Lafarge Nigeria and Lafarge Kenya (Which one roars louder?)

Dear Africa Interested Individuals:
                                                        This is the beginning of a series where I will be looking at multinationals and how their subsidiaries are performing in different countries within Africa.  I kick of with Lafarge with its multifaceted Nigerian operation and Lafarge Kenya which comprises Kenyan and Ugandan operations.  I picked eight ratios and variables to do my assessment for the purposes of this article.  I utilized the 2014 audited financials of both companies to extract my figures.   

Lafarge Nigeria

Gross Profit Margin (2-yr average): 33%
Fixed Asset Turnover (2-yr average):  97.5% (less than 1X)
Cost of Revenue (2-yr average):  68.6%
5-yr CAGR of Revenue:  47.2%
5-yr CAGR of attributable net income: 60.6%
Pre-tax Income Margin (2-yr average): 25.6%
Inventory Turnover: 5.99X
Cash Flow/Assets (2-yr average):  16.1%  


Lafarge Kenya (Bamburi Cement)

Gross Profit Margin (2-yr average): 25.5%
Fixed Asset Turnover (2-yr average): 140.4% or 1.4X
Cost of Revenue (2-yr average): 75.4%
5-yr CAGR of Revenue: 6.43%
5-yr CAGR of attributable net income:  -8.56%
Pre-tax Income Margin (2-yr average): 16.2%
Inventory Turnover: 4.88X
Cash Flow/Assets (2-yr average): 13.2%

The Lafarge Nigeria (core of Lafarge Africa operations) is doing much better than Lafarge Kenya.  I will point out that the combination of assets and expansion helped boost sales and profit growth for Lafarge Nigeria way ahead of Lafarge Kenya.  Lafarge Kenya is much smaller in terms of cement production capacity and is finding it costlier to generate revenue than its Nigerian counterpart.  Power costs played a significant part in this for 2014.  Expectedly, with higher operating costs, Lafarge Nigeria generated a pre-tax income margin 940 basis points higher than Lafarge Kenya over the the period FY 2013 - 2014.  
Lafarge Kenya is making better use of its productive capacity than Lafarge Nigeria by more than 40%.  Actually, Lafarge Nigeria had idle capacity over the past two fiscal years; despite this, Lafarge Nigeria still generated more cash flow from its operations relative to Lafarge Kenya.  It is clear to me that Lafarge Nigeria sells its cement costlier in Nigeria than in East Africa and this covers (in excess) the higher operational costs (dollar for dollar) experienced in Nigeria.  Lafarge Nigeria turned over its production inventory 6x in 2014 while Lafarge Kenya could not make 5X.  Lafarge Kenya is due for an expansion of its productive capacity to generate better economies of scale among other reasons.  This in my opinion will lower its average production costs.  

Despite all what I have written above, Lafarge Kenya (Bamburi) is trading at 15.7X its FY 2014 earnings as at today, July 24th, 2015.  Lafarge Nigeria is trading at 13.4X its FY 2014 earnings as at same day.  The Nigerian market is clearly not held in as high an esteem as the Kenyan market courtesy of some do's that should not have been done and some didn'ts that should have been done.  Lafarge Kenya struggles in comparison to its Nigerian counterpart and its investors still get a better deal while Nigerian market investors struggle to get a better return.  A tale of two cities I say.

                    Tell others to tell others about this blog; have a nice weekend   
 
 

Comments

Post a Comment

Popular posts from this blog

Unemployment rate in Nigeria: Playing with figures

Dear Africa interested individuals:                                                         There are three major macroeconomic indicators globally: GDP/GDP growth, inflation (CPI) and unemployment rate.  Whenever a country's number is called, these are typically the first three indicators that are looked at before other indicators like balance of payments etc.  Nigeria's unemployment rate computation methodology was recently revised.  Before now, anybody employed must work for at least forty (40) hours before they are considered employed.  Any individual who works less than forty (40) hours is deemed to be unemployed as the natural assumption is that an individual's inability to work a forty h...
Read more

The clamor for continued devaluation of African currencies reeks more and more of selfish interests

Dear Africa Interested Individuals:                                                         The clamor continues for commodities export dependent (especially oil) economies to further devalue their currencies.  I keep asking myself "when is enough finally enough?"  The clamor is largely driven by global economists across the spectrum loyal to economic theory and the countries they are domiciled in, portfolio managers and large commercial banks in the countries of focus with net positive (more dollar inflows expected than dollar outflows) dollar exposures.   What does devaluation do to the people in the countries that have devalued their currencies multiple times (or one devaluation of 20% or mor...
Read more

How to suppress dollar demand in Nigeria: A quick introspection

Dear Africa interested individuals:                                                              Dollar demand continues to rise in Nigeria where Naira is the official currency.  How can Nigeria suppress the demand for dollar and quickly?  It should be clear by now to all that the Naira has limited use because most of the things Nigerians desire must be manufactured outside Nigeria for the product to be considered real and worthy of purchase by consumers in Africa's most populated country. This widely held purchasing character of the Nigerian consumer, has led to a continuous and ever increasing demand for the dollar by manufacturers, to purchase raw materials and finished goods for an ever increasing population.  This leads me into the probable solutions necessary to reduce dollar demand by Nigerians. 1....
Read more