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Tuesday, March 21, 2023

Buy This Nigerian Cement Firm for Faster Capital Gains

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Lafarge Africa, a producer of the building material, has a much more attractive stock valuation than its competitors as the Nigerian cement maker has generated profit from its core operations, overcoming inflationary pressures and currency devaluations.

Of course, Lafarge Africa has a price to earnings (P/E) multiples of 7.94 times, and that compares to Dangote Cement’s P/E of 12.96 times, and BUA Cement’s 33.34 times.

Interestingly, the cement maker will be paying shareholders more money for owning its shares, which is more than peer rivals as it has a dividend yield (DY) of 11.36 percent.

And that compares with Dangote Cement’s DY of 6.90 percent and BUA Cement’s 3.12 percent.

According to analysts, dividend stocks with healthy yields can pull investors out of the gloomy market and provide profits on their investments.

High-yield dividend stocks like Lafarge Africa have shown strong performance and are able to generate stable income for investors  even amid a high interest rate environment brought on by the central bank’s aggressive monetary policy and a myriad of challenges whipsawing businesses and eroding profit margins.

In the year ended December 2022, Lafarge Africa’s revenue was up 27.30 percent to N373.24 billion, thanks to a hike in the price of products to help compensate for a red-hot inflation.

Even more interesting is that the company recorded the fastest expansion in operating profit margin in the cement industry.

Operating income, a preferred measure of profitability because it excludes exception items that are easily manipulated, spiked by 29.31 percent to N84.19 billion as at December 2022.

And that compares to the increases for Dangote Cement (0.58 percent) and BUA Cement, 24.46 percent.

While finance costs have risen due to rising interest rates which makes interest payment expensive, Lafarge Africa’s robust earnings means it has the ability to handle its outstanding debt.

Times interest coverage ratio stood at 5.27, which is higher than the 1.50 globally accepted benchmark.

Over the next three years, LAFARGE’s management expects to extend its debottlenecking across all its plants, especially Ewekoro, Mfamosing, and Ashaka, to unlock additional 2.0MMTPA in production volume.

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