Lafarge Africa could put up its South African unit for sale, according to analysts at Exotix Capital. Proceeds of the sale could then be used to strategically shore up and stabilise the company’s Nigerian business, kickstarting the region’s merger and acquisition activity.
The South African cement sector has become increasingly competitive while in the rest of Africa, PPC, Lafarge, Dangote, Bamburi and Twiga Cement are seen consolidating their markets. In addition, Chinese investors have entered markets such as Zimbabwe, where Lafarge and PPC are currently competing.
Exotix Capital analysts say there is a "lack of sufficient visibility on the South African business" by Lafarge Africa and "continues to struggle amid a tougher operating environment and internal operating challenges". To help meet the challenges, Lafarge Africa appointed Rossen Papazov as new country manager for South Africa. The cement producer expects that his experience "will be invaluable in guiding the company to address the challenges it faces in the highly competitive industry".
"Our view is that Lafarge Africa could channel proceeds from any potential sale of Lafarge South Africa Holdings towards stabilising and de-risking the Nigeria business, particularly as Lafarge South Africa faces headwinds from a weak operating environment and intensifying competitive pressures," Exotix Capital said in a research note.
However, Lafarge has not announced the sale of its South African unit yet. Moreover, it recently put in an offer to buy PPC but later withdrew the bid. In the 1Q17 Lafarge Africa said its operations in South Africa "were affected by lower volumes in the cement division" and the company would "focus on cost optimisation" in a bid to "restore" profitability.
