24 July 2018 ( Lagos ) : Lafarge reported a pre-tax loss of –N3.4bn in Q2 2018. When annualised, Lafarge’s earnings track behind consensus 2018E PBT forecast of N4.6bn. As such, analysts expect to see downward revisions to consensus 2018E PBT forecast and a negative reaction by the market.  

On a positive note Q2 sales of N81.6bn were up 11% y/y. Based on the read-across from rival Dangote Cement, analysts believe that the double-digit growth in sales, was driven by unit volume growth underpinned by a recovery in cement demand. According to industry estimates, the cement market in Nigeria posted strong unit volume growth of c.10% y/y over the H1 2018 period.

On a negative note Lafarge reported a pre-tax loss of –N3.4bn in Q2 2018. The key drivers were a gross margin contraction of -636bps y/y to 25.7% and a 92% y/y spike in net interest expense. While the y/y growth in net interest expense was driven by the company’s increased leverage following the conversion of quasi-equity loans to debt, analysts believe that the contraction in gross margin is most likely due to one-offs related to the firms enterprise resource planning software and possibly losses delivered by Lafarge South African operations. Analysts would be looking to get clarification on these from management.  

Source : Gregory Kronsten, Olubunmi Asaolu, Chinwe Egwim from FBNQuest Capital Limited.

Reporting for EasyKobo on Tuesday, 24 July 2018 in Lagos, Nigeria