratio is 6.10% above the 42.84% estimated from 2019 figures.
• See below for other efficiency ratios

Investment Ratios

• Within the two periods compared, traders were seen largely revaluing the share price of Lafarge Africa on the floor of the exchange. It currently stands at N20.90 (as of date result was released) from N9.80 in the corresponding year.
• The estimated Earnings per shares for Lafarge Africa is N1.91 this is far above the N0.96 earned at the end of the comparable year
• PE-Ratio is currently estimated at 10.92x, compared to the previous 10.17x in 2019.
• At the price of Lafarge Africa when the result was released, the EPS had a positive yield of 9.16% as against 9.83% in the previous year end.
• The Book Value of Lafarge Africa is currently estimated at N22.33 almost same as the N21.41 estimated from the corresponding year’s results.

Valuation

• While valuing Lafarge Africa, we maintained a conservative approach. We observed that the company is overcoming its performance challenges from the 2018 financial year when the figures were practically down, and in 2019 when it only paid dividends from the discontinued business, we anticipate a better performance in the coming year.  This is given the various government interventions and the federal government’s efforts at ensuring that the economy recovers from recession, besides the availability of cheaper funds in all countries where it operates. These are expected to be fully utilized by the management of Lafarge Africa.
• On this strength, we upgraded our growth/returns expectations and had valued each unit of Lafarge Africa at N22.43. But since the price is currently being impacted by industry trends, and the current market price is below our fair value, we Rated it a BUY.