Lafarge Africa’ll bounce back to profitability after disengaging LSAH—Cordros
Leading market analyst and investment advising group, Cordros Capital has welcomed the management decision of cement giant, Lafarge Africa Plc to divest from Lafarge South Africa Holdings Limited (LSAH), which is expected to be completed at the end of July 2019.
According to Cordros Capital, “We update on Lafarge Africa PLC following H1 19 results and conference call, and retain our ‘BUY’ rating on the stock. Having confirmed that the disengagement with Lafarge South Africa Holdings Limited (LSAH) will be completed at the end of July 2019, we have revised our estimates, considering its implications across lines.
“While management was only able to raise price by c. 2% in Q2 19, against a 7% guidance, cement prices are expected to remain stable as the company has ruled out any additional price hike over H2 2019E.
Cordros Capital said “Over Q2 19, Lafarge reported NGN81.78 billion (+0.2% y/y) in revenue, taking YtD revenue to NGN160.30 billion (52% of our full year estimate). From NGN308.04 billion in 2018, we now expect revenue to decline by 1.1% y/y over 2019E, on account of the disengagement from LSAH in Q3 19. Meanwhile, management said that the recently launched cementitious mortar product is still on a trading basis; local production is set to commence later this year, which is expected to support volume growth in 2019.
On valuation, the capital market investment group reported that “Following the announcement of divestment from LSAH, the company’s share price rallied 45%. Nevertheless, the net impact of the changes to our model is a rise in our TP to NGN19.57/share (previously NGN17.74/share), which still portends upside of 35.9% based on the market price of NGN14.40 as at July 25, 2019. On our estimates, the stock is trading at 2019E and 2020E EV/EBITDAs of 5.7x and 4.5x, relative to 15.19x and 5.40x for Bloomberg Middle East & Africa peers.”
