Tuesday, January 22, 2019 1:37:57 PM- Nigerian Stock Exchange.



  WAPCO Q1 - Cost pressures… no respite insight.

      initial view.

April 23 (Lagos) - Lafarge Africa Plc ( WAPCO ) released Q1 2018 result this morning, showing weak performance due to a mix of unrelenting input and operating cost pressures as well as higher interest expense on borrowings. 


Consequently, despite a slight contraction in revenue (-0.8% to N 80.6 billion), the company recorded a loss after tax of N 2.0 billion (vs. N 5.2 billion in Q1 17).


Going by provided breakdown, the moderation in revenue stemmed largely from cement which declined 2.1% to N66 billion. By our estimate, cement pricing hovered around N 44,328 (vs. N 43,323 in Q1 17) over the period as such, the decline continues to reflect the shedding of market share by Lafarge, with our estimates revealing 5.2% decline in volumes to 1.3 MMT compared to 1.4 MMT in Q1 17.



Lafarge continued to face input costs pressures as cost of sales rose 3.7% YoY to N62.6 billion over Q1 18. According to provided breakdown, the increase stemmed from higher variable (+49.2% YoY to N37 billion) and fixed costs (+26.8% YoY to N9.6 billion). Given its improved energy mix (LPFO usage in its energy mix dropped to 3% in FY 17 from previous 8%), analysts at ARM Securities Ltd believe the upsurge in variable cost arose from distribution and raw material costs. 



As a result, gross profit dipped 13.9% YoY to N 18.0 billion with related margin printing at 22.3% (lower than 4-year Q1 mean of 24.1%).



Still relaying broad cost inefficiency, operating expenses rose faster than revenue (+41% YoY to N 11.8 billion) on account of a 47.6% YoY increase in admin expenses—a line which we had thought would support earnings going forward given the exorbitant one-off charge on ERP implementation in 2017. Overall, OPEX to sales ratio was higher 433bps YoY to 14.6%. Against this backdrop, EBIT dipped 50.2% YoY to N6.3 billion with related margin printing at 7.7%.



Further down, despite a lower FX loss of just N 649 million, finance cost pressure remained the “evil that refuses to recede”. Even with the inflows from the rights issue in Q4 17, we had earlier pointed out the still elevated borrowings during the same period. 



For emphasis, with a large portion of the N131 billion rights issue used to off-set the parent’s company’s FCY loans, borrowing levels still increased 136.4% YoY to N250 billion from N105 billion in Q1 17. Consequently, finance cost rose 78.1% YoY to N7.6 billion.



Overall, the company reported a pre-tax loss of N2.9 billion (compared to PBT of N9.4 billion in Q1 17), and post-tax loss of N2 billion (vs. N5.2 billion in Q1 17).



Our last communicated FVE of N 48.85 translates to a NEUTRAL rating on the stock. Our model is under review.


reporting for easykobo.com on Monday, April 23 2018 from Lagos, Nigeria



NOTE - Source - analysts at ARM SECURITIES LIMITED. THIS ARTICLE PUBLICATION IS COPYRIGHT OF ARM SECURITIES LIMITED AND NOT TO BE REPRODUCED OR REPRINTED IN ANY FORM WITHOUT THE EXPRESS PERMISSION OF ARM SECURITIES LIMITED.


 WWW.ARMSECURITIES.COM 



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