Economy
Lafarge Africa, Product of Painful Restructuring
By Cordros Research
In June 2014, Lafarge Group announced the combination of its businesses in Nigeria and South Africa to create a leading Sub-Saharan Africa building materials platform.
LafargeHolcim was formed a year after –and became the majority shareholder in LAFARGE – as a result of the successful merger between two global cement giants.
Overall, we saw a transformation of the cement industry at the global level, that could potentially change the dynamics of the Nigerian cement market from one dominated by Dangote Industries Limited (DIL) through Dangote Cement Plc (DANGCEM) – as is currently happening in the brewery industry.
Looking back, WAPCO was actually better-off alone. The 2013 proforma financials show that WAPCO’s standalone EBITDA margin of 37% was a lot bigger than the combined entity’s 27% EBITDA margin. And more instructively, WAPCO’s PBT margin was 28% in 2013 while ASHAKACEM’s and UNICEM’s were 13% and 5% respectively.
Shareholders have been on the losing end since the restructuring. We estimate that the M&A resulted in the dilution of the share of minority shareholders’ stake in the old WAPCO to 22% currently (our estimate), from 40% pre-merger level.
From an earnings perspective, it is instructive noting that since the NGN9.4/s last reported by WAPCO in 2013FY, EPS has been on a consistent slide under LAFARGE to negative NGN6.4 in 2017FY, eroded by high restructuring and financing costs.
The experience has been worse for shareholders when viewed with respect to share price performance.
The causes of LAFARGE’s dwindling earnings are diverse and largely result from the business combination. Operating costs have increased significantly following the M&A at a four-year CAGR of 20%, faster than revenue CAGR of c.10%. From NGN21.5 billion in 2013FY, the total debt reported by LAFARGE increased to NGN287.6 billion in 2017FY, with finance costs increasing accordingly. Besides, earnings have also been beset of efficiency issues in recent years, and revenues have not been supportive.
Desperate measures have been taken under the desperate situation. This includes (1) the diversion of priority from ASHAKACEM’s capacity expansion plan, (2) back and forth moves with the USD shareholder loans, and (3) capital raises resulting in further dilution of minority shareholding.
The Nigerian cement market outlook is not too fantastic in the short to medium term. At -3% average annual rate, the cement market has grown less between 2014-2017 compared to the years preceding, and economic growth is forecast to be much slower. Worse for LAFARGE, DANGCEM has raised the barrier of survival for competitors in the market with the group’s investments of the last decade, and BUA Group is also positioning strategically.
Ultimately, LAFARGE needs to stabilize production across its plants and restore market share back to competitive levels.
We update on LAFARGE following H1-18 result, with HOLD recommendation. The recently announced rights issue is incorporated into our valuation, as we believe it is already being factored in by investors. We also roll forward our estimates and valuation by one year, as we believe investors are already trading on 2019E multiples.
On our DCF-derived TP of NGN27.22, the stock offers 18% potential upside – and expected total return of 25% after incorporating 2018E dividend yield of 6.5%. The stock has lost 21% since the H1-18 result release and rights issue (RI) announcement, not surprisingly faster than the (1) broader market (-11%) and (2) fellow cement companies (DANGCEM: -11%, CCNN: +8%) have dipped.
View the detailed analysis below
By Adedapo Adesanya
Four securities weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.95 per cent on Friday, erasing N41.17 billion from the bourse, which had its market capitalisation at N2.567 trillion compared with the previous session’s N2.618 trillion.
In the same vein, the NASD Unlisted Security Index (NSI) decreased at the close of business by 85.28 points to 4,277.07 points from 4,362.32 points.
The price decliners were led by 11 Plc, which gave up N20.50 to sell at N200.50 per share compared with the preceding day’s N221.00 per share, FrieslandCampina Wamco Nigeria Plc dropped N16.94 to close at N155.20 per unit versus Thursday’s closing price of N172.14 per unit, Central Securities Clearing System (CSCS) Plc went down by N2.11 to N84.68 per share from N86.79 per share, and Afriland Properties Plc lost 11 Kobo to end at N16.74 per unit, in contrast to the N16.85 per unit it closed a day earlier.
During the trading day, the value of transactions jumped by 172.1 per cent to N29.9 million from the preceding session’s N10.9 million, and the volume of trades soared by 136.5 per cent to 955,096 units from the previous 403,901 units, while the number of deals went down by 11.4 per cent to 31 deals from 35 deals.
Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units worth N6.5 billion, and CSCS Plc with 68.6 million units sold for N4.7 billion.
GNI Plc also ended the session as the most traded stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
By Dipo Olowookere
The last trading session of this week on the floor of the Nigerian Exchange (NGX) Limited ended on a negative note, with a 0.66 per cent loss on Friday.
This was influenced by sustained selling pressure and cautious trading, which forced investors into profit-taking.
Data obtained by Business Post showed that the energy sector fell by 4.66 per cent, the insurance counter dipped by 2.23 per cent, the consumer goods index depreciated by 0.96 per cent, and the banking segment shed 0.28 per cent, while the industrial goods space remained unchanged.
At the close of business, the All-Share Index (ASI) of Nigeria’s stock exchange went down by 1,531.81 points to 232,049.02 points from 233,580.83 points, and the market capitalisation dropped N983 billion to settle at N148.905 trillion compared with Thursday’s N149.888 trillion.
Aradel was the worst-performing equity after it lost 10.00 per cent to close at N1,417.50. International Energy Insurance slipped by 9.95 per cent to N5.79, Trans-Nationwide Express depreciated by 9.89 per cent to N3.28, eTranzact crashed by 9.79 per cent to N14.75, and UPDC slumped by 9.72 per cent to N28.12.
The best-performing equity for the day was Universal Insurance, which gained 6.32 per cent to close at N1.01, McNichols grew by 5.52 per cent to N8.60, Linkage Assurance expanded by 4.67 per cent to N1.57, NGX Group appreciated by 4.35 per cent to N120.00, and Transcorp increased by 3.62 per cent to N41.50.
As look at the activity level indicated that investors traded 388.7 million stocks worth N18.4 billion in 44,631 deals compared with the 393.7 million stocks valued at N19.2 billion executed in 45,813 deals a day earlier, representing a decline in the trading volume, value, and number of deals by 1.27 per cent, 4.17 per cent, and 2.58 per cent, respectively.
By Adedapo Adesanya
The Naira recorded a loss of 82 Kobo or 0.06 per cent against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, June 26, exchanging at N1,380.93/$1, in contrast to the previous day’s rate of N1,380.11/$1.
Equally, the domestic currency further weakened against the Pound Sterling in the official FX market yesterday by N6.06 to settle at N1,824.90/£1 versus the preceding session’s N1,818.84/£1, and lost N10.74 on the Euro to sell at N1,577 .58/€1 versus N1,566.84/€1.
At the GTBank forex counter, the Naira depreciated against the greenback during the session by N4 to close at N1,387/$1, in contrast to Thursday’s value of N1,383/$1, and at the parallel market, it was unchanged at N1,395/$1.
Interbank FX activity among financial institutions has fluctuated amid a sharp slowdown in forex market interventions by the Central Bank of Nigeria (CBN), as it allows demand and supply to move the market.
Also, a stronger greenback has generally put significant pressure on emerging-market currencies.
Nigeria has accessed the first tranche of a proposed $5 billion derivatives financing arrangement with First Abu Dhabi Bank PJSC, the largest lender in the United Arab Emirates (UAE).
The $5 billion facility, approved by the National Assembly earlier this year, is part of the federal government’s plan to diversify external financing sources and reduce borrowing costs. Structured as a Total Return Swap with First Abu Dhabi Bank, proceeds are earmarked for refinancing debt and supporting infrastructure financing.
If the proceeds are brought into the country through the official FX market, the transaction will increase the currency reserves or Dollar liquidity.
At the cryptocurrency market, Solana (SOL) grew by 2.2 per cent to $71.92, Cardano (ADA) gained 1.1 per cent to trade at $0.1474, Ripple (XRP) also appreciated by 1.1 per cent to $1.05, Dogecoin (DOGE) expanded by 0.9 per cent to $0.0755, and Ethereum (ETH) improved by 0.4 per cent to $1,578.84.
On the flip side, TRON (TRX) slid 0.6 per cent to $0.3203, Binance Coin (BNB) slumped by 0.3 per cent to $564.33, and Bitcoin fell by 0.2 per cent to $60,219.37, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
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