As the Lusaka Securities Exchange – LuSE listed Lafarge Zambia (ZM:ISIN000000011) stock rallied 28.0% in the week beginning June 21 as traders seek price discovery in the labyrinth of uncertainty following an array of corporate actions. Lafarge has faced a series of hurdles such as a pricing fixing fine by the Zambian competition regulatory authority which it has refuted and commenced a process of appealing while frail economic conditions such as currency weakness coerced the cement giant into hiking prices to cushion rising manufacturing costs. Gypsum bottlenecks following the Chambishi metals business slow down has impacted the input side of the cement producer.
Read also: China’s Huaxin Cement buys off Lafarge Zambia in $150-million deal
Majority share holders Financiere Lafarge SAS and Pan African Cement sold combined stake of 75.0% in the Zambian operation to China’s Huaxin Cement for a $150-million (K3-billion) enterprise value but retains over 41.0% stake at group level in the Chinese cement giant in a move dubbed as ‘de-risking with re-strategization’ as Lafarge exits to allow for Chinese cost efficient processes to help with sustainable contribution management while focusing on a Chinese dominated construction sector in East and Southern Africa. Huaxin’s strategy is evidently one to increase footprint in East and Southern Africa a section of the continent clogged with lucrative infrastructure activity. Lafarge will still enjoy dividends at parent level from the fortunes of the cement industry post the shareholding restructure.
Lafarge stock opened the week at K5.02 a share and saw a seesaw volatility after K1.8 million worth of trades (over 331,000 shares) with 18,000 net buys from offshore players through a foreign portfolio to level up to K6.44 per share on the morning of June 26.
Construction outlook for Zambia remains blurry on the back of most projects tied to government infrastructure that has slowed on the back of debt concerns. However with the infrastructure deficit Africa still faces, the future of the cement industry remains bright for Southern and Central Africa. The export market remains lucrative for Lafarge Zambia as a weak exchange rate improves its Kwacha margins from exports while the domestic market remains bloated with oversupply.
The Kwacha Arbitrageur
