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Thursday, January 26, 2023

Lafarge a Buy as Profits Jump 158% on Lower Finance Costs, SA Exit

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MoneyCentral considers Lafarge Africa a buy at these levels, after reporting a 158 percent increase in after-tax profits in the Half Year period (Jan-Jun) on lower finance costs and non-recurring losses from discontinued operations in its erstwhile South African subsidiary.

This came despite slightly lower revenues for the 3 months’ period ending in June 2020, which coincided with the onset of the coronavirus related lockdowns in Nigeria.

Revenue for the 6months period rose by 2.29 percent to N120.5 billion, while profits after tax was up 158 percent to N23.3 billion for the period, compared to N9 billion in 2019.

Finance costs for the period fell 66.7 percent after a successful restructuring of the cement makers balance sheet, helping to boost the bottom-line.

The firm also benefitted from the sale and exit from its loss making South African operations which had a negative charge of N6.83 billion in 2019.

The results mean the Lafarge has now reported earnings per share (EPS) of N1.45 in the first six months of 2020.

Annualized this comes to N2.90 and slapping on a 10 (earnings) multiple gives a share price of N29.

Lafarge closed trading at N10.95 per share on Friday.

The stock is highly undervalued according to MoneyCentral calculations. Investors should be buying at this level with a first target exit price of N15 per share.

We share what we like below:

Inventories Flat
Inventories at the Cement maker came in slightly lower than the level it was as at December 2019.

Inventories consisting of raw materials, semi-finished and finished goods, spare parts and other supplies were equivalent to N31.7 billion in June 2020, compared to N32.4 billion in December.

Non increase in inventories is positive as it shows the firm is able to sell its products.

Trade Receivables Fall
Lafarge reported that its trade receivables fell to N7.29 billion in June 2020, from N8.19 billion in December.

A fall in receivables shows that debtors to the firm are largely making payments as at when due.

Cash Holdings Rise
Lafarge had cash holdings of N39.8 billion as at June, up 46.8 percent from N27.1 billion in December. Growing cash hoard signifies a much healthier balance sheet.

Debts Continue to fall
Lafarge’s total loans and borrowings outstanding fell to N54.9 billion as at June 2020, from N64.1 billion in December 2019.

The cement maker repaid principal of N5.42 billion for the period as well as made lease liabilities repayment of N3.42 billion.

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