Lafarge Africa’s in its fourth quarter report for 2017 published over the weekend showed a pre-tax loss of N35.1 billion compared with a profit before tax PBT, of N17.5 billion in the same period of 2016. Apart from the top line which grew by 29 per cent on annual basis, the results were generally weak across the profit and loss account headlines. The weak earnings were mainly as a result of a negative gross margin of -9.5 per cent in the last three months of 2017 as against the 38.4 per cent in the same period of 2016 and a 63 per cent annual increase in operating expenses (opex).
The notes to the accounts showed that that company made a provision for a loss of N19.2 billion on fixed assets in 2017 which perhaps explains the negative gross margin. Further down the profit and loss account, the after-tax loss narrowed to N29.4 billion when compared to N43.2 billion in 2016. A positive result of N6.1 billion in other comprehensive income brought down the loss. However, sales grew by 10 per cent on quarterly basis.
The pre-tax and after-tax losses compare with losses of N17.1 billion and N21.2 billion that the company reported in third quarter of 2017. Analyst at FBNQuestResearch said “Compared with our forecasts, sales were only slightly ahead of our N73.8 billion forecast. However, earnings missed our PBT and PAT forecasts of N5.2 billion and N5.0 billion respectively, because of negative surprises in gross margin, operating expenses opex, and net interest expense. The shortfall in earnings was greater compared with the N12.5 billion in fourth quarter PBT implied by consensus 2017 PBT forecast of N13.6 billion.
“On a full year basis, sales grew by 36 per cent year on year. However, the pre-tax loss of N34.0 billion was worse than the loss of N22.8 billion reported in 2016. Lafarge also reported an after-tax loss of N16.2 billion in 2017 compared with a N18.3 billion 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 per cent higher than our N1.16 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 N13.6 billion, 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”.
