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WAPCO Q3' 2020 Earnings Reinforce A BUY Recommendation
WAPCO Q3' 2020 Earnings Reinforce A BUY Recommendation

By Gilbert Ayoola

Lafarge Africa Plc has announced a 37.0% growth in profits after-tax from continued operations to N 28.2 billion in its 9 months 2020 results.

Below are Q3 2020 financial highlights:

Cement sales rose by 31.4% YoY to N59.3 billion during the quarter. The revenue traction is likely volume-induced given the relative stability in domestic cement prices over the last few quarters

However, gross margin dipped by 3.6 ppts to 23.3%, due to heightened cost pressures. Variable costs, typically inclusive of raw materials and fuel costs, rose by 61.2% YoY, while production costs surged 66.4% YoY during the review period. These cost pressures are likely reflective of the effect of naira devaluation on foreign-sourced materials and domestic gas prices 

Despite the cost setbacks, earnings after tax from continuing operations printed 2.8 % higher YoY at N4.9 billion, aided by 9.5% YoY decline in net finance expenses.

Net cash balance at the end of 9M’20 stood at N63.4 billion (vs N9.1 billion in 9M’19), in line with the robust operating cash flow numbers observed over the last four quarters. Cash ratio now stands at 0.49x, compared to 0.32x at the end of FY’19

WAPCO is trading at a FY’20E EV/EBITDA of 3.13x (vs 10.9x for selected peers), with annualized 9months 2020 ROAE at 10.5% compared to a five-year average of 2.2%. 

Despite the cost pressures experienced in Q3’20, the company appears well on course to slightly exceed our FY’20E PAT projection of N34.4 billion.

We have a BUY recommendation on the stock.

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