Economy
Lafarge Africa, Product of Painful Restructuring
By Cordros Research
In June 2014, Lafarge Group announced the combination of its businesses in Nigeria and South Africa to create a leading Sub-Saharan Africa building materials platform.
LafargeHolcim was formed a year after –and became the majority shareholder in LAFARGE – as a result of the successful merger between two global cement giants.
Overall, we saw a transformation of the cement industry at the global level, that could potentially change the dynamics of the Nigerian cement market from one dominated by Dangote Industries Limited (DIL) through Dangote Cement Plc (DANGCEM) – as is currently happening in the brewery industry.
Looking back, WAPCO was actually better-off alone. The 2013 proforma financials show that WAPCO’s standalone EBITDA margin of 37% was a lot bigger than the combined entity’s 27% EBITDA margin. And more instructively, WAPCO’s PBT margin was 28% in 2013 while ASHAKACEM’s and UNICEM’s were 13% and 5% respectively.
Shareholders have been on the losing end since the restructuring. We estimate that the M&A resulted in the dilution of the share of minority shareholders’ stake in the old WAPCO to 22% currently (our estimate), from 40% pre-merger level.
From an earnings perspective, it is instructive noting that since the NGN9.4/s last reported by WAPCO in 2013FY, EPS has been on a consistent slide under LAFARGE to negative NGN6.4 in 2017FY, eroded by high restructuring and financing costs.
The experience has been worse for shareholders when viewed with respect to share price performance.
The causes of LAFARGE’s dwindling earnings are diverse and largely result from the business combination. Operating costs have increased significantly following the M&A at a four-year CAGR of 20%, faster than revenue CAGR of c.10%. From NGN21.5 billion in 2013FY, the total debt reported by LAFARGE increased to NGN287.6 billion in 2017FY, with finance costs increasing accordingly. Besides, earnings have also been beset of efficiency issues in recent years, and revenues have not been supportive.
Desperate measures have been taken under the desperate situation. This includes (1) the diversion of priority from ASHAKACEM’s capacity expansion plan, (2) back and forth moves with the USD shareholder loans, and (3) capital raises resulting in further dilution of minority shareholding.
The Nigerian cement market outlook is not too fantastic in the short to medium term. At -3% average annual rate, the cement market has grown less between 2014-2017 compared to the years preceding, and economic growth is forecast to be much slower. Worse for LAFARGE, DANGCEM has raised the barrier of survival for competitors in the market with the group’s investments of the last decade, and BUA Group is also positioning strategically.
Ultimately, LAFARGE needs to stabilize production across its plants and restore market share back to competitive levels.
We update on LAFARGE following H1-18 result, with HOLD recommendation. The recently announced rights issue is incorporated into our valuation, as we believe it is already being factored in by investors. We also roll forward our estimates and valuation by one year, as we believe investors are already trading on 2019E multiples.
On our DCF-derived TP of NGN27.22, the stock offers 18% potential upside – and expected total return of 25% after incorporating 2018E dividend yield of 6.5%. The stock has lost 21% since the H1-18 result release and rights issue (RI) announcement, not surprisingly faster than the (1) broader market (-11%) and (2) fellow cement companies (DANGCEM: -11%, CCNN: +8%) have dipped.
View the detailed analysis below
By Adedapo Adesanya
The duo of MRS Oil and FrieslandCampina Wamco Nigeria Plc weakened the NASD Over-the-Counter (OTC) Securities Exchange by 0.68 per cent on Friday, June 5.
MRS Plc lost N19.00 during the session to sell at N171.00 per share compared with Thursday’s value of N190.00 per share, and FrieslandCampina Wamco Nigeria Plc depreciated by N8.70 to finish at N181.68 per unit compared with the preceding session’s N190.38 per unit.
As a result, the market capitalisation further lost N22.59 billion to close at N2.607 trillion versus the N2.630 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropped 37.76 points to settle at 4,358.32 points, in contrast to the previous day’s 4,396.08 points.
The alternative stock market closed the last trading day of this week with a price gainer, Central Securities Clearing System (CSCS) Plc, which gained 6 Kobo to quote at N78.40 per share compared with the preceding session’s N78.34 per share. However, it could not prevent the market from going down at the close of business.
Yesterday, the volume of securities bought and sold by investors went down by 50.0 per cent to 140,345 units from the preceding day’s 280,714 units, the value of stocks decreased by 16.5 per cent to N17.9 million from the previous session’s N21.5 million, and the number of deals carried out by market participants fell by 35.7 per cent to 27 deals from the 42 deals recorded on Thursday.
When trading activities closed for the day, Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and CSCS Plc with 64.7 million units traded for N4.4 billion.
GNI Plc also ended the session as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units transacted for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
By Dipo Olowookere
Renewed interest in financial stocks and others lifted the Nigerian Exchange (NGX) Limited by 0.15 per cent on Friday.
Customs Street closed higher yesterday despite the 1.37 per cent loss recorded by the consumer goods sector as a result of profit-taking.
This was offset by gains in the other key sectors of the local bourse, as the insurance counter chalked up 1,14 per cent. The banking space appreciated by 0.90 per cent, the industrial goods segment grew by 0.46 per cent, and the energy sector expanded by 0.01 per cent.
Consequently, the All-Share Index (ASI) went up by 366.00 points to 242,593.31 points from 242,227.31 points, and the market capitalisation gained N235 billion to close at N155.594 trillion compared with the previous day’s N155.359 trillion.
The trio of International Energy Insurance, Abbey Mortgage Bank, and DAAR Communications improved by 10.00 per cent each yesterday to N7.26, N9.35, and N1.98, respectively, while Zichis advanced by 9.39 per cent to N32.38, with Sovereign Trust Insurance up by 8.70 per cent to N2.50.
On the flip side, Academy Press lost 9.84 per cent to quote at N8.25, University Press depreciated by 9.73 per cent to N5.10, Africa Prudential dipped by 2.63 per cent to N12.95, Chams crumbled by 2.44 per cent to N4.00, and International Breweries slipped by 1.59 per cent to N12.35.
Business Post reports that the market breadth index was positive during the session after recording 37 appreciating equities and 14 depreciating equities, implying strong investor sentiment.
Abbey Mortgage Bank led the activity chart with a turnover of 164.1 million units worth N1.5 billion, Ellah Lakes sold 76.7 million units for N767.2 million, Access Holdings transacted 44.8 million units valued at N1.1 billion, Linkage Assurance exchanged 23.0 million units worth N41.2 million, and The Initiates traded 20.2 million units for N562.1 million.
At the close of trades, market participants transacted 608.5 million units worth N32.0 billion in 53,826 deals versus the 588.5 million units valued at N27.9 billion executed in 57,352 deals in the previous session. This showed that the number of deals eased by 6.15 per cent, the volume of transactions rose by 3.40 per cent, and the value of transactions soared by 14.70 per cent.
By Adedapo Adesanya
The Naira further depreciated against the United States Dollar by N3.46 or 0.25 per cent to N1,362.21/$1 from N1,358.75/$1 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, June 5.
However, it appreciated against the Pound Sterling in the same market window during the session by N4.47 to trade at N1,823.59/£1 compared with the previous day’s N1,828.06/£1, and gained N7.00 against the Euro to sell at N1,574.58/€1, in contrast to Thursday’s closing price of N1,581.58/€1.
For another trading session, the Nigerian Naira maintained stability against the Dollar in the parallel market and the GTBank forex counter on Friday at N1,375/$1 and N1,372/$1, respectively.
The Naira is expected to remain strong in the near term, backed by a rise in external reserves, which are nearing $50 billion, enhancing analysts’ confidence about its outlook in the second half of 2026.
Heightened global uncertainty has reduced the incentive for importers and corporates to demand FX, as cautious trade weighs on import needs. Analysts estimate a $40 billion net FX position for the year, a projection anchored in oil windfall gains.
As for the cryptocurrency market, prices remained depressed following a strong US jobs report that spurred markets to price in higher-for-longer interest rates, sending Treasury yields and the dollar up while hammering stocks, especially AI-related names. Crypto markets saw heavy leverage washouts with about $1.6 billion in positions liquidated over 24 hours.
Ethereum (ETH) gave up 4.9 per cent to trade at $1,584.68, Solana (SOL) fell by 3.3 per cent to $63.22, Bitcoin (BTC) crashed by 1.9 per cent to $61,333.23, Dogecoin (DOGE) slipped by 1.8 per cent to $0.0821, and Ripple (XRP) moderated by 1.8 per cent to $1.09.
Further, TRON (TRX) dropped 1.6 per cent to sell at $0.3197, Binance Coin (BNB) slumped by 1.0 per cent to $581.18, and Cardano (ADA) declined by 0.4 per cent to $0.1589, while the US Dollar Tether (USDT) gained 0.07 to sell at $0.9997, and US Dollar Coin (USDC) closed flat at $0.9998.
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