Lafarge Africa Plc (WAPCO) released its 2022FY audited financials yesterday, reporting an EPS of NGN3.33 (2021FY: NGN3.17). The increase in the company’s EPS was supported by the stellar growth in revenue (+27.3% y/y) during the period. WAPCO’s board has proposed a final dividend of NGN2.00/s, translating to a dividend yield of 7.3% based on the closing price of NGN27.40 (28 February).
Revenue grew by 27.3% y/y in 2022FY (2021FY: +27.1% y/y), buoyed by improvements across WAPCO’s cement (+27.0% y/y | 97.0% share of revenue) and aggregate & concrete (+43.4% y/y | 2.9% share of revenue) sales. While management is yet to provide details on the breakdown, we opine that the double-digit growth in cement sales was primarily supported by increase in prices of cement, amid a slowdown in volume production in 2022. For context, prices were up by (+27.5% y/y), while production volumes declined by (-3.4% y/y) in 9M-2022.
Gross margin remained at 58.9% in 2022FY, despite the cost of sales ex-depreciation (+27.5% y/y) growing slightly higher than revenue (+27.3% y/y). The increase in the cost of sales emanated from the group’s variable (+45.5% y/y) and maintenance (+72.5% y/y) costs, reflective of the inflationary environment during the period.
Elsewhere, the group’s EBITDA grew by 12.1% y/y buoyed by higher operating expenses ex-depreciation (+45.9% y/y), induced by the surge in selling and distribution cost (+57.2% y/y) amid a moderation in other income (-80.9% y/y) during the period. As a result, the OPEX/sales ratio rose to 29.6% in 2022FY (25.8%: 2021FY). Consequently, the EBITDA margin decreased by 400bps to 29.4% y/y in 2022FY (2021FY: 33.4%).
Earnings were further pressured by the spike in net finance cost (+308.6% y/y in 2022FY), driven by increases in finance cost (+202.9% y/y to NGN15.98 billion) amidst a decline in finance income (-11.9% y/y to NGN1.53 billion). The finance cost growth reflects the impact of higher gross debt (+57.1% y/y to NGN36.59 billion) and FX loss of NGN13.13 billion in 2022FY, which was absent in 2021FY.
Further out, PBT grew by 12.0% y/y to NGN69.75 billion in 2022FY. Given the increase in tax expense (+43.1% y/y to NGN16.10 billion), PAT grew by 5.2% y/y to NGN53.65 billion.
Cordros Capital analysts say WAPCO’s 2022FY financials was impressive and in line with our expectations. We like that the company has consistently reported profitability growth for the fourth consecutive financial year, after the losses recorded between 2016-2018. However, we are concerned about the rising finance cost during the period. Going forward, we believe WAPCO has the capacity to ramp up its output levels given the group’s intent on driving capacity utilization through debottlenecking exercises across its Ashaka and Ewekoro plants. Hence, we see WAPCO maintaining its earnings growth in 2023FY.
