Lafarge Africa Plc. bolsters earnings performance in the first half of 2021 as the cement company sees a double digit profit surge, supported by a strong topline as demand strengthened. With a healthy cash position, analysts said this increase expectation of improved dividend payment in 2021.
According to the company’s financial statement for the period, sales increased by 20.30% to ₦145.02 billion from ₦120.54 billion in the corresponding period in 2020.
Increased sales were driven by improved demand for cement in Nigeria due to the Federal Government heavy spending on capital expenditure and increased activities of developers in the nations amidst rising demand for housing.
In an equity report, analysts at PAC Capital Holdings attributed the increase in the revenue to improved demand for cement and higher prices in Nigeria during the period.
Breakdown of the result shows that the cement segment contributed 97.52% or ₦141.43 billion to the company’s revenue while the aggregate and concrete segment accounted for 2.48% or ₦3.59 billion.
Cost of sales expanded by 23.02% to ₦96.94 billion in the first half of 2021 from ₦78.83 billion in the comparable period in 2020.
However, analysts at PAC attributed the increase in the cost of sales to increased production volumes and higher input costs experience in the first half of the year amidst rising demand.
This translated to a cost-to-sales ratio of 66.87% for Lafarge in the first half of 2021 compared with 65.40% reported in the comparable period.
In addition, the selling, marketing expenses and administrative increased by 13.27% to ₦10.62 billion in the period, from ₦9.38 billion a year ago.
Despite the setback recorded in operating expenses, PAC analysts said the operating profit of the company rose by 16.49% to ₦38.22 billion from ₦32.81 billion in the first half of 2020.
Meanwhile, the cement company’s net finance cost tumble as a result of a reduction in loans and borrowing and improved foreign exchange gain of ₦1.15 billion during the period.
Specifically, the net finance costs fell by 43.30% to ₦2.30 billion from ₦4.05 billion, thus supported the increased bottom line in the period.
Consequently, profit before tax improved by 27.79% to ₦36.75 billion from ₦28.76 billion in the comparable period. Its financial statement shows that the company made a higher provision of ₦8.43 billion for tax in the first half as against ₦5.43 billion in the equivalent period in 2020.
Despite the increase in tax provision, profit after tax rose by 21.40% to ₦28.32 billion from ₦23.33 billion in in the equivalent period last year.
Impressively, Lafarge Africa 12- month trailing earnings per share improved to ₦2.22, from ₦1.85 recorded in the corresponding period of last year.
“In the second half of 2021, we expect improved cement demand for infrastructure, housing, constructions and government projects as we anticipate economic growth.
“Consequently, we upgrade the target price per share to ₦28.47 from ₦26.74 and maintain a BUY recommendation”, PAC Capital said.
Lafarge Africa continues to report an improved balance sheet as the total assets of the company improved by 3.21% to ₦511.52 billion in the first half of 2021 from ₦495.79 billion in the first half of 2020, due to a significant increase in the current assets of the company.
As a result of a 45.05% increase in the cash and cash equivalents and a 21.10% rise in inventory in the first half, the current asset improved significantly by 36.68% to ₦116.53 billion from ₦85.26 billion in the corresponding period.
Impressively, the total liabilities of the company declined by 2.64% to ₦139.86 billion from ₦143.66 billion in the corresponding period in 2020, mainly because of a significant fall in total loans & borrowings.
During the period, the short-term and long-term loans and borrowing declined by 63.96% and 64.50% to ₦16.23 billion from ₦45.03 billion and ₦3.52 billion compare to ₦9.92 billion in the first half of 2020 respectively.
Consequently, the cement company recorded a 5.6% improvement in net assets to ₦371.85 billion in the first half of 2021 as against ₦352.14 billion reported in the corresponding period of the previous year.
PAC analysts said this translated to a net asset per share of ₦23.09 from ₦21.86 in the first half of 2020.
“With the improved performance across the board in the first half of 2021, assumption of improved cement demand in the second half of 2021 and a bullish outlook from the management, we may likely see improved dividend payment in the full year of 2021”, PAC Capital said.
Analysts at the investment firm put the target price of the stock at ₦28.47, representing an increase of 24.34%, from the current price of ₦22.90.
