THUR 28 OCT, 2021-theGBJournal- Lafarge published 9M-21 unaudited financials today. The report showed that Q3-21 standalone PAT grew by 148.0% y/y to NGN12.07 billion while EPS settled at NGN0.75/share, bringing 9M-21 EPS to NGN2.50/share (+43.3% y/y).
The strong growth in PAT was driven by a combination of topline growth (+25.0% y/y), moderation in OPEX ex-depreciation (-7.3% y/y) and a tax credit of NGN4.91 billion in Q3-21 (vs tax expense of NGN666.94 million in Q3-20).
Revenue grew by 25.0% y/y in Q3-21 (9M-21: +21.9% y/y), on the back of improvements in cement sales (+24.3% y/y; 99.1% share of revenue) and aggregate and concrete sales (+61.5% y/y).
The double-digit growth in cement sales was supported by private and public sector demand for cement as well as continued gains from the substantial increase in price per tonne of cement (+14.4% y/y) as of H1-21.
‘’We believe strong demand from individual home builders following the full reopening of the economy has continued to support private sector demand. On the other hand, we think the reduced focus on the health sector amid increased government finances must have generated positive spillovers on public sector demand for cement,’’ says Cordros Research analysts.
However, gross margin weakened by 582bps to 31.1% in Q2-21 (9M-21; down 403bps to 38.6%), as cost of sales ex-depreciation (+36.6% y/y) grew faster than revenue (+25.0% y/y).
The rise in the cost of sales was driven mainly by the variable cost (+48.3% y/y) and production cost (+84.9% y/y) components. Analysts say the increase in these cost lines 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 that the alignment of the official rate (NGN379.0/USD1) to the NAFEX rate (NGN415.0/USD1) in the second quarter has continued to exert upward pressures on energy cost.
Although EBITDA rose by 9.1% y/y to NGN17.75 billion in Q3-21, the surge in production cost pushed EBITDA margin lower by 349bps to 23.9% in Q3-21. Sequentially, EBITDA margin weakened to 32.3% in 9M-21 (9M-20:35.1%) following the higher increase in COGS (+30.4% y/y) compared to revenue (+21.9% y/y).
Earnings were lifted by the moderation in finance cost (-25.3% y/y in 9M-21), reflecting gains from the reduction in gross debt (-58.0% y/y to NGN22.45 billion in 9M-21 vs NGN53.44 billion in 9M-20). Meanwhile, the decline in finance income (-21.1% y/y) mirrored the reduction in cash and cash equivalents (-16.0% y/y to NGN54.50 billion in 9M-21).
Q3-21 standalone PBT grew by 29.3% y/y to NGN7.15 billion, while PAT grew significantly higher by 148.0% y/y, due to the tax credit of NGN4.91 billion in Q3-21 (vs. tax expense of NGN666.94 million in Q3-20). Accordingly, PBT and PAT printed NGN43.90 billion (+28.0% y/y) and NGN40.39 billion (+43.3% y/y) respectively in 9M-21.
Cordros said they expect Lafarge to sustain the momentum in earnings in the last quarter of the year given our positive outlook on sustained private and public sector demand for cement amidst gains from its deleveraged balance sheet.
‘’We believe concerns on the declining margins will be the central theme of discussion at the conference call. That said, we expect upward revisions to consensus 2021E EPS given the impressive run rate as of 9M-21.’’
The Cement manufacturing giant is currently supporting the actualization of the UN Sustainable Development Goals 8 (decent work & economic growth) their our empowerment initiatives, sponsoring various skills training such as block moulding, plumbing, auto mechanic, carpentry, fashion & beauty care for over 200 artisans, and provided motorcycles & Keke Napeps to 400 of our host community youths in order to create economic opportunities.
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