Lafarge Africa reported a 7.1% y/y growth in Revenue to N289.08bn in 9M 2023 from N269.85bn in the prior period (9M 2022). However, on a q/q basis, Revenue was down 13.7% to N91.40bn in Q3 2023 from N105.86 in Q2 2023. The broad-based y/y growth in cement sales (up 7% to N279.77bn), aggregate and concrete sales (up 10.9% to N8.87bn), and other products (up 14% to N437m) contributed to the marginal increase in topline growth in 9M 2023.
In 9M 2023, the average price of cement from Lafarge Africa rose by 23% y/y to N76,251, while production volumes dropped by 8.9% y/y to 3.71 million MT. We maintain our view that prices will continue to increase to reflect macroeconomic conditions. Thus, we project a 20% y/y (15% YTD) increase in price. We also forecast sales volume of 5.00 million MT in 2023 compared with 3.71 million MT for 9M 2023 and 5.5 million MT for FY 2022. Consequently, we project FY Revenue of N397.43bn in 2023e, a 6% y/y increase compared with the previous year (2022; N373.24bn).
Despite having low leverage with significantly lower FX-denominated liabilities compared to its competitors, we note that the devaluation in the Naira between Q2 and Q3 impacted the company’s bottom line performance significantly. Looking ahead, we believe the company’s Net Finance Cost will remain under control as we do not forecast as steep a devaluation of the currency as seen this year. The company has also been managing its costs effectively despite the impact of the FX devaluation on cost of imported raw materials, persistent inflationary pressures, and rising energy costs.
We have a price target of N45.96/s, with a BUY recommendation. Our price target implies a 55.80% upside potential from the last closing price of N29.50/s. We still believe the market is yet to fully price in the firm’s improved operating performance. We arrived at our target price using a 50:50 blend of DCF and Relative valuation.
