Lafarge Africa Stock Gets Buy Rating
By Dipo Olowookere
One of the leading cement firms, Lafarge Africa Plc, which trades its stocks on the Nigerian Stock Exchange (NSE), has witnessed a positive momentum at the market lately.
Just when some observers thought the stock would struggle at the exchange, especially after its former CEO, Mr Michel Puchercos, was poached by its arch rival, Dangote Cement, it has been performing beyond expectations.
Recently, the company released its financial statements for the 2019 fiscal year and it became very clear that its South African arm had been the spanner in its works. With its exit, the organisation is tipped to take charge of its sector.
In the past days and weeks at the stock market, Lafarge Africa has not done badly and according to analysts at CardinalStone, investors should not waste time to load more of the company’s equities because it has the potential to sell at over N19 per unit later. At the moment, the share price is just below N12, precisely N11.50.
“Notwithstanding the current shock, we believe Lafarge remains a compelling proposition in the medium-to-long term due to its recent restructurings.
“Notably, the company’s cash flow position is likely to recover strongly in FY’22 alongside expected pick up in domestic macro,” analysts at the Lagos-based firm said.
It was noted that the cement industry in Nigeria is anticipated to witness 16.0 percent year-on-year decline in production this year due to the impact of the coronavirus.
However, Lafarge Africa is expected to slightly underperform the sector with a 17.6 percent y-o-y contraction in cement output due to “intensifying competition from BUA Cement across Lafarge Africa’s support hubs in the Northern and Southern zones of the country.”
It was projected that the revenue of Lafarge Africa will decrease in FY’20 by 17.6 percent to N175.5 billion and by a further 4.3 percent to N168.0 billion in FY’21 estimates.
“However, we expect a resurgence afterwards in line with the cyclicality of the company, with revenue likely to grow by an average of 8.8 percent between FY’22E and FY’24E,” the report said.
CardinalStone said one thing that should work in favour of the cement firm this year is its cost cutting measures across power; energy; and general administrative expenses, which was witnessed in FY’19, where the company reduced its operating costs by 21.9 percent.
“In FY’20, we believe this cost-saving measures could slightly taper the potentially huge impact of lower cement volumes on margins.
“We, however, note that the ongoing crisis is likely to delay the commissioning of Ashaka’s captive power plant project, which was expected to reduce cost in the North East,” it stated.