Lafarge Africa reported a 5.9% y/y Revenue growth to N197.6bn in H1 2023 from N186.5bn in the prior period (H1 2022). Similarly, on a q/q basis, Revenue was up 15.3% to N105.8bn in Q2 2023 from N91.8bn in Q1 2023. The broad-based growth in cement sales (up 10% to N102.4bn) and aggregate and concrete sales (up 23.2% to N3.3bn) contributed to the marginal increase in topline growth in H1 2023, despite a decrease in sales of other products (down 51.9% to N85.4bn).
Due to the expiration of the tax holiday on the company’s profit from the Mafamosing line 2 plant in Calabar, the company’s Tax Expense increased to N19.83bn in H1 2023 from N9.46bn in H1 2022. Consequently, Net Income declined by 5.2% y/y to N35.47bn in H1 2023 from N37.41bn in H1 2022. Thus, Earnings per share also declined by 5.2% y/y to N2.20/s in H1 2023 from N2.32/s in H1 2022.
We see room for growth in demand in the second half of the year, as indications from the new government suggest an increase in capital expenditure in H2 2023. The new minister of works recently stated that all ongoing work on federal roads would be completed within the shortest possible time. Also, given threats of revocation of undeveloped lands by some governors and the new FCT minister, we expect to see an uptick in demand by private players. Finally, there is the possibility of another price increase as macroeconomic conditions continue to increase operational cost.
We have a price target of N45.96/s, with a BUY recommendation, our price target implies a 67% upside potential from the last closing price of N27.20/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 blend of DCF and Relative valuation in the ratio of 50:50.
