Africa Cement Securities Zambia

Lafarge Zambia forecasts 392% lower earnings per share at half year

Cement manufacturer Lafarge Zambia Plc announced its anticipation of a lower EPS when it publishes its six-month financial performance at the end of September 2019, according to a statement from the company.

In accordance with Section 3.4(b) of the Lusaka Securities Exchange Listings Requirements, the Board of Directors of Lafarge Zambia PLC hereby advises the Shareholders of the Company that the Earnings Per Share (“EPS”) for the six-month period ended 30th June 2019 is expected to be approximately 392% lower than for the six-month period ended 30th June 2018”, read the statement issued by Lafarge’s Company Secretary, Harriet Kapekele-Katongo on Thursday 12 September 2019 published on SENS.

The company has no doubt been a victim of an extremely harsh macro environment that has experienced accelerating inflation (above 8%), depreciating currency (above 20%) and fierce competition (3+ competitors, oligopoly). “2019 performance is impacted by market contraction, devaluation of the kwacha and fuel increases”, the issued statement further read.

CEO Jimmy Khan and his management team were expectant of a resurgence in the export market with Congo as a target destination for their product. The wheels of opportunity in the market may be turning slowly and hence impacting on this strategic option for the company.

With accelerating inflation comes the increased cost of sales. The company believes “the movement in EPS is primarily attributed to a reduction in margins in 2019 over 2018 attributed to stagnant revenue amidst increase in costs of production”.

The Lafarge security on LuSE currently trades at K1.97 (a price that has been flat during the last six months) per share at the time of writing this article. The highest offer price for the share was K4.88 for the 5.32 PE ratio stock. This explains why the security remains attractive, for now with stakeholders and prospective shareholders.

Financial Insight believes that deployed strategy of economies of scale (availability of product) and scope (multiple product offering) is most like to remain on course. According to Jimmy Khan in his letter to shareholders in the 2018 annual report, “We have also continued to develop products and services to supply all major infrastructure projects in Zambia, while accelerating the roll-out of the Binastore franchise network which aims to provide the home builders with a one-stop building materials store. Our current Binastore footprint stands at 54 stores nationwide.

Source: Financial Insight

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