Event: Lafarge Africa reports Q4 2017 results
Implications: Downward revision to consensus 2018E PBT forecasts likely; shares expected to sell-off
Positives: Sales up 29% y/y
Negatives: Lafarge reported a pretax loss of –N35.1bn, driven by a negative gross margin of -9.5% and a spike in opex
Lafarge Africa’s (Lafarge) Q4 2017 results which were published over the weekend showed that the company reported a pre-tax loss of -N35.1bn compared with a PBT of N17.5bn in Q4 2016. Excluding the topline which grew by 29% y/y, the results were weak across the P&L. The weak earnings were mainly driven by a negative gross margin of -9.5% in Q4 (vs.38.4% Q4 2016) and a 63% y/y spike in opex. The notes to the accounts show that that company took an impairment loss of N19.2bn on fixed assets in 2017 (we suspect this explains the negative gross margin). Further down the P&L, the after-tax loss narrowed to –N29.4bn (vs. +N43.2bn Q4 2016), thanks to a positive result of N6.1bn in other comprehensive income. Sequentially, sales grew by 10% q/q. However, the pre-tax and after-tax losses compare with losses of -N17.1bn and –N21.2bn that the company reported in Q3 2017. Compared with our forecasts, sales were only slightly ahead of our N73.8bn forecast. However, earnings missed our PBT and PAT forecasts of N5.2bn and N5.0bn respectively, because of negative surprises in gross margin, opex and net interest expense. The shortfall in earnings was greater compared with the N12.5bn Q4 PBT implied by consensus 2017 PBT forecast of N13.6bn.
On a full year basis, sales grew by 36% y/y. However, the pre-tax loss of -N34.0bn was worse than the loss of –N22.8bn reported in 2016. Lafarge also reported an after-tax loss of –N16.2bn in 2017 compared with a N18.3bn profit in 2016. Compared with our full year estimates, sales were in line. However, PBT and PAT missed our forecasts. The management of the company has proposed a dividend of N1.50 per share which is 29% higher than ourN1.16 DPS forecast (N1.24 consensus). The DPS implies a dividend yield of N3.4%.
Given that Lafarge’s 2017 PBT came in well below consensus 2017 PBT forecast of N13.6bn, we expect to see marked downward revision to consensus 2018E earnings forecast and a significant sell-off in the shares over the next few days.
We rate Lafarge Neutral. Our estimates are under review.