Last Update23 Jul 25
Subject: Merger with UniCem and Atlas Cement
Thesis Summary: Lafarge Africa Plc has demonstrated robust financial performance and strategic agility in Q2 2025, positioning itself as a strong contender in the Nigerian cement industry. With substantial growth in revenue, profitability, and strategic expansion through mergers, Lafarge is set to unlock significant value for investors.
Strengths:
- Outstanding Financial Performance:
- Revenue grew by 70% YoY in Q2 2025 to N268.63bn (Q2 2024: N157.8bn).
- Operating Profit surged by 153% to N120.61bn, indicating improved operational efficiency.
- PAT grew by 248% to N84.03bn, driven by solid execution and minimal FX losses.
- Operational Excellence:
- Margin expansion reflects effective cost management, scale efficiencies, and improved logistics and distribution systems.
- Management’s focus on innovative product offerings and operational strategies continues to enhance resilience and competitiveness.
- Merger Synergies:
- The approved merger with UniCem and Atlas Cement will consolidate Lafarge’s position in the market, enhance distribution capabilities, and streamline operations.
- This vertical integration is expected to lower logistics costs and strengthen supply chain reliability.
- Stable Currency Environment:
- The relative stability of the naira during Q2 supported earnings growth by minimizing foreign exchange losses—previously a major cost driver.
- Sustainability Focus:
- The company’s “Accelerating Green Growth” strategy positions it well for long-term ESG-conscious capital flows and compliance with future regulatory expectations.
Weaknesses / Risks:
- Macroeconomic Headwinds:
- The company remains exposed to inflationary pressures and a still-volatile forex market, which may erode purchasing power and impact construction demand.
- Execution Risk on Merger:
- While the merger is strategically sound, integration challenges may arise, potentially disrupting short-term operations if not efficiently managed.
- Dependence on Building Sector Growth:
- Although the outlook remains positive, any sharp contraction in the building and construction industry could adversely affect revenue and capacity utilization.
Outlook & Valuation:
Given the exceptional growth trajectory, strong operational control, and potential upside from merger synergies and expanding market share, Lafarge Africa is well-positioned to sustain earnings momentum into H2 2025 and beyond.
At current earnings growth rate and improved balance sheet outlook, we expect EPS to significantly improve year-on-year, and the company may be positioned for enhanced dividend capacity in FY 2025.
Lafarge Africa Plc has delivered a strong financial performance for H1 2025, with significant revenue and profit growth driven by higher demand, margin expansion, and cost control. The company demonstrated robust operational efficiency, disciplined capital allocation, and maintained a healthy balance sheet. However, a notable drawdown in cash and potential liquidity pressures from large dividend payouts and working capital changes warrant close monitoring.
Key Strengths
🏗️ Strong Revenue and Profit Growth
- Revenue increased 75% YoY for H1 2025: ₦517 billion vs ₦296 billion in H1 2024.
- Profit After Tax grew more than 4x YoY: ₦133 billion in H1 2025 vs ₦29 billion in H1 2024.
- Gross margin improved to ~57% in Q2 2025 from ~48% in Q2 2024.
💰 Improved Capital Efficiency
- Significant growth in operating profit: ₦192 billion vs ₦79 billion in H1 2024.
- Finance costs reduced from ₦33.3 billion to ₦2.8 billion YoY, reflecting deleveraging or lower borrowing rates.
- EPS up to 824 kobo from 182 kobo in H1 2024, showing strong value creation.
🏦 Strong Equity Base
- Equity rose to ₦554 billion from ₦505 billion at FY 2024.
- Retained earnings increased sharply from ₦316 billion to ₦364 billion, improving book value and buffer for expansion.
🔄 Reduced Leverage
- Debt reduced: total borrowings down from ₦2.2 billion in Dec 2024 to ₦1.7 billion in June 2025.
- Net debt likely improved as cash reserves remain robust despite dividend payout.
Key Weaknesses / Risks
💸 Cash Burn & Working Capital Pressure
- Cash and equivalents declined by ₦28 billion from December 2024 despite high profitability.
- Negative cash movement driven by:
- Dividend payout: ₦83.8 billion
- Capex: ₦28.9 billion
- Working capital outflow: ₦123.6 billion
📉 High Dividend Payouts May Limit Reinvestment
- Dividend payout exceeds net operating cash flows (₦83.8B vs ₦72.7B), potentially constraining internal funding.
- Potential pressure on liquidity if growth or market conditions weaken.
⚙️ Capital-Intensive Industry Risks
- Heavy investment in PPE and cement operations requires sustained volume growth and pricing power.
- Exposure to inflation, FX volatility, and energy cost shocks.
Recommendation
📌 BUY – Strong Operational Turnaround with Medium-Term Upside
Lafarge Africa presents a compelling investment opportunity on the back of:
- Stellar earnings growth
- Leaner balance sheet
- Improved margins and strong ROE
However, investors should be cautious of:
- Cash flow drag from dividends and working capital
- Sectoral risks related to energy and macro volatility
Target investors: Long-term value investors, income-focused portfolios, and dividend growth seekers.
Watchlist Items
- Q3 earnings and cash flow trend
- FX and inflation impact on cost of sales
- Future dividend policy
- Execution of capital investment projects
Conclusion: Lafarge Africa is executing a profitable growth strategy effectively, and the current earnings trajectory suggests potential for sustained shareholder value creation.
Check below for the Q2
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Disclaimer
The user WaneInvestmentHouse has a position in NGSE:WAPCO. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.