WAPCO published Q2-21 unaudited financials yesterday. Q2-21 standalone PAT grew by 25.7% y/y to NGN19.19 billion while EPS settled at NGN1.19/share, bringing H1-21 EPS to NGN1.76/share (+21.4% y/y). The double-digit growth in PAT was driven by a combination of topline growth (+29.4% y/y) and reduction in finance cost (-71.5% y/y), both of which offset the increases in OPEX (+61.3% y/y) and cost of sales (+42.6% y/y).
Revenue grew by 29.4% y/y in Q2-21 (H1-21: +20.3% y/y), on the back of improvement in cement sales (+27.0% y/y), aggregate and concrete sales (+292.6% y/y). We believe the double-digit growth in cement sales was price-driven given the substantial increase in price per tonne of cement (+11.3% y/y) implemented in Q1-21 in addition to the low base effect from the prior year. Recall that wide-scale construction activities were halted/suspended across the country in the second quarter of 2020 due to the pandemic.
However, gross margin weakened by 478bps in Q2-21 (H1-21; down 300bps to 36.5%), as the growth in the cost of sales excluding depreciation (+42.6% y/y) outpaced topline growth (+29.4% y/y). The rise in the cost of sales was driven mainly by the variable cost (+22.6% y/y) and production cost (+113.5% y/y) components – we believe this was due to the pass-through impact of the local currency’s devaluation on essential materials such as gypsum and more importantly gas contracts. Given that gas contracts are settled based on the official exchange rate, we imagine aligning the official rate (NGN379.00/USD) to the NAFEX rate (NGN410.00/USD) at the end of May further stoked pressures on energy cost.
Although EBITDA rose by 11.9% y/y to NGN30.86 billion in Q2-21, the surge in production cost and a jump in admin expenses (+62.5% y/y) pushed EBITDA margin lower by 655bps to 42.0% in Q2-21 (H1-21: 36.5% vs H1-20:38.9%). We note that the spike in admin expenses was due to higher technical service fees (NGN1.60 billion in Q2-21 vs NGN492.31 million in Q2-20) – we will engage with management for clarifications.
Earnings received a boost from the steep moderation in finance cost (-71.5% y/y), reflecting gains from the reduction in gross debt (-64.1% y/y to NGN19.75 billion in Q2-21 vs NGN54.95 billion in Q2-20). Meanwhile, finance income grew by 23.3% y/y, reflecting the significant growth in cash and cash equivalents (+45.0% y/y to NGN57.84 billion in Q2-21).
Q2-21 standalone PBT grew by 23.8% y/y to NGN23.97 billion, while PAT grew higher by 25.7% y/y, supported by the lower effective tax rate of 20.0% in Q2-21 vs 21.2% in Q2-20. Accordingly, PBT and PAT printed NGN35.92 billion (+24.9% y/y) and NGN27.49 billion (+17.9% y/y) respectively in H1-21.
