Lafarge Africa Plc (WAPCO), one of Nigeria’s top cement manufacturers, has seen a dramatic surge in its share price, hitting a five-year high and a fresh 52-week peak. As of December 3, 2023, the stock closed at N70.15 per share, marking a 122.27% year-to-date (YTD) gain and pushing its market capitalization to N1 trillion.
This rally has been attributed to strategic investor positioning, particularly in light of reports that Huaxin Cement is planning to acquire a majority stake in the company. However, a deeper look at WAPCO’s financials reveals solid growth and performance beyond market speculation.
Strong Revenue and Profit Growth
Lafarge has demonstrated robust financial performance. In 2023, revenue reached N405.5 billion, marking an 8.64% year-over-year increase. The positive momentum continued into 2024, with revenue growing by 66% year-over-year, reaching N479.5 billion, driven by improved plant stability, supply chain operations, and cost management.
Despite the challenges of rising costs, including a 216% increase in finance costs, Lafarge’s pre-tax profits saw an impressive 17% increase in 2024, already surpassing its full 2023 profits. The company’s operational efficiency and cost control measures helped maintain strong top-line growth, even amid higher financing costs.
Financial Health and Risk Profile
Lafarge’s financial health appears strong, with improvements in leverage and a reduced debt burden. The company’s debt-to-assets ratio dropped significantly to 0.19% in 2024, compared to 3.85% in 2023, reflecting its lower financial risk. However, the current ratio, which measures short-term liquidity, fell to 0.97x from 1.14x in 2023, signaling a slight strain in its ability to cover short-term obligations.
Despite this, the company’s interest coverage ratio of 8.87x indicates its strong ability to cover interest expenses from operating earnings, and its improved asset turnover suggests better utilization of assets to generate revenue.
Valuation and Future Prospects
Lafarge’s stock is currently trading at a price-to-earnings (P/E) ratio of 8.61x, well below the cement industry’s average of 34.90x, signaling that the stock may be undervalued relative to its peers. With earnings per share (EPS) projected to rise by 50% in 2024, the company is expected to increase its dividend payouts, further enhancing its appeal to investors.
The low P/E ratio and strong growth potential suggest that WAPCO offers attractive growth opportunities at a reasonable price. However, the recent rally driven by the potential Huaxin acquisition could introduce speculative buying, and investors should consider this when evaluating the stock’s current valuation.
Conclusion
Lafarge Africa’s fundamentals remain strong, with impressive revenue and profit growth. The company’s efforts in cost management, operational efficiency, and debt reduction have positioned it well for long-term growth. However, investors should weigh the recent surge in stock price against speculative market activity, particularly in light of the ongoing acquisition news. For long-term investors, WAPCO’s solid performance and growth trajectory make it an appealing option, though care should be taken regarding the risks of short-term market speculation.
