Technical Prediction: Lafarge WAPCO Stock May Hit N27

The Nigeria stock market isn’t one that offers quick return like the US market, it’s a unique exchange that requires due diligence, patience and finally entry/exit target. Of all these 3 traits, knowing when to buy and exit a stock seems to be a difficult task.

The simple reason I have stayed in this market for a long time is that I always stick to entry and exit target on stocks I trade irrespective of analyst forecast or recommendations. Well! I am not really a fan of those weekly stock recommendations from brokers; I feel they do it to make money off your buy/sell orders.

Here is the stock I am watching right now:

I ran a scan of stocks that have suffered extreme sell-offs, dipped to the bottom and may be due for recovery going forward, using my technical checklist, Lafarge Wapco popped up as a stock to watch.

Lafarge Wapco started the year on a positive note with its price appreciating by 44% in January 2021, from N21.8 to N31.5. The cement stock has lost this double-digit gain to a sell-off in the last 6 months, and as of today’s market close the Lafarge, Wapco exchanged hands at N21.

As the government strives to reduce the infrastructural deficit in the country by issuing more 10, 20, 30-year FGN/Sukuk bond will help cement makers push through the difficult operating environment.

What caught my attention about this stock is how it’s been rejecting the N20 region several times in the past, A closer look at its price action on the chart below revealed that buying interest seems to emerge at N19 – N20, no wonder the stock always recover faster at this critical level.

A combination of my favourite technical tools shows that sentiments on Lafarge Wapco stock is still positive but looks oversold on short-term but I’d love to see the market price close above the previous week’s high of N21.2 to confirm a bullish reversal or you may wait for a close above the 20-day average of N22.49 but this might be a late entry.

Fundamental Analysis:

It’s not enough to buy a stock because you think it’s oversold, I love it more when there are great numbers behind the company’s operations; it tells me that the management isn’t sleeping but working on growing shareholders’ value.

Here is the recent Q1 result of Lafarge Wapco:

WAPCO published Q1-2021 unaudited financials yesterday. The result showed that Profit After Tax grew 13.3% y/y to NGN9.14 billion while EPS settled at NGN0.57/share (+13.3% y/y).  The double-digit growth in EPS was driven by topline growth (+12.2% y/y), the decline of 16.3% y/y in operating expenses (excluding depreciation) and reduction in finance cost (-18.2% y/y).

Revenue grew by 12.2% y/y in Q1-2021, on the back of improvement in cement sales (+12.3% y/y) and aggregate and concrete sales (+7.9% y/y). Although we are yet to obtain confirmation from management (as of the time of writing), we believe the growth in cement sales was volume-driven given the wide-scale construction activities taking place across the country. Furthermore, based on our last communication with management, the company does not intend to raise prices in 2021.  (Source)

This number didn’t only look good but reflect a continued improvement in its previous year’s outing.

Here is the result of Lafarge FY 2020:

• Revenue rose by +8.25% year-on-year (Y-o-Y) from N212.99bn in 2019 to N230.57bn in 2020.
• Profit before tax grew significantly by +109.99% Y-o-Y from N17.89bn in 2019 to N37.57bn in 2020
• Gross profit up Y-o-Y by +20.17%, from N55.95bn in 2019 to N67.24bn in 2020.
• Cost of sales increased marginally by +4.0% from N157.05bn in 2019 to N163.33bn in 2020
• Finance income dipped significantly in 2020 by -62.77%, from N3.16bn in 2019 to N1.18bn in 2020
• Finance cost down Y-o-Y by -51.87% in 2020, from N20.18bn in 2019 to N9.71bn.
• Selling and distribution expenses dipped by -17.16% Y-o-Y from N5.09bn in 2019 to N4.22bn in 2020.
• Earnings per share up significantly by +98.96% Y-o-Y from 96kobo in 2019 to 191kobo in 2020
• Total debt declined by -22.52% in 2020 from N64.19bn in 2019 to N49.73bn.
• Total assets grew marginally Y-o-Y by +2.02% from N497.15bn in 2019 to N507.21bn in 2020.
• Total equity up marginally by +4.27% from N344.91bn in 2019 to N359.64bn in 2020 (Source)

Sentiment

While Lafarge Wapco stock had underperformed the market index with an 8.7% negative return compared to NSE ASI negative return of 7-8% but I’d rather assign more weight to the moving averages and not price since it’s a better reflection of market sentiments more – the 20-day moving average above its 50-day means that Lafarge Wapco stock is in a short term bull.

If the stock price goes beyond my target price, clears the 20-day moving average, I am anticipating a short-term rally to the upper Bollinger band of N27 – N29, which is 28% above the current market price of N21.

On the downside, if the cement stock closes below N20, I will sell-off.