LAFARGE CEMENT WAPCO NIGERIA PLC
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- Preston Walsh
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1 LAFARGE CEMENT WAPCO NIGERIA PLC Deleveraging, Cost Efficiency and Tax Write-back Buoy Earnings Lafarge WAPCO ( WAPCO ), the South-West cement major, turned in interesting numbers in its 2013FY results recording 12.3% y-o-y revenue growth; a reflection of fairly sustained level of construction activity in its market niche. Cost of sales grew 8.43% y-o-y as against the 0.05% decline in Q3:2013, attributable to production cost pressures in the fourth quarter as experienced in Q2:2013. However, cost efficiency surpassed 2012 levels with cost-to-sales ratio at 60.7% (in line with our 61% estimate) as opposed to 62.87% in 2012FY. Debt pay-off and tax write backs in the year uplifted full year profits (NGN28.27bn) by 92.14% over 2012 figures (NGN14.71bn). The company proposed a DPS of NGN3.30 (35% pay-out) implying a yield of 3% at its current market price. We maintain our HOLD recommendation on the counter though we revised our 12-M target price from NGN to NGN Revenue Grew By 12%; Though Intense Competition Limits Faster Growth Rates: 2013FY revenues settled at NGN98.8bn, 12.3% over NGN87.97bn in 2012FY, owing to sustained construction growth particularly across the South-West region where WAPCO majorly operates and despatches its cement brands, in spite of the tight competitive environment and its attendant impacts on higher growth rates. We estimate WAPCO s 2013 capacity utilisation rate at about 73% of the company s 4.5mmtpa installed capacity. Full year turnover came in 2.33% below our estimated NGN101.16bn as the company s fourth quarter sales (NGN24.52bn) was 1.1% lower than Q3 (NGN24.8bn) compared with our expectations of 5% growth. We forecast 2014 revenues at NGN110.65bn representing 12% growth rate. Despite Costs Pressures, WAPCO Stayed Cost Efficient: While the company commenced 2013 with dropping cost-to-sales ratio, mounting pressures in Q2 partly owing to lower gas utilisation rate resulted in higher costs. Though the company relatively managed costs as at Q3:2013, we believe reduced gas utilisation rate in Q4:2013 translated to the 8.43% y-o-y growth in cost of sales by 2013FY. Nonetheless, WAPCO fared better in cost management for the year compared with 2012FY as reflected by the lower cost-to-sales figure of 60.7% (62.9%, 2012FY). We expect this feat to be sustained in 2014FY as gas efficiency improves with our cost-tosales estimate at 59%. OPEX to sales rose to 7.87% (vs. 7.14% in 2012FY). We attribute this to increased sales efforts in the year, which we anticipated given the relatively strong competition in the cement marketplace. The company s operations remained profitable as EBIT expanded 18.08% y-o-y while EBIT margin was 31.95% (vs % in 2012FY). Following its deleveraging strategy in 2013FY, WAPCO significantly tapered its borrowings by c.60% resulting to the 29.59% decline in finance charges, translating to a huge earnings immunisation for equity holders. Similarly, following the plant pioneer tax status, write back of tax expenses (backdated to 2012FY, subsequent to the 2.5mmtpa capacity ramp up via Ewekoro II plant Lakatabu in Ogun State) also boosted the company s earnings with additional NGN552mn in tax credits. 2013FY Earnings Surged, Nearly Doubling 2012FY Level: PAT jumped 92.14% to settle at NGN28.27bn (4.6% over our NGN27.03bn estimate) as compared to NGN14.71bn posted in 2012FY. In spite of moderately higher production and operating costs, earnings expanded on the back of lower finance charges and reduced debt profile. Net margin was 28.61% (vs % in 2012FY) slightly higher than our estimate of 27.4%. We forecast 2014FY profit and net margin at NGN30.66bn and 27.7% as we do not expect a continuation of tax credits. 2013FY EARNINGS UPDATE NSE: WAPCO; Bloomberg: WAPCO NL TP: NGN121.9 Rating: HOLD Key Metrics Current price Actual P/E 11.58x Forward P/E 10.68x Avg. Vol (mn) Key Fundamental Metrics EPS 9.42 BVPS Net Margin 28.61% ROAE 35.04% ROAA 18.06% Leverage 1.73 Mkt. Cap (bn) EV/EBITDA Key Price Metrics Today % WtD -1.71% MtD 3.37% QtD -5.13% YtD -5.13% 52-Weeks 43.55% 52-Week Share Price Trajectory NSE, Bloomberg, Meristem Research Analyst: Aderonke Akinsola aderonkeakinsola@meristemng.com
2 Prospects Remain the Same Though Target Price Revised Downward to NGN121.9: Our 5-year forecasts stay the same. However, owing to the adjustments of beta estimates and price multiples to our blended valuation model (relative and absolute valuations), our target price was reviewed downward to NGN121.9 from NGN FY EPS is forecast at NGN10.22 (vs. NGN9.42 in 2013FY). The stock s trailing P/E of 11.58x is at a discount to harmonized sector average P/E of 14.31x and the industry leader s (DANGCEM) 19.37x P/E. At current prices, expected capital gain is 11.7% indicating a HOLD. Turnover vs. Turnover Growth: Historical and Forecast PAT vs. Net Margin: Historical and Forecast % 40.74% Turnover (NGN 'bn) Turnover growth 12.00% 12.32% 10.00% 50.00% 40.00% 30.00% 20.00% 15.00% 10.00% PAT (NGN'bn) 28.6% 27.7% 13.8% 16.7% Net Margin 27.4% 23.5% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% % % f 2015f 2016f f 2015f 2016f Source: Company s financials, Meristem Research Financial Highlights (NGN billion) LAFARGE CEMENT WAPCO NIGERIA PLC 2013FY Profit & Loss Account f Turnover Cost of Sales Gross Profit OPEX Investment income Operating Profit Financial Charges PBT PAT Balance Sheet Property Plant and Equipment Inventories Debtors and other Receivables Cash and cash equivalents Other Assets Total Assets Shareholders' fund Trade and other Payables Current Financial Liabilities Non-Current Financial Liabilities Total Liabilities Price multiples/ratios Shares Outstanding 3.00 Proposed Dividend NGNk3.30/Share Cost -to-sales 60.70% Dividend Yield 3.02% Gross Profit Margin 39.30% Payout Ratio 35% OPEX Margin 7.87% Closure Date 28th April, 2014 Operating Margin 31.95% Date of Payment To be announced Net Margin 28.61% AGM Date 21st May, 2014 AGM Venue MUSON Centre, Onikan Lagos
3 Analyst s Certification and Disclaimer This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the cover of this report. Each research analyst hereby certifies, with respect to each security or issuer covers in this research that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers (the Issuer); and (2) no part of any of the research analyst s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Research analysts compensation is determined based upon activities and services intended to benefit the investor clients of Meristem Securities Limited (the Firm). Like all of the Firm s employees, research analysts receive compensation that is impacted by overall Firm profitability, which includes revenues from other business units within the Firm. (3) each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting non-material nonpublic or material public market information. As at the date of this report, any ratings, forecasts, estimates, opinions or views herein constitute a judgment, and are not connected to research analysts compensations. In the case of non-currency of the date of this report, the views and contents may not reflect the research analysts current thinking. This document has been produced independently of the Issuer. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the ratings, forecasts, estimates, opinions and views contained herein are fair and reasonable, neither the research analysts, the Issuer, nor any of its directors, officers or employees, shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Investment Banking. Investment Ratings Fair Value Estimate We estimate stock s fair value by computing a weighted average of projected prices derived from discounted cash flow and relative valuation methodologies. The choice of relative valuation methodology (ies) usually depends on the firm s peculiar business model and what in the opinion of our analyst is considered as a key driver of the stock s value from a firm specific as well as an industry perspective. However, we attach the most weight to discounted cash flow valuation methodology. Ratings Specification BUY: HOLD: price. SELL: Fair value of the stock is above the current market price by at least 20 percent Fair value of the stock ranges between -10 percent and 20 percent from the current market Fair value of the stock is more than 10 percent below the current market price. Definitions Price Targets: Price targets reflect in part the analyst s estimates for the company s earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or market, and may not occur if the company s earnings fall short of estimates. Asset allocation: The recommended weighting for equities, cash and fixed income instrument is based on a number of metrics and does not relate to a particular size change in one variable.
4 Movements in Price Target Company Name: Lafarge WAPCO Date Price (N) Previous Target Price(N) New Target Price (N) Previous Recommendation 21/03/ HOLD HOLD New Recommendation Company disclosures Meristem or the analyst(s) responsible for the coverage may have financial or beneficial interest in securities or related investments discussed in this report, which could, unintentionally, affect the objectivity of this report. Material interests, which Meristem or the analyst(s) have with companies or in securities discussed in this report, are disclosed below: Company Lafarge Cement Wapco Nigeria Plc Disclosure a. The analyst(s) hold(s) personal positions (directly or indirectly) in a class of the common equity securities of the company. b. The analyst responsible for this report, as indicated on the front page, is a board member, officer or director of the company c. Meristem beneficially owns 1% or more of the equity securities of the company d. Meristem has been the lead manager or co-lead manager of any publicly disclosed offer of securities of the company over the past 12 months. e. Meristem beneficially holds a major interest in the debt of the company f. Meristem has received compensation for investment banking activities from the company within the last 12 months g. Meristem intends to seek, or anticipates receipt of compensation for investment banking services from the company in the next 3 months h. The content of this research report has been communicated with the company, following which this research has been materially amended before its distribution i. The company is a client of the stock broking division of the Meristem group. j. The company is a client of the investment banking division of the Meristem group. k. The company owns more than 5% of the issued share capital of Meristem l. Meristem has other financial or other material interest in the company. Conflict of Interest It is the policy of Meristem Securities Limited and its subsidiaries and affiliates (Individually and collectively referred to as Meristem ) that research analysts may not be involved in activities that suggest that they are representing the interests of Meristem in a way likely to appear to be inconsistent with providing independent investment research. In addition, research analysts reporting lines are structured so as to avoid any conflict of interests. For example, research analysts are not subject to the supervision or control of anyone in Meristem s Investment Banking or Sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the research analysts published research. Therefore, the proprietary interests of those Sales and Trading departments may conflict with your interests.
5 Important Disclosure For U.S. persons only: This research report is a product of Meristem Securities, which is the employer of the research analysts who has prepared the research report. The research analysts preparing the research report are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analysts are not subject to supervision by a U.S. broker-dealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Mersitem Securities only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Meristem Securities has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. Legal entity disclosures Meristem Securities Limited is a member of The Nigerian Stock Exchange and is authorized and regulated by the Securities and Exchange Commission to conduct investment banking and financial advisory business in Nigeria. However, the company through its subsidiaries carries out stock broking, wealth management, trustees and registrars businesses which are regulated by the SEC and ICMR.
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Continues to ride high! Accumulate November 14, 2017 Saksham Kaushal sakshamkaushal@plindia.com +91 22 66322235 Poorvi Banka poorvibanka@plindia.com +91 22 66322426 Rating Accumulate Price Rs30,083 Target
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More informationHindalco Industries. Source: Company Data; PL Research
Beats its own best; building up for next leg of growth May 08, 2018 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Amit Khimesra amitkhimesra@plindia.com +91 22 66322244 Rating BUY Price Rs239
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Strong inflow growth, renewable/railways key drivers October 28, 2016 Kunal Sheth kunalsheth@plindia.com +91 22 66322257 Samir Bendre samirbendre@plindia.com +91 22 66322256 Rating Accumulate Price Rs1,063
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Technology leadership, cost optimization key focus October 28, 2016 Kunal Sheth kunalsheth@plindia.com +91 22 66322257 Samir Bendre samirbendre@plindia.com +91 22 66322256 Rating Accumulate Price Rs852
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Higher inventory loss drag earnings August 14, 2017 Avishek Datta avishekdatta@plindia.com +91 22 66322254 Rating BUY Price Rs479 Target Price Rs553 Implied Upside 15.4% Sensex 31,449 Nifty 9,794 (Prices
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Good show in tough environment; well placed for long term BUY May 05, 2016 Kamlesh Bagmar kamleshbagmar@plindia.com +91 22 66322237 Ankit Shah ankitshah@plindia.com +91 22 66322244 Rating Accumulate Price
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Continuing to grow strong May 07, 2018 Pritesh Bumb priteshbumb@plindia.com / +91 22 66322232 R Sreesankar rsreesankar@plindia.com / +91 22 66322214 Shweta Daptardar shwetadaptardar@plindia.com / +91 22
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