East and West Africa Cement Companies Report November 2011

East and West Africa Cement Companies Report
Economies of scale driving performance…
November 2011
Analyst
Farai Vengesai
+263 774 712 323
farai.vengesai@imara.co
www.imara.co

Table of Contents
Executive Summary .................................................................................................... 3
Valuations and recommendations ................................................................................... 4
Valuation and profitability ratios .................................................................................... 5
Evolving dynamics in SSA cement industry ......................................................................... 6
Consumption and SSA economic outlook ........................................................................... 6
Demand side dynamics ................................................................................................ 7
Installed capacity additions .......................................................................................... 7
Supply Side Dynamics ................................................................................................. 8
Supply and consumption ............................................................................................. 10
Company Reports ..................................................................................................... 11
Ashaka Cement ..................................................................................................... 11
Cement Company of Northern Nigeria .......................................................................... 14
Dangote Cement ................................................................................................... 17
Lafarge WAPCO ..................................................................................................... 20
Athi River Mining ................................................................................................... 23
Bamburi Cement ................................................................................................... 26
East Africa Portland Cement Company ......................................................................... 29
Tanga Cement ...................................................................................................... 32
Twiga Cement ...................................................................................................... 35
Ac ronyms
ARM Athi River Mining EAPCC East African Portland Cement Company NGN Nigerian Naira
CCNN Cement Company of Northern Nigeria ECOWAS Economic Community Of West African States NSE Nairobi Stock Exchange
CDEAL Cement Distributors (EA) LTD IAS Imara Africa Securities SSA Sub Sahara Africa
CIMERWA Ciments Du Rwanda IMF International Monetary Fund TANESCO Tanzania Electricity Supply Company
DCP Dangote Cement PLC KES Kenyan Shillings TZS Tanzania Shilling
DSEI Dar es Salaam all shares index LPFO Low pour fuel oil USD United Stares Dollars
EAC East African Community MTPA Million tomes per annum
2

Executive Summary
In early 2011, we initiated coverage of SSA cement companies and expressed our opinion that they
were generally value purchases. We covered the capacity expansion boom and stated our belief that
cement companies in East and West Africa seemed better poised to benefit than their peers in SSA.
This report focuses on East and West Africa, discussing, mainly, developments in capacity expansion
programs and consumption dynamics for the two regions. Further, we assess individual companies,
discussing their potential to thrive in the rapidly evolving SSA cement industry.
� In East Africa, cement consumption has been growing at an average of 13.5% over the most recent
five years. West Africa on the other hand averaged 12.5% growth over the same period.
Government infrastructure expenditure coupled with private residential construction underpinned
demand and we expect the trend to be maintained as governments move to address infrastructure
deficits.
� Major risks to demand growth are the growing possibility of a slowdown in the global economy, and
the drag from inflation and currency depreciation in both East and West Africa. We however expect
growth to remain resilient in SSA.
� We estimate that East Africa consumption is likely to grow by 70% to c24.7mtpa by 2015 and West
Africa to increase by 60% to 31.7mt over the same period. Capacity, on the other hand, is
estimated to increase from 12.9mtpa to 20mtpa for East Africa and from 13.7mtpa to 43.95mtps
for West Africa.
� Being a deficit region in terms of cement production, SSA has been plugging the shortfall with
imports. West Africa had the biggest appetite with net imports of c6mt for 2010 compared to 4.3mt
for East Africa. Imports accounted for c43% of West Africa’s total consumption and c10% for East
Africa.
� Once all the capacity additions are on line, we expect East Africa to remain in deficit with
consumption projected at 24.7mtpa against capacity of 20mtpa. West Africa is expected to go into
surplus as we project consumption to reach 31.7mtpa against production capacity of 44.0mtpa.
� Cement companies have generally registered improved profitability on enhanced efficiency and
volume growth. Substitution of LPFO as the primary energy source and the coming on line of newer
plants are the major drivers of efficiencies augmented by economies of scale due to higher
volumes.
� We upgraded our recommendations on one of the covered stocks (Ashaka Cement (Ashaka) -sell to
buy), maintained our call on five counters (East Africa Portland Cement Company (EAPCC)-sell,
Cement Company of Northern Nigeria (CCNN) –speculative buy, Bamburi Cement (Bamburi)-Buy,
Tanzania Portland Cement Company (Twiga)- buy and Tanga Cement Company (Tanga)- buy)) and
downgraded two counters (Athi River Mining (ARM)-Hold to sell and Lafarge WAPCO (WAPCO) from
buy to hold). Additionally, we initiate rating on DCP, to which we attach an accumulate
recommendation.
3

Valuations and recommendations
Counter
Target
Pric e
Target Pric e
(USD)
Upside/
ASHAKA 18.28 0.12 21.8%
CCNN 12.09 0.08 141.8%
(downside) Rec ommendation Comment
upgrade from SELL to
BUY
maintain
SPECULATIVE BUY
DCP 89.65 0.58 -13.0% ACCUMULATE
WAPCO 41.51 0.27 6.4%
ARM 137.33 1.43 -19.0%
downgrade from buy
to HOLD
Downgrade from Hold
to sell
BAMBURI 194.18 2.02 14.6% maintain BUY
EAPCC 62.13 0.65 13.0% maintain SELL
TANGA 4,976.41 3.01 109.1% maintain BUY
TWIGA 3,489.45 2.11 67.8% maintain BUY
4
Changeover to coal positive. Our upgrade
based on improving free cash flow generation
owing largely to enhanced operational
efficiency.
Expansion and energy substitution programs are
clearer now while low valuations provide room
for the counter to recoup losses.
Valuations still look dearer compared to peers,
cash flow generation though remains very
strong and driving expansion. There is still room
for downside, but we advise accumulating
shares, owing to operating efficiency (EBITDA
margins) that surprised us to the upside.
Looks fully valued, but with a lot of potential to
benefit from the completed expansion. We note
also the strategic conversion of the loan from
floating to fixed interest rate, which is positive.
The recent spike in the share price created
room for downside in a weak market, while
exposure to exchange rate risk brings volatility
to earnings. Taking profits makes sense, though
underlying profitabily remains strong.
Expansion initiatives complete, free cash flow
generation strong and still remains the market
leader in Kenya.
Looks cheap relative to peers, but a crippling
debt, low free float and state ownership to
remain the major bear factors.
Efficiency suffering from energy supply
constrains, but valuations remain relatively
cheaper. Regulatory constrains however bar
significant foreign participation in the counter.
Clinkering capacity gives an edge over
Tanzanian peers, but, regulatory constrains also
bar significant foreign participation in the
counter.

Valuation and profitability ratios
EV/Tonne
times
pertcent
600.0
500.0
400.0
300.0
200.0
100.0
0.3
0.3
0.2
0.2
0.1
0.1
-
-
ROaA (2011F)
7.0
6.0
5.0
4.0
ARM
EAPCC
WAPCO
RoAA Average
times Price to book value (2011F)
mtpa
3.0
2.0
1.0
-
EAPCC
CCNN
Tanga
PBV Aeverage*
30
25
20
15
10
CCNN
5
-
EAPCC
Tanga
36
Central
Africa
Twiga
EV/tonne Global Ave.
50
Europe
ASHAKA
ASHAKA
Bamburi
Twiga
CCNN
Tanga
DCP
5
Twiga
Source: Company reports, IAS
WAPCO
Bamburi
2010 Consumption Volumes and Per Capita
WAPCO
91
Bamburi
149
East Africa West
Africa
ARM
DCP
Source: Company reports, IAS
South
Africa
160
140
120
100
80
60
40
20
-
Consumption Volume (Mt)-LHS Per Capita (KG)-RHS
Source: IAS, cemnet, cemfocus
Ashaka
Asia Pacific
Latin America
Africa & Middle
East
ARM
DCP
Source: Company reports, IAS
Kgs
times
percent
EV/EBIDTA (2011F)
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
-
RoAE(2011F)
0.6
0.5
0.4
0.3
0.2
0.1
-
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
CCNN
Tanga
Twiga
EV/EBIDTA Average
EAPCC
ARM
WAPCO
RoAE Average
times Price to book value (2011F)
EAPCC
CCNN
Tanga
PBV Aeverage*
ASHAKA
ASHAKA
ASHAKA
Bamburi
Bamburi
Twiga
WAPCO
EAPCC
DCP
ARM
Source: Company reports, IAS
Tanga
Twiga
CCNN
DCP
Source: Company reports, IAS
WAPCO
Bamburi
ARM
DCP
Source: Company reports, IAS

Evolving dynamics in SSA cement industry
When we initiated coverage of SSA’s cement sector, we stated our belief that SSA cement companies
were broadly value purchases save for EAPCC, which we believed then to be relatively poorly run and
DCP whose premium market rating and highly ambitious pan- African project prompted us to place it on
a watch list. Focus then was on;
� Rising consumption levels, growing at a faster pace than GDP growth of SSA economies;
� Aggressive cement capacity additions,
� Efficiency enhancement moves, largely via substitution of LPFO with cheaper alternatives (coal and
gas);
� The challenges faced by the industry in East Africa on the back of cheaper imports from the Middle
East and Asia, and;
� The slowdown in the construction sector in Southern Africa.
In this report, we update our recommendations on East and West African cement companies especially
as some new capacity additions go into production and headwinds re-emerge in the global economic
outlook. Significant game changers in the focus regions include:
� The coming on line of additional production capacity which will take the West African region from
deficit to surplus and significantly improve production capacity in East Africa;
� Enhanced efficiencies which have allowed margin growth, in some cases on the back of falling
capacity utilisation and pressure on factory gate prices;
� The emergence of inflationary pressures and depreciating currencies in both East and West Africa
and varied policy responses that have implications on physical infrastructure funding, and;
� The increasing risk of a global slowdown driven, in the main, by debt challenges in the developed
world.
Consumption and SSA economic outlook
Cement consumption is inextricably linked to GDP growth and the high economic growth being
experienced in SSA implies a robust cement consumption outlook in the region. As of the year 2010,
SSA was consuming c60.9mtpa at an annual rate of 78kg per capita (SSA population estimated at
0.8bn). Over the most recent five years, consumption has, on average, grown at a multiple of 1.6x to
GDP growth. East Africa registered the most aggressive growth, averaging 13.5%, which was at a
multiple of 1.8x to GDP, West Africa was second with 12.5% and a GDP multiplier rate of 1.6x, while
Southern Africa lagged at a five year average growth rate of 0.2%, weighed down by declines registered
between 2008 and 2010. A slowdown in growth will therefore have a direct bearing on consumption
growth outturn.
According to the IMF, SSA is expected to average 5.4% GDP growth to 2015. However, the rising
probability of a global slowdown driven by debt challenges in the developed world, places this growth
forecast at the risk of a downward revision. While 2008 has demonstrated that SSA economies can track
the developed world lower, we believe growth is likely to remain resilient and that at worst, SSA would
have a steep bounce from any slowdown. Factors that are likely to cushion SSA include;
� Strengthened ties with high growth regions in the East (Asia and India) that are expected to provide
a buffer as demand for mineral and agricultural exports in particular may remain robust. This is
particularly true for East Africa where linkages are even stronger due to relative proximity.
� Strong domestic demand in SSA, which is growing at a very fast pace underpinned by rapid
urbanisation, as well as a youthful and increasingly productive population.
� Lastly, most high growth African markets are on a solid macroeconomic footing compared to the
developed world and as such they still have flexibility to implement countercyclical policies should
the need arise. This will ensure a steep recovery if a decline occurs.
6

Our opinion is therefore that a slowdown in the developed market is unlikely to have disastrous effects
on growth in cement consumption. We expect the growth in consumption to remain closer to the
aforementioned five year historic averages. However, like every other listed company in frontier
markets, company valuations of cement companies are likely to come under pressure as investors
generally shun risky assets. Valuations may therefore weaken, but profitability is likely to remain
robust.
Demand side dynamics
Assuming that the relationship between GDP
growth and demand for cement in SSA stays solid,
we forecast that consumption in the region will
rise from 60.9mt in 2010 to 102.6mt in 2015, the
year by which published timelines on most planned
capacity expansions in SSA would have lapsed. This
translates to an average annual growth rate of
8.7% over the next four years.
East Africa
As of 2010, East Africa consumed 13.1mt, with
consumption growing at an average rate of 13.5%
per annum. Per capita consumption stood at 50kg,
which is lower than the SSA average of 78kg and
way lower than 262kg global per capita
consumption. Assuming that growth is maintained
at c13.5% per annum to 2015, consumption for
East Africa will grow by about 70.0% over the next
four years to c24.7mtpa.
West Africa
West Africa consumption stood at c17.6mt in 2010 and growth averaged 12.5% per annum over the most
recent five years with per capita consumption of 91kg. Assuming growth remains closer to 12.5%, by
2015, consumption should have reached c31.7mt per year, which is 60.18% growth over four years.
Installed capacity additions
The bright outlook for cement consumption, and
hence demand, has been a key attraction for
companies improving their production capacity in
East and West Africa. However, as shown in the
map below, the supply side shortages and
lucrative retail prices played a significant part as
well.
� Firstly, SSA, as of 2010, was the only region in
deficit, requiring 5mtpa in imports to meet
consumption. This assumed 100% capacity
utilisation which is not practical more so for
SSA plants that face significant headwinds in
the form of power outages and in some cases
throughput supply bottlenecks. As such the
5mtpa deficit is the base case.
7
percentage
SSA Cement consumption , GDP growth and Consumption growth
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
60.9
66.9
73.4
81.8
91.6
102.6
2010 2011F 2012F 2013F 2014F 2015F
Consumption (mta)-RHS
Consumption growth (%)-LHS
GDP growth (%)-LHS
80.0
60.0
40.0
20.0
Year
-
120.0
100.0
Source: IAS, IMF (Economic Outlook, Sept. 2011), Cemfocus
Million Tonnes

� Secondly, cement prices in SSA, then ranging between USD 100 - USD 300 per tonne were clearly
the highest the world over. While production costs are also relatively high, improvements in
efficiencies will guarantee wider margins and as such cement manufacturers have been making
huge capital investments to install newer and more efficient plants capable of unlocking cost
savings and economies of scale benefits.
Cement imports in SSA
The cement supply shortfall in SSA was met by imports
from surplus regions and a total of c22mt is estimated to
have been imported in 2010. West Africa had the biggest
appetite, with net imports of c6mt for 2010 compared to
c4.8mt and 4.3mt for Southern and East Africa,
respectively. Imports accounted for c43% of West
Africa’s total consumption, 10% for East Africa and 2% for
Southern Africa.
Being the biggest importer, and hence the biggest deficit
region, West Africa is targeting the largest capacity
addition compared to the rest of SSA. East Africa comes
second, way ahead of Southern Africa which has
comparatively the same import demand owing to the
relatively lower cement manufacturing base.
Capacity addition in SSA
Cement manufacturers in SSA are planning to increase
capacity from c43mtpa as of 2010 to 75mtpa in 2015,
firstly, to fill the gap being satisfied by imports and
secondly, to profit from the anticipated fast growing
cement consumption. Once all the planned capacity is on
line, West Africa will sit on 34.7mtpa, East Africa will
have 20.0mtpa while Southern Africa will have 20.8mtpa.
Supply Side Dynamics
East Africa
Prior to July 2008, the EAC classified cement as a strategic commodity and as such levied 55% duty on
imports in a bid to protect local industries. When the region was faced with shortages owing to
prolonged plant breakdowns, the duty barrier was removed. A commitment was however made to
progressively increase the duty up to 35% once the supply bottlenecks were resolved. The EAC has since
climbed down on that commitment and reduced the cap to 25% making imports more competitive in
relation to locally produced cement.
Cement imports into East Africa came largely from Asia and the Middle East. While productions costs
are relatively lower, owing particularly to low energy costs, subsidies in exporting countries like
Pakistan brought unfair competition to local producers. However, newer cement plants in East Africa
are availing efficiencies that allow local producers to compete with the Asian exporters.
East Africa’s grinding capacity is expected to grow significantly, while clinker capacity remains
significantly lower, as such clinker imports are likely to remain high. As of 2015, grinding capacity is
forecast to reach 20mtpa while clinker capacity will only be 8.2mtpa.
8
million tonne s per ayer
Cement Imports and exports in SSA (2010 estimates)
10.0
8.0
6.0
4.0
2.0
-
(2.0)
(4.0)
Central Africa East Africa West Africa South Africa
Imports (Mt) Exports (Mt)
Capacity additions in SSA
90
80
70
60
50
40
30
20
10
0
12.9
16.7
13.7
12.9
15.9
16.85 17
15.9
18.07
28.6 28.95 31.45
Source: IAS/Cemfocus
18.5
19.24
20
20.81
43.95 43.95
2010 2011 2012 2013 2014 2015
West Africa Southern Africa
Source: IAS, Cemfocus , Cemnet

Capacity addition
The biggest producer in East Africa, Bamburi
Cement, will not be adding on its current capacity
following the expansion at Hima in Uganda. ARM,
however, plans to increase its capacity by more
than double to 2.5mtpa. It is worth noting that ARM
has taken the fight right to the importers with its
plant in Dar-es-Salam, a city whose coastal location
makes it an easy target for imports. The entrance of
DCP with a 1.5mtpa plant is also noteworthy. DCP’s
new plants in Nigeria are very efficient, achieving
EBITDA margins that are north of 60%. We expect
this to provide significant competition, especially to
Kenyan producers that average half of DCP’s EBITDA
margins.
West Africa –Nigeria
In 2009, the Nigerian government announced
incentives to promote local production of cement,
the major ones being firstly, the two to three year
duty free period for the importation of machinery,
equipment and spare parts to cover the initial
stages of setting-up cement production businesses.
Secondly, tariff incentives for imported spare parts
and machinery for cement production was
reinstated and thirdly, the time it took to obtain
exploratory and mining licences from the relevant
government agencies was reduced significantly.
Additionally, cement production was granted
pioneer tax status which has lucrative exemptions.
Further to that duty on imported cement has since
been hiked to 35% which paves the way for local
manufacturers to exploit the massive Nigerian
market.
Capacity additions
West Africa has the highest proportion and quantum of imports and has, accordingly, the biggest
capacity additions across the SSA region. DCP’s pan-African ambitions are rooted in Nigeria where its
capacity is expected to more than double to 20mtpa by the third quarter of 2012 with further additions
expected by 2015 to bring total capacity to 29mtpa. Rising local supply is expected to awaken latent
demand as availability improves, as well as put pressure on factory gate prices. As prices decline,
consumption growth is likely to also quicken and absorb output, but Nigeria is still expected to be in
surplus. DCP plans to transform its import terminals into export terminals by 2013 and export excess
capacity to its ECOWAS peers that have supply deficits. A total of five import terminals will be
constructed on the west coast between Nigeria and Senegal to accommodate the exports. These
countries have no known significant deposits of limestone.
9
mtpa
East africa: 2010 and 2015 production capacity
Millin Metric Tonnes per ayear
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
ARM
Bamburi
2010 2015
35
30
25
20
15
10
5
0
Dangote
EAPCC
Wapco
Mombasa
Devki Cement
Cemtech
Twiga
Dangote
Banco
Lee Building
Tororo
Source: IAS/ Cemnet
* Other inclide Rwanda and Burundi
Nigeria: 2010 and 2015 production capacity
2010 2015
Ashakacem
CCNN
Unicem
ECC
Other
Source: IAS/ Cemnet

Supply and consumption
East Africa
East Africa cement plants currently average utilisation rates of 66.0%. Assuming that the rate holds for
the next four years, the region is expected to still remain in deficit. Imports are thus still expected to
cover up for the shortfall.
East Africa - Supply and Demand to 2015
Consumption 13.1
Capacity 12.9
Projected output 8.5
West Africa
2010 2011F 2012F 2013F 2014F 2015F
14.9
12.9
8.5
* Assuming capacity utilisation remain at 66%
Capacity wise, Nigeria goes into oversupply in 2012, and the same holds should factories maintain plant
utilisation rates at 84%. The country will have to become a net exporter of cement to maintain high
levels of capacity utilisation. We however believe that the projected 31.7t in 2015 is the base case as
improvements in supply may alter consumption patterns. Firstly, availability will awaken latent
demand especially when it is accompanied by wide distribution as is the case with Nigeria. Secondly,
rising supply normally lead to the softening prices to accommodate excess supply and hence
consumption may grow quicker than our projections before 2015.
West Africa - Supply and Demand to 2015
Consumption 17.6
Capacity 13.7
Projected output 11.5
10
16.9
15.9
10.5
19.2
15.9
10.5
21.7
18.5
12.2
2010 2011F 2012F 2013F 2014F 2015F
19.8
28.6
24.0
* Assuming capacity utilisation remain at 84%
22.3
29.0
24.3
25.1
31.5
26.4
28.2
44.0
36.9
31.7
44.0
36.9
24.7
20.0
13.2

Millions
Company Reports
Ashaka Cement
Improving efficiency to drive performance...
Ashaka Cement’s major selling points are firstly, the
efficiency improvements owing to its migration from LPFO to
coal, with management targeting a 90:10 mix in favour of coal
by FY 2011. Secondly the company’s isolated location in North
East Nigeria which enables it to dominate this niche market
with transport logistics being the major barrier to entry for
the more formidable competitors and, thirdly, the possibilities
of exploiting its vast coal deposits for extra revenue streams
should production capacity be increased.
� The company is migrating to coal from the more expensive
LPFO as the primary source of production energy at its
plant. The coal is sourced from its own coal mine some
10km away in Maigana LGA in Gombe State. The migration
to coal will achieve 60% - 70% savings in energy cost.
� The company expects to bring on line an additional
0.35mtpa cement capacity in the first quarter of 2012.
This will, however, not allow Ashaka to maintain its share
of installed capacity as it will fall from 7% to 4% by 2015.
The addition will however strengthen its grip on its niche
market as efficiency brings in pricing flexibility.
� Ashaka pioneered coal use in cement production in
Nigeria, despite it being widely preferred elsewhere in
the world and interest for coal use has since increased.
This is a potential market for the company and possible
new income stream should Ashaka increase coal capacity.
� Using a combination of DCF and relative valuation
methods we arrive at a target price of NGN 18.28, which
is 21.8% higher than the current price and hence we
reiterate our BUY call on Ashaka.
Ashaka Cement: prive vs volume
200
180
160
140
120
100
80
60
40
20
0
Jan,08 Sep,08 May,09 Jan,10 Sep,10 May,11
Volume- RHS Price (NGN)-RHS
11
45
40
35
30
25
20
15
10
5
0
STRENGTHS WEAKNESSES
EQUITY RESEARCH
NIGERIA
28 November 2011
Located in a secluded area and has the Use more expensive LPFO
CEMENT
opportunity to monopolise market Slow in implementing expansion and
Member of the lafarge group, the world's energy substitution
biggest cement producer Small plant size that will find it difficult to
OPPORTUNITIES THREATS
compete on economies of scale
Capital raising exercise to provide DCP setting up deports in the North
opportunity to for plant renewal Fuel price increases
Energy substitution to improve operating Relatively old plant
efficiency
BLOOMBERG: ASHAKACE:NL BUY
Current price (NGN) 15.01
Current price (USD ) 0.10
Target price (NGN) 18.28
Upside/Downside 21.8%
12 month High/Low (NGN) 30.10; 13.39
Liquidity
Market Cap (NGN m) 33,614.2
Market Cap (USD m) 216.0
Shares (m) 2,239.5
Free Float (%) 55.4%
Share Price Performance
6 months (%) -33.7%
Relative change (%)* -20.1%
12 months -33.3%
Relative change (%)* -19.4%
* Relative to All Share Inex
Financials (NGN m) 31 Dec 2010 2011F 2012F
Revenue 19,153.0
EBITDA 4,788.3
Attributable profit 3,004.0
EPS (NGN) 1.3
DPS (NGN) 0.3
NAV/Share (NGN) 7.2
Ratios
22,026.0
6,607.8
3,525.9
1.6
0.4
25,329.8
7,852.3
4,072.3
RoAE 20.5% 20.4% 20.7%
RoAA 11.2% 12.1% 13.1%
EBIDTA Margin (%) 25.0% 30.0% 31.0%
Valuation Ratios
PBV (x) 2.1
PER (x) 11.2
EV/EBITDA 6.4
EV/Tonne (USD) 230.0
8.2
1.8
9.5
4.5
182.3
1.8
0.4
9.4
1.6
8.3
3.8
180.3

Nature of business
Ashaka, like WAPCO, is a member of the Lafarge group and has
one of the smallest plants in Nigeria with 0.85mtpa in installed
capacity. The company plans a 0.35mtpa expansion which will
bring its capacity to 1.2mtpa. However, this will not be enough
for the company to maintain its 7% installed capacity market
share as it will only account for 4% once all the planned capacity
additions in Nigeria are complete. Ashaka has 0.30mtpa in
installed coal production capacity on its 4.5m tonnes proven
reserve (25 years in cement production requirements). With
coal increasing in popularity as a cheaper source of energy
compared to LPFO, there is a strong case for the company to up
production and earn additional revenues from its coal mining.
9M to September 2011 financials review
� The company made up for its lacklustre performance in H1
2011 by growing the topline 54.5% q-o-q in Q3. H1 2011 had
ended flat with revenue edging up by a marginal 1.4% y-o-y.
� Ashaka managed to transfer the price hike in LPFO to its
customers via a 3% cement price increase. This, coupled with
cement volumes growth propelled revenues 14.7% y-o-y.
� Likewise, PBT grew 52.4% q-o-q with PBT margins declining
marginally from 22.6% to 22.3%. Y-o-y growth on the other
hand was 29% which looks impressive, but when a plant
shutdown in Q3 2010 is included, the growth was certainly
buoyed by the low base set in Q3 2010.
� Energy cost savings saw efficiency improve as EBITDA margins
which stood at 11% in 2009 strengthened to 25% in 2010 and
our expectations are that the ratio will reach 30% in 2012 and
stay above that going forward.
� Q3 2011 rolling EPS worked out to NGN 1.6, translating to an
undemanding rolling PER of 9.5x. Our 2011 forward PER of 9.5x
is at a discount to the peer average of 10.8x, pointing to
existence of headroom for share price appreciation.
Valuation and Recommendation
We upgrade Ashaka’s rating from sell to buy, noting the efficiency
improvements on the back of the migration to coal and opportunity
for further improvement as extra coal capacity comes on line. We
value the stock at NGN 18.42 which is 22.7% higher than the
current price. Failure by management to reach the targeted 90:10
energy mix in favour of coal by the start of 2012 financial year is
the biggest risk to our valuation.
EV/tonne of USD 182 is at a slight discount to the peer average of
USD 185, while EV/EBIDTA at 4.5x is lower than the peer average
of 7.0x. Additionally, Ashaka, shed a third of its value over the
past year and with the stock trading 20% lower relative to the NSE
All-Share Index, we believe that there is some headroom for a
recovery once the market turns and hence our call for investors to
BUY the stock.
12
Top shareholders %
Lafarge Cement (UK) 44.44%
Lafarge (Nigeria) 0.15%
Alh. Umaru Kwairanka 0.03%
Engr. M .M . Daggash 0.02%
Bri. E.E. Ikwue (Rtd) 0.02%
Alh. Muhammed M uhammed 0.02%
Other 55.3%
USD
EV/EBIDTA
600
500
400
300
200
100
-
CCNN
Ashaka
WAPCO
EV/tonne Nigeria Ave.
100.0%
9 Months to Septemebr 2011 financials (NGN bn)
9M 10 9M 11 % ch
Turnover 13.8 15.8 14.7%
PBT 2.7 3.5 28.9%
PAT 1.9 2.5 28.8%
Shareholders' fund 16.2 19.0 17.6%
Total Assets 63.3 32.6 -48.6%
TTM EPS 1.6
NAV/Share 7.2
Ratios
8.5
PBT margins 19.8% 22.3% 12.4%
PAT margins 13.9% 15.6% 12.3%
RoE 15.8% 17.3% 9.5%
RoA 4.0% 10.1% 150.5%
TTM PER 9.46
PBV 1.77
DCP
Source: Company reports, IAS

Notes
Ashaka Cement- 4 Year CGR and Forecasts
Year-end: December 2007 2008 2009 2010 2011F 2012F CAGR
Revenue 16,473.0
EBITDA 2,678.0
EBIT 2,319.0
PBT 2,515.0
PAT 1,604.0
EPS 0.72
DPS 0.4
Current assets 9,526.0
Cash 2,137.0
Non current assets 12,731.0
Total assets 22,257.0
Current liabilities 9,971.0
Non-current liabilities 1,563.0
Long-term loan -
Shareholders equity 10,725.0
Shares in issue 2,240
21,376.0
3,763.0
3,361.0
3,429.0
2,068.0
0.92
0.3
8,439.0
1,636.0
16,596.0
25,035.0
10,117.0
2,124.0
-
12,795.0
2,240
17,194.0
2,050.0
1,790.0
2,366.0
944.0
0.42
-
6,552.0
850.0
19,066.0
25,617.0
9,648.0
2,829.0
-
13,141.0
2,240
Capacity 0.85
13
19,153 22,026 25,330 5.2%
4,788 6,608 7,852 21.4%
4,405 5,176 5,902 23.8%
4,398 5,110 5,902 20.5%
3,004 3,526 4,072 23.3%
1.34
0.30
6,231.2
3,191.0
1.57
0.35
1.82
0.41
7,477 8,973
3,822 4,160
18,701 18,702 19,256
28,123 30,002 32,389
1,784.0
9,470 9,280
10,192 2,124 2,124
-
-
-
23.0%
-9.9%
16,147 18,408 20,985 2.5%
2,240
0.85
2,240
1.05
2,240
EBITDA margin (%) 16.3% 17.6% 11.9% 25.0% 30.0% 31.0%
Operating margin (%) 14.1% 15.7% 10.4% 23.0% 23.5% 23.3%
RoAA (%) 7.9% 8.7% 3.7% 11.2% 12.1% 13.1%
RoAE (%) 14.4% 17.6% 7.3% 20.5% 20.4% 20.7%
Enterprise Value 30,423.2 29,791.9 29,454.2
EV/EBITDA 6.4 4.5 3.8
EV/Tonne (USD) 230.0 182.3 180.3
1.05

Cement Company of
Expansion prospects brighten…
CCNN is the smallest among Nigerian cement manufacturers
and we believe it has the highest upside potential among its
peers. The key driver to this lies in its market valuation. The
company shed 64% of its value over the past year as its
expansion and LPFO substitution plans were largely unclear.
However, with the program to raise funds and implement the
expansion and energy source substitution now in motion, we
expect the share price to recoup some of its losses, while a
gain in installed capacity share indicates brightening business
prospects post the expansion.
� CCNN plans to add 1mtpa to its production capacity and
ramp it up to 1.7mtpa. This will enable it to grow its share
of installed capacity from 4% to 5%. Additionally, the
company is seeking to substitute LPFO with coal or pet
coke, which should bring immense energy savings. With a
newer and more efficient plant and lower fuel cost, CCNN
will be poised for growth and we believe this will drive the
share price higher.
� CCNN’s location is its biggest strength. Northern Nigeria
has two firms with c3mtpa capacity (by 2015), hence
competition is low. Additionally, consumption per capita is
the lowest in Nigeria which points to enhanced room for
growth.
� However, prior to the capacity expansion wave, CCNN
managed to effect large price adjustments without
affecting volumes, but with competition registering
significant cost reductions, this pricing power is gone as it
becomes economic to supply the Northern market from
factories in other regions.
� CCNN looks cheap relative to peers given that the company
lost 64% of its value over the past 12 months. With the
expansion and energy substitution programs getting
relatively clearer, we expect the company’s share price to
recoup some of its losses and reach NGN 12.09, which is
more than double the current price. We therefore attach a
SPECULATIVE BUY rating, awaiting outcome of the
implementation of the above mentioned projects.
Millions
CCNN: prive vs volume
25
20
15
10
5
0
May,08 Jan,09 Sep,09 May,10 Jan,11 Sep,11
Volume- RHS Price (NGN)-RHS
14
30
25
20
15
10
5
0
EQUITY RESEARCH
NIGERIA
28 November 2011
CEMENT
BLOOMBERG: CCNN:NL SPECULATIVE BUY
Current price (NGN) 5.00
Current price (US$) 0.03
Target price (NGN) 12.09
Upside/Downside 141.8%
12 month High/Low (NGN) 17.75 ; 4.90
Liquidity
M arket Cap (NGNm) 6,283.3
M arket Cap (US$m) 40.4
Shares (m) 1,256.7
Free Float (%) 37.8%
Share Price Performance
6 months (%) -55.9%
Relative change (%)* -46.9%
12 months -64.3%
Relative change (%)* -56.8%
* Relative to NSE index
Financials (NGN m) 31 Dec 2010 2011F 2012F
Revenue 11,770.0
EBITDA 2,297.0
Attributable profit 1,269.0
EPS (NGN) 1.0
DPS (NGN) -
NAV/Share (NGN) 3.9
Ratios
18,628.5
4,269.7
1,884.0
1.5
-
5.0
21,059.6
4,682.1
2,129.9
1.7
-
5.5
RoAE 12.4% 16.3% 16.5%
RoAA 17.5% 20.7% 20.7%
EBIDTA Margin (%) 19.5% 22.9% 22.2%
Valuation Ratios
PBV (x) 1.3
PER (x) 5.0
EV/EBITDA 2.7
EV/Tonne (USD) 78.5
STRENGTHS WEAKNESSES
1.0
3.3
1.2
47.1
0.9
2.9
1.1
46.1
Secluded location that allows it to Use of the costly LPFO in production
monopolise its market niche Low capacity which makes it weaker
Has pricing power due to limited compared to competition
competition Funding structure for expansion
competition has potential for shareholder dilution
OPPORTUNITIES THREATS
Energy substitution positive for Competitors setting up depots in
efficiency CCNN's turf
Opportunity to increase share of Fuel prices volatility
installed capacity
Lower per capita consumption

Nature of business
CCNN is a 51% owned subsidiary of the BUA group, an indigenous
conglomerate with interests in sugar and flour milling. The
company owns the 0.5mtpa production plant in Sokoto North West
Nigeria. BUA group bought the majority stake in CCNN via a
management investment vehicle, Damnaz, created to enable the
management buy-out of Heiderlberg in 2008. The company has
failed to match its cash rich peers who funded expansion from
own generated cash. CCNN is however seeking to raise NGN 45bn
in capital via a rights offer, public offer and convertible
debenture offer (NGN 15bn each) to fund a 1.0mtpa expansion
project.
HY1 11 results review and outlook
� CCNN performed better than expected in H1 2011 as both PBT
and NI margins rose by about 80% to 23.7% and 15.2%
respectively. This was notwithstanding the vulnerability of the
company’s business model to fuel prices and its small capacity
which makes it less efficient than peers.
� For Q3, however, we do not expect a repeat of the first half
performance as LPFO was scarce and prices were firmer
compared to the first half of the year. Additionally, the rainy
season usually slows down production and hence we do not
expect the company’s production to be spared from this.
� Margins are expected to remain under pressure until such a time
as the company implements its mooted conversion to coal. We
however envisage progressive improvements in efficiency up to
2014 when the refurbishments and new installations are
complete.
� The effective tax rate is expected to climb down from the 54% of
Q2 11 to c30% in line with management’s guidance.
� Rolling EPS works out to NGN 1.47, which in turn translates to an
undemanding rolling PER of 3.4x. Our FY 2011F EPS of NGN 1.50
works out to a forward PER of 3.3x, which is a huge discount to
the peer average of 10.7x.
Valuation and recommendation
We maintain our speculative buy call on CCNN noting that it has lost
more than half its value over the past year, thus providing some
headroom for price appreciation. Valuations are low relative to
peers, with the company having the lowest EV/tonne and EV/EBITDA
among Nigerian cement producers. The former stands at USD 52.6
against the peer average of USD 185 while the latter stands at 1.3x,
which is way lower that the 7x average for its peers.
The proposed funding structure of 33% debt and 67% equity leaves
room for shareholder dilution. A heavier weight to debt would have
been more positive for equity holders.
We however see value in the capacity expansion and energy source
substitution programmes and hence we maintain our SPECULATIVE
BUY call on CCNN.
15
Top shareholders
DAMNAZ CEMENT COMPANY LIMITED 50.7%
NIGERIAN PUBLIC 27.4%
NASDAL BAP NIG LTD 11.5%
KEBBI STATE INVESTMENT COMPANY LIMITED 4.9%
DANTATA INV.& SEC.CO. LIMITED 3.1%
SOKOTO STATE GOVT. 1.3%
KADUNA STATE GOVERNMENT 1.2%
H1 11 financials (NGN bn)
Nigeria: Share of installed capacity (2015)
CCNN
3.9%
Ashakacem
2.7%
Unicem
ECC
5.7%
5.7%
Wapco
10.2%
Dangote
66.0%
100.0%
H1 10 H1 11 % ch
Turnover 6.4 7.1 10.7%
PBT 0.8 1.7 99.0%
PAT 0.5 1.1 106.7%
TTM EPS 1.8
Ratios
PBT margins 13.2% 23.7% 79.8%
PAT margins 8.1% 15.2% 86.8%
TTM PER 2.74
Source: IAS / Cemnet/Cemfocus

Notes
Cement c ompany of Northern Nigeria- 5 Year CGR and Forec asts
Year-end: December 2006 2007 2008 2009 2010 2011F 2012F CAGR
Revenue 6,374
EBITDA 25
8,043
140
9,878 11,868 11,770 18,628 21,060
2,439 2,914 2,297 4,270 4,682
EBIT 2,197 2,659 2,056 3,857 4,360
PBT 380
PAT 224
EPS (0)
DPS -
Current assets 3,924
(11)
(35)
0.11
0.1
4,663
16
13.1%
147.0%
1,681 2,317 1,752 3,193 3,610 35.8%
1,528 1,812 1,269 1,884 2,130
1.22 1.44 1.01 1.52 1.71
0.5
0.8
-
4,137 4,787 5,286 6,700 7,264
Cash 400 626 768 1,744 1,851
Noncurrent assets 4,142
Total assets 8,066
Current liabilities 4,518
Non-current liabilities 2,003
4,456
9,119
3,978
1,993
4,658 5,017 5,435 5,736 6,056
8,795 9,804 10,721 12,436 13,321
3,631 4,326 4,378 4,153 4,421
1,188 1,259 1,496 1,496 1,496
Interest Bearing Debt 633 507 593 593 593
Shareholders’ equity 1,545
Shares in issue 1,242
3,148
1,242
-
-
41.5%
3,976 4,218 4,848 6,191 6,810 25.7%
1,242
1,242
1,242
Capacity 0.50
1,242
0.70
1,242
0.70
EBITDA margin (%) 24.7% 24.6% 19.5% 22.9% 22.2%
Operating margin (%) 22.2% 22.4% 17.5% 20.7% 20.7%
RoAA (%) 17.1% 19.5% 12.4% 16.3% 16.5%
RoAE (%) 42.9% 44.2% 28.0% 34.1% 32.8%
Enterprise Value 6,108.3 5,132.3 5,025.3
EV/EBITDA 2.7 1.2 1.1
EV/Tonne (USD) 78.5 47.1 46.1

Dangote
Change management to determine
DPC is looking to create a pan-African cement giant spread
across 13 sovereigns with 43mtpa cement capacity by 2015. In
Nigeria, the company wants to add 12mtpa capacity to the
current 8mtpa, maintaining its leadership and increasing its
share of installed capacity from 56% in 2010 to 66%. For the
remainder of 2011 and in 2012, the topical issue for DCP will be
on how it will exploit the massive addition to capacity in
Nigeria. Our earlier call was to place the company on a watch
list as we believed that adapting to the dynamics of the leap in
volumes needed time. We however, note the unparalleled
efficiencies at the newly commissioned lines at Obajana and
attach an Accumulate rating to DCP.
� In Nigeria, expansion projects at Obajana, Ibese and Gboko
are expected to be finished by the end of 2011. Clinkering
has commenced at the greenfield project in Ibese with the
first bag of cement expected before year end. Outside
Nigeria, Senegal has the most advanced progress.
Completion is expected in Q1 2012 and cement is expected
to start coming out of the factory in Q2 2012.
� The Sephaku investment in SA was consolidated in the
balance sheet with the 3.3mtpa plant which is currently
under construction expected to commence production of
cement in 2012.
� Obajana averaged capacity utilisation levels of 97%, while
Gboko averaged 55% owing to fuel shortages. The company
constructed a 50m litre storage facility which has since
started taking in imported fuel to remedy the shortages.
� 48 depots are now operational throughout Nigeria and DCP
expects to double the count in 2012.
� A combination of DCF and relative valuation models led us
to a target price of NGN 89.65, indicating to further
downside (-13.0%) on the counter. We however initiate with
an Accumulate rating noting efficiency outturn from new
production lines that surprised us to the upside and point to
strong future free cash flow generation.
Millions
Dangote Cement: prive vs volume
14
12
10
8
6
4
2
0
Oct,10 Feb,11 Jun,11 Oct,11
Volume- RHS Price (NGN)-RHS
17
160
140
120
100
80
60
40
20
0
EQUITY RESEARCH
NIGERIA
28 November 2011
CEMENT
BLOOMBERG: DANGCEM:NL BUY
Current price (NGN) 103.0
Current price (USD) 0.66
Target price (NGN) 89.65
Upside/Downside -13.0%
12 month High/Low (NGN) 134.66 ;95.00
Liquidity
Market Cap (NGN m) 1,595,884.0
Market Cap (USD m) 10,256.3
Shares (m) 15,494.0
Free Float (%)
Share Price Performance
6 months (%) -14.9%
Relative change (%)* 2.7%
12 months -15.6%
Relative change (%)* 2.0%
* Relative to NSE index
Financials (NGN m) 31 Dec 2010 2011F 2012F
Revenue 202,566.0
EBITDA 119,901.0
Attributable profit 105,323.0
EPS (NGN) 6.8
DPS (NGN) 4.3
NAV/Share (NGN) 13.7
Ratios
239,027.9
143,416.7
126,684.8
8.2
5.0
16.4
322,687.6
177,478.2
148,436.3
9.6
6.0
21.2
RoAA 56.1% 54.5% 50.9%
RoAE 30.4% 26.5% 24.7%
EBIDTA Margin (%) 59.2% 60.0% 55.0%
Valuation Ratios
PBV (x) 7.5
PER (x) 15.2
EV/EBITDA 14.0
EV/Tonne (USD) 1,378.3
STRENGTHS WEAKNESSES
6.3
12.6
12.5
537.2
4.8
10.8
10.2
542.0
The most aggressive expansion Expansion is too aggressive and some key
Very high prifitability ratios and earnings assumption may turnout otherwise
margings owing to more efficient plants Pan African expansion may shrowd
Widest delivery network management focus
Strong cash generation
OPPORTUNITIES THREATS
Cash generation capacity places it ahead Fall in consumption will leave it with
of international competition excess capacity
High growth in SSA Trade embagos in West african region can
Newer and more efficient plants affest export from Nigeria

Nature of business
DCP is the market leader in the Nigerian cement industry with a
63% market share. In Nigeria, the company runs the Obajana,
Gboko and Ibese (a greenfield project) plants as well as two
import terminal in Lagos and Port Harcourt. Management expects
to transform the import terminals into export terminals once the
expansion projects in Nigeria are complete and the market goes
into oversupply. Outside of Nigeria , DCP has plans to build
integrated plants in Senegal, Zambia, Tanzania , Republic of
Congo, Ethiopia, Gabon (all 1.5mtpa), as well as South Africa
with 3.3mtpa. In Cameroon, DCP wants to install 1mtpa clinker
grinding capacity, while import terminals will be constructed in
Ghana (Tema & Takoradi -3mtpa), Cote D’Ivoire Terminal (1mtps)
as well as Sierra Leone and Liberia (both 0.5mtpa).
9 months to September 2011 financials review
� Performance was impressive, driven by volumes, higher plant
availability and improving efficiencies with indications of an
even better outturn in Q4 2011 and beyond.
� Y-o-y revenue growth of 31% was underpinned by a 9% surge in
volumes and a 3% increase in factory gate prices of cement to
USD 180.6 per tonne. Locally produced volumes grew ahead of
imports setting the tone for what is likely to happen with the
completion of the expansion project.
� Management reported that plant utilisation levels at the newly
commissioned line at Obajana averaged 97% during the quarter
under review. With the company doubling its capacity on
similar new machinery, a replication of the same utilisation
levels implies a notable leap in earnings in 2012.
� EBITDA margins are at an unparalleled 60%, driven in the main,
by efficiencies due to the new machinery while shrugging off
the effects of a margin squeeze on imports.
� Imports achieved 33% margins against 72% for local products.
With DCP likely to fully substitute imports by 2012, we expect
profitability to improve going forward.
� Net income grew 26.6% y-o-y which works out to a rolling EPS
of NGN 8.0 and a rolling PER of 12.9x. Our full year forecast
EPS stands at NGN 8.2 and a forward PER of 12.6x that is at a
premium to the sector average of 10.7x
Valuation and recommendation
DCP beats its peers on profitability as RoAE (+1) and RoAA (+1)
stand at 55% and 27%, respectively, against peer averages of 25.7%
and 14.2%. The company however looks dear given it has the
sector’s highest EV/tonne of USD 537 against the peer average of
USD 185 and an EV/EBITDA of 13.1x against a peer average of
7.0%. Our call to accumulate shares is thus driven by profitability
considerations and our expectations for current efficiencies to be
replicated on plants currently being installed. Added to that, by
2015, DCP would have doubled its capacity with comparative
ratings unwinding to levels that are closer to the sector averages.
Accumulate.
18
Post Meger Shareholders' List
Dangote Industries Limited 95.90%
Scheme shareholders 3.20%
Other Shareholders 0.80%
Nigeria revenues allocation 2012F
105%
90%
75%
60%
45%
30%
15%
0%
1.00
9 Months to Septemebr 2011 financials (NGN m)
9M 10 9M 11 % ch
Turnover 146.56 173.84 18.6%
PBT 76.93 93.88 22.0%
PAT 75.3 92.82 23.3%
Shareholders' fund 211.51 269.47 27.4%
Total Assets 398.26 504.03 26.6%
TTM EPS 8.0
NAV/Share 17.39
Ratios
PBT margins 52.5% 54.0% 2.9%
PAT margins 51.4% 53.4% 3.9%
RoE 47.5% 45.9% -3.2%
RoA 25.2% 24.6% -2.6%
TTM PER 12.9
PBV 5.9
DCP WAPCO ASHAKA CCNN
COSTS EBITDA PBT PAT
Source: IAS forecats

Notes
Dangote Cement - 2 year CGR
Year-end: December 2,008
Revenue 61,906
EBITDA 38,382
EBIT 33,439
PBT 26,625
PAT 17,960
EPS 1.2
DPS -
Current assets 101,098
Cash 5,264
Non current assets 135,622
Total assets 236,720
Current liabilities 99,291
Non-current liabilities 64,916
Long-term debt 56,890
Minorities interest -
Shareholders equity 72,512
2,009
189,621
82,915
72,360
63,776
61,392
4.1
0.3
105,287
10,733
186,492
291,779
67,913
60,076
49,620
6,122
163,790
2,010
202,566
119,901
106,207
101,335
105,323
6.8
4.3
116,597
21,277
285,443
402,040
89,861
100,670
98,251
-
211,509
Shares in issue 15,494
Capacity 7.80
19
2011F 2012F CAGR
239,028
143,417
136,246
133,856
126,685
8.2
5.0
85,661
3,349
467,607
553,267
92,457
207,070
204,651
-
253,740
15,494
21.50
322,688
177,478
157,956
150,058
148,436
9.6
6.0
94,279
6,358
554,521
648,800
93,556
226,004
223,585
-
329,241
15,494
21.50
EBITDA margin (%) 62.0% 43.7% 59.2% 60.0% 55.0%
Operating margin (%) 54.0% 38.2% 52.4% 57.0% 49.0%
RoAA (%) 23.2% 30.4% 26.5% 24.7%
RoAE (%) 52.0% 56.1% 54.5% 50.9%
Enterprise Value (bn) 1,672.86
1,797.19
1,813.11
EV/EBITDA 14.0 12.5 10.2
EV/Tonne (USD) 1,378.3 537.2 542.0
80.9%
76.7%
78.2%
95.1%
142.2%
70.8%

Lafarge WAPCO
Reaping ‘first mover’ advantage benefits....
Lafarge WAPCO (WAPCO), commissioned its 2.5mtpa
Ewekoro II integrated cement plant in mid-September 2011.
The additional capacity brought the total to 4.5mtpa
enabling the company to retain its second position behind
DCP with a 15% share of installed capacity in Nigeria
(including all the planned capacity additions by peers).
Additionally, the plant is supported by a 90MW power plant
which was commissioned in June 2011 and is expected to
ensure production bottlenecks emanating from power
outages are eliminated. WAPCO’s story going forward will
be defined by how well it defends its turf in the face of
stiffer competition as installed capacity races ahead of
current consumption levels. We note the completion of its
expansion program, especially ahead of the game changing
DCP’s 12mtpa capacity addition. The company thus has a
‘first mover’ opportunity to help consolidate its market
share.
� WAPCO made significant investments into its
distribution channel, opening 19 new depots and
installing a hi-tech distribution system with the aim of
improving efficiency in pushing its higher output
volumes.
� Additionally, transport logistics, which are a significant
cost in Nigeria owing to poor road and rail networks,
were boosted by a fleet of new trucks and a new
business partnership with Nigeria Railway Corporation.
� The company successfully raised NGN 11.8bn at a fixed
interest rate of 11.5% under its NGN 50bn bond issuance
programme. Management plans to apply the funds to
retire its variable rate borrowings on the Ewekoro II
expansion projects. We expect this to bring stability to
earnings while providing cover to higher costs which are
likely given inflationary pressures in Nigeria.
� We value WAPCO at NGN 41.51 which largely indicates
full valuation and accordingly downgrade our rating
from buy to Hold.
Millions
Ashaka Cement: prive vs volume
200
180
160
140
120
100
80
60
40
20
0
Jan,08 Sep,08 May,09 Jan,10 Sep,10 May,11
Volume- RHS Price (NGN)-RHS
20
45
40
35
30
25
20
15
10
5
0
STRENGTHS WEAKNESSES
EQUITY RESEARCH
NIGERIA
28 November 2011
CEMENT
BLOOMBERG: WAPCO:NL HOLD
Current price (NGN) 39.00
Current price (USD ) 0.25
Target price (NGN) 41.51
Upside/Downside 6.4%
12 month High/Low (NGN) 49.29 ; 37.00
Liquidity
M arket Cap (NGN m) 117,062.4
M arket Cap (USD m) 752.3
Shares (m) 3,001.6
Free Float (%) 10.0%
Share Price Performance
6 months (%) 1.0%
Relative change (%)* 21.8%
12 months -4.3%
Relative change (%)* 15.7%
* Relative to NSE index
Financials (NGN m) 31 Dec 2010 2011F 2012F
Revenue 43,841.0
EBITDA 10,078.0
Attributable profit 4,881.0
EPS (NGN) 1.6
DPS (NGN) 0.1
NAV/Share (NGN) 16.1
Ratios
Membership in the Lafarge group brings Variable rate of interest on loan
access to latest cement technologies Marginall improvement in operating
Newer plant and stable power supply efficiency post commissioning of plant
Capacity to monopolise its market compared to peers
due to secluded location
OPPORTUNITIES THREATS
Possibility of diversifying to coal mining DCP's capacity additions likely to drive
Fixed rate dond issue can lower volatility prices lower
in earnings Competitors oppening up distribution
Low per capita consumption in target deports in WAPCO's turf
market pointing to growth opportunities
59,185.4
15,388.2
8,525.6
2.8
0.2
16.8
76,941.0
24,621.1
13,541.6
4.5
0.4
20.9
RoAE 10.6% 17.3% 23.9%
RoAA 4.7% 7.1% 10.5%
EBIDTA M argin (%) 23.0% 26.0% 32.0%
Valuation Ratios
PBV (x) 2.4
PER (x) 23.9
EV/EBITDA 11.1
EV/Tonne (USD) 1,441.1
2.3
13.7
7.3
160.9
1.9
8.6
4.7
163.9

Nature of business
Lafarge WAPCO is a member of the Lafarge Group, the world’s
leading cement, gypsum, aggregates and concrete manufacturer.
The company manufactures Elephant Cement, a formidable
brand in Nigeria and has two production sites, one in Ewekoro
and the other in Sagamu in Ogun State. Its corporate head office
is in Lagos. The company’s plant is the only one in Nigeria with a
rail link and distribution via the railway countrywide has since
commenced with volumes expected to reach 6,000 tonnes per
week, which works out to 13% of annual production at full
capacity
9 months to September 2011 financials review
� Volume growth was impressive. Turnover grew 34.8% on
the back of stable cement prices at cUSD 185/tonne pointing
to volumes as the major driver of revenue. We note that
Ewekoro II only came on line in late September and hence
did not play a significant part in the growth in volumes. We
therefore expect Q4 to have an even better outturn as the
company adds more capacity, efficiency and higher plant
availability to a system that already has upward momentum.
� Y-o-y PBT fell by 5% to NGN 8.6bn compared to a decline of 27%
as at the end of H1 2011, thus implying a huge improvement
during the quarter under review. While a once off item of NGN
658m helped, power costs reduced significantly following the
installation of the 90MW power plant
� Rolling headline EPS works out to NGN 1.70 and translates to a
rolling PER of 23.6x which looks demanding. Our FY 2011F EPS
of NGN 2.70 works out to a PER (+1) of 14.5x that is at a
premium to the peer average of 10.6x.
Valuation and recommendation
A combination of DCF and relative valuation methods led us to a
target price of NGN 41.51 for WAPCO which is 6.4% higher than the
current price. The company currently trades almost at par with its
price 12 months ago and the price has consolidated round about
NGN 40, having traded largely sideways for a year now, with NGN 40
being a key support area.
Additionally, we note the completion of the expansion program and
enhancements of the distribution channel that add weight to our
opinion that there is unlikely to be a significant downside on
WAPCO’s share price. On the other hand, EV/tonne of USD 161 is at
a discount to the peer average of USD 185, while the EV/EBITDA of
7.3x is largely in line with the peer average of 7.0x.
We therefore revise our rating downwards from buy owing to full
valuation. Further, we advise holding WAPCO shares because we do
not foresee price weakness that would have provided better buying
opportunities, while, on the other hand, the completed expansion is
expected to underpin growth momentum going forward. Hold
21
Shareholders analysis
Foreign shaholders 60.0%
Odua Group of Companies 30.0%
Nigerian Public 10.0%
Total 100.0%
9 Months to Septemebr 2011 financials (NGN bn)
16.0
12.0
8.0
times PER 2011F
4.0
-
CCNN
Twiga
DCP
PER 2011F Average
9M 10 9M 11 % ch
Turnover 33.1 44.6 34.8%
PBT 9.0 8.6 -5.1%
PAT 5.7 5.2 -9.1%
Shareholders' fund 48.3 53.3 10.4%
Total Assets 118.5 147.5 24.5%
TTM EPS 1.7
NAV/Share 16.1
17.8
Ratios
PBT margins 27.3% 19.2% -29.6%
PAT margins 17.2% 11.6% -32.6%
RoE 15.7% 12.9% -17.7%
RoA 6.4% 4.7% -27.0%
TTM PER 23.6
PBV 2.20
WAPCO
Source: Company reports, IAS

Notes
Lafarge WAPCO- 5 Year CGR and Forec asts
Year-end: December 2006 2007 2008 2009 2010 2011F 2012F CAGR
Revenue 39,518
EBITDA 14,263
38,655
11,877
43,274
14,390
EBIT 12,921
PBT 12,119
PAT 1,864
EPS 3.65
DPS 1.00
Current assets 16,329
12,536
10,964
3.56
1.20
17,180
13,033
11,252
3.75
0.60
18,587
Cash 5,974
Non current assets 32,425
Total assets 42,574
Current liabilities 15,973
Non-current liabilities 2,340
Interest bearing debt 7,234
33,416
48,754
15,254
15,016
2,536
43,181
61,768
18,099
3,213
-
45,590
11,223
9,837
9,237
5,055
1.68
0.10
17,422
3,628
69,741
87,163
10,674
32,778
24,793
22
43,841
10,078
8,426
8,464
4,881
1.63
0.24
17,669
5,248
100,812
118,481
58,071
12,119
59,185
15,388
13,080
12,725
8,526
2.84
0.43
21,280
4,717
101,232
122,512
60,107
12,119
76,941
24,621
20,928
16,927
13,542
4.51
0.68
24,601
2,579
111,624
136,225
61,304
22,119
2.6%
-8.3%
-8.6%
27.2%
-18.3%
-29.7%
Shareholders equity 25,547 32,806 40,456 43,711 48,292 50,285 62,803 17.3%
Shares in issue 3,002
Capacity 0.50
-
-
3,002
-
3,002
EBITDA margin (%) 36.1% 30.7% 33.3% 24.6% 23.0% 26.0% 32.0%
Operating margin (%) 29.9% 21.6% 19.2% 22.1% 27.2%
RoAA (%) 24.0% 20.4% 6.8% 4.7% 7.1% 10.5%
RoAE (%) 37.6% 30.7% 12.0% 10.6% 17.3% 23.9%
Enterprise Value 112,114.6 112,645.6 114,783.6
EV/EBITDA 11.1 7.3 4.7
EV/Tonne (USD) 1,441.1 160.9 163.9
4.50
4.50
2.0%

Athi River
Banking on efficiency...
ARM’s key attraction is the ongoing installation of an
additional 1.5mtpa in cement capacity which is the largest
expansion among its peers in Kenya. The company will sit on
2.5mtpa within the EAC by the end of 2012, 1.5mtpa of which
will be from brand new equipment. Lafarge will still maintain
pole position with its 3.3mtpa, but the age of its plant will
give ARM a competitive advantage. Additionally DCP plans to
set up new plants by 2015 with 1.5mtpa each in both Tanzania
and Ethiopia which should be formidable competition to ARM’s
new plant. We however expect that by that time, ARM would
have consolidated its position in the market.
� ARM is also planning to enter the South African market. It
is banking on its ability to create capacity cheaper than its
peers, while production costs are forecast to be between
15% - 20% lower than the average SA cement plant. The
company has achieved construction costs of USD 77/tonne
in Kenya and USD 84/tonne in Tanzania compared to the
USD 250/tonne world average.
� A strategic decision to focus on cement and wean off noncement
operations was taken in 2010, although this is yet
to be implemented. Non-cement business contributes
between 15% - 20% of total turnover and proceeds are
largely in foreign currency.
� The company has hard currency borrowings (USD 25m)
which expose the business to exchange rate risk. However,
unlike its peers, ARM has hard currency proceeds from the
non-cement business to amortise the loan over time hence
we do not expect the exchange losses to be crystallised.
� Blending DCF and relative valuation methods, we arrive at
a target price of KES 137.33 which is 19.0% lower than the
current price and hence advises taking profits. Sell.
Thousands
Athi River Mining: prive vs volume
12,000
10,000
8,000
6,000
4,000
2,000
0
Jan,08 Sep,08 May,09 Jan,10 Sep,10 May,11
Volume- RHS Price (KES)-RHS
23
250
200
150
100
50
0
EQUITY RESEARCH
KENYA
28 November 2011
CEMENT
BLOOMBERG: ARML:KN SELL
Current price (KES) 169.45
Current price (US$) 1.77
Target price (KES) 137.33
Upside/Downside -19.0%
12 month High/Low (KES) 196.00 ;137.00
Liquidity
Market Cap (KESm) 16,784.9
Market Cap (US$m) 174.9
Shares (m) 99.1
Free Float (%) 31.1%
Share Price Performance
6 months (%) 1.2%
Relative change (%)* 13.4%
12 months 2.4%
Relative change (%)* 33.9%
* Relative to NSE 20
FINANCIALS 2010 2011F 2012F
Revenue 5,964.7
EBITDA 1,339.2
Attributable profit 792.0
EPS (KES) 8.1
DPS (KES) 1.3
NAV/Share (KES) 46.9
Ratios
8,313.8
1,836.4
598.4
6.0
3.5
52.4
11,473.0
2,579.5
1,582.8
16.0
4.1
80.9
RoAE 18.0% 12.2% 24.0%
RoAA 5.6% 3.2% 7.0%
EBIDTA M argin (%) 22.5% 22.1% 22.5%
Valuation Ratios
PBV (x) 3.6
PER (x) 21.0
EV/EBITDA 18.7
EV/Tonne (USD) 261.4
STRENGTHS WEAKNESSES
3.2
28.0
13.7
284.0
Ability to expand capacity cheaply Debt brings volatility to earnings
2.1
10.6
9.7
109.3
Comparatively newer plants Management focus shrowded by non
Deiversified portifolio of products cement operations
Closer to two big markets it the EAC block
OPPORTUNITIES THREATS
Expectations of fast growth in Imports especially in Tanzania
consumption Poor road infrastrusure can hamper
Entarence into the SA market with exports from Tanzania
cheaply manufactured cement

Nature of business
ARM was founded in 1974 by the Paunrana family who still control
51% of the company, and was listed in 1997. The business started
as a producer of agricultural lime and processed minerals but has
grown into a force to reckon with in the cement industries of
Kenya and Tanzania. In Kenya, the company controls 15% of the
market and has a 1 mtpa cement capacity at Athi River, which is
closer to the Nairobi market, as well as a 0.65mtpa clinker
capacity in Kololeni. In Tanzania, ARM is setting up 2 plants, one
in Tanga and another in Dar-es-Salam with a combined cement
capacity of 1.5mtpa. The plan is to eventually provide throughput
to the Athi River grinding mill which currently has spare capacity.
Once completed, the plant will have a 22% share of installed
capacity in Tanzania (including other planned cement plants up to
2015).
Clinker capacity in Kenya stands at 0.65mtpa while combined
grinding capacity stands at 1mtpa implying excess grinding capacity.
Management expect this capacity to be utilised once Tanga’s
1.2mtpa clinker capacity comes on line in 2012. Tanzania’s planned
grinding capacity is 1.5mtpa which once more, points to excess
capacity in both countries. The Tanga clinker plant is expandable
and hence ARM can quickly plug in extra clinkering capacity if the
need arises. Excess grinding capacity will stand at 0.35mtpa once the
current expansion phase in completed.
9 months to September 2011 financials review
� The doubling of clinker capacity at Kololeni and the
commissioning of a grinding plant at the Athi River factory
enabled the company to improve volumes and consequently grow
sales by 37%.
� EBITDA margins were largely steady at 26.3%, but we expect an
improvement going forward as the new plant reaches optimum
production.
� Unrealised exchange losses of KES 516m, however, ensured net
income ended 62.6% lower than the first nine months of 2010. As
mentioned before, this loss is unlikely to be crystallised as the
company has foreign currency receipts to amortise it over time.
As such ARM’s underlying profitability remains intact.
� In addition, to that, we expect interventions by Kenyan
authorities in the foreign exchange markets to be largely
successful and hence further exchange losses are likely to be
lower than Q3 2011.
Valuation and recommendation
We value ARM at KES 137.33 which implies a 19.0% downside from
the current price. We note the recent surge in price accessioned by
investors taking positions on the back of the planned expansion,
which has seen the company outperform the NSE 20 by 33.9% y-t-d.
Taking profits is therefore in order especially in the face of
headwinds dragging Kenyan equities in general. The premium PER
(+1) rating of 28.0x against a peer average of 10.7x and the premium
EV/EBITDA of 13.7x compared to the peer average of 6.7x both
support our call for downside on the current price. In addition, the
EV/tonne of USD 284 is equally at a huge premium (adjusted for the
capacity currently being installed but excluding 0.35mtpa excess
grinding capacity) when compared to the peer average of USD 198.
Sell.
24
Top ten shareholders
Amanat Investments Limited 45.87
CFC Stanbic Nominees 7.67
Athi River Mining ESOP 5.51
Standard Chartered Nominees A/C 9867 2.64
Orthodox Archibishopric of Kenya 1.87
Standard Chartered Nominees A/C 9230 1.40
Wilfred Murungi 1.07
Standard Chartered Nominees A/C 9697 1.02
Insurance Company of East Africa - Pooled 0.95
NSSF Board of Trustees 0.88
Other 31.12
Kenya: Share of installed capacity (2015)
Devki
Cement
26.6%
Cemtech
12.8%
Mombas
a
10.6%
ARM
10.6%
EAPCC
13.8%
Bamburi
25.5%
100.00
9 Months to Septemebr 2011 financials (KES m)
Turnover 4,386
EBITDA 1,157
PBT 760
PAT 516
Shareholders' fund 4,645
Total Assets 13,358
9M 10 9M 11 % ch
6,009
1,579
297
193
4,652
15,987
TTM EPS 3.7
NAV/Share 46.96
Ratios
37.0%
36.5%
-60.9%
-62.6%
0.2%
19.7%
EBITDA margin 26.4% 26.3% -0.4%
PBT margins 17.3% 4.9% -71.5%
PAT margins 11.8% 3.2% -72.7%
RoE 14.8% 5.5% -62.7%
RoA 5.2% 1.6% -68.7%
TTM PER 46
PBV 3.61
Source: IAS/ Cemnet

Notes
Athi River Mining Company 5year CGR and Forec ats
2,005 2,006 2,007
Turnover 2,208.7
EBITDA 318.1
PBT 295.9
PAT 199.5
EPS 2.1
DPS 0.8
Non current assets 2,181.6
Current assets 1,057.0
Total assets 3,238.7
Shareholder's Funds 1,210.0
Interest Bearning Debt 1,378.8
Non current Liabilities 219.4
Current Liabilities 430.4
Total Assets
Ratios
3,238.6
2,605.0
417.1
387.9
264.6
2.8
1.0
3,197.7
1,056.8
4,254.5
1,374.5
1,920.3
388.6
570.9
4,254.3
3,881.7
765.0
620.6
421.7
4.3
1.3
3,321.7
1,183.0
4,504.7
1,772.0
1,704.0
561.0
467.7
4,504.7
2,008
4,619.5
967.5
705.5
503.5
5.1
1.3
4,467.5
1,885.0
6,352.5
2,127.5
2,670.7
743.3
811.0
6,352.5
25
2,009
5,144.8
1,015.4
948.7
645.8
6.5
1.5
8,778.3
3,068.4
11,846.8
4,128.9
5,212.7
1,644.9
1,154.5
12,141.1
2,010
5,964.7
1,339.2
1,113.0
792.0
8.1
1.8
12,324.8
4,240.1
16,564.9
4,643.6
8,718.8
1,950.1
1,252.4
16,564.9
2011F 2012F CAGR
8,313.8
1,836.4
867.0
598.4
6.0
1.3
16,776.8
3,863.4
20,640.2
5,185.6
10,945.2
2,768.9
1,740.6
20,640.2
11,473.0
2,579.5
2,292.9
1,582.8
16.0
3.5
18,583.0
5,997.9
24,580.9
8,009.2
8,065.0
1,829.6
2,429.9
20,333.8
Shares in issue
99.06 99.06 99.06 99.06 99.06 99.06 99.06 99.06
Capacity
1.00 1.00 2.30
EBITDA Margins 14.4% 16.0% 19.7% 20.9% 19.7% 22.5% 22.1% 22.5%
NI Margin 9.0% 10.2% 10.9% 10.9% 12.6% 13.3% 7.2% 13.8%
RoAA 7.1% 9.6% 9.3% 7.0% 5.5% 3.2% 7.7%
RoAE 20.5% 26.8% 25.8% 20.6% 18.1% 12.2% 24.0%
Enterprise Value 25,084.7 27,255.2 24,137.3
EV/EBTDA 18.7 14.8 9.4
EV/Tonne 261.4 284.0 109.3
22.0%
33.3%
30.3%
31.8%
30.9%
18.5%
38.6%

Bamburi Cement
Still controls a lion’s share of the Kenyan market …
Bamburi is the largest cement company in Kenya as
measured by market cap and controls 42% of the Kenyan
cement market. The company’s key attraction lies in its
hold on the inland East Africa market. The Uganda based
Hima cement plant, with 0.85mtps cement capacity, is
closer to important markets like the DRC. With competition
heating up in Kenya and operating costs generally rising with
the depreciation of the KES, the inland markets are handy
due to their generally higher retail prices.
� Bamburi beats competitors in profitability. The
company’s RoAE and ROAA of 23.1% and 15.1% are both
ahead of its Kenyan peers that average 15.5% and 11.8%,
respectively, although lower than CCNN and DCP in
Nigeria. Our expectations are that the company will
exploit its lion’s share of the market to maintain
profitability at these high levels.
� Bamburi has a strong portfolio of brands which are sold
at a c5% premium to similar products from competitors,
and management remains unmoved on maintaining the
higher prices. With East Africa likely to see greater
efficiencies and newer plants especially from DCP and
ARM, the company’s market share is at risk of shrinking
further.
� Hima Cement in Uganda holds the key to volume growth
for Bamburi in H2 11 and for 2012. However, planned
capacity additions by competition in Rwanda and
Uganda places profitability at risk. CIMERWA is
increasing capacity 6x to 0.6mtpa, while Tororo Cement
of Uganda, has since increased its capacity by more than
double to 2.2mtpa. Bamburi’s East African competitors
have a habit of beating it on pricing and we expect the
fight for inland East Africa to take the same form and
hence cut margins.
� Free cash flow generation remains strong and the
company still controls the largest market share in
Kenya. We value Bamburi at KES 194.18, pointing to
14.6% upside, and hence reiterate our BUY call.
Thousands
Bamburi: prive vs volume
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Jan,08 Sep,08 May,09 Jan,10 Sep,10 May,11
Volume- RHS Price (KES)-RHS
26
250
200
150
100
50
0
EQUITY RESEARCH
KENYA
28 November 2011
BUILDING MATERIALS
BLOOMBERG: BMBC: KN BUY
Current price (KES) 169.45
Current price (USD) 1.77
Target price (KES) 194.18
Upside/Downside 14.6%
12 month High/Low (KES) 209.00; 145.00
Liquidity
Market Cap (KES m) 61,503.4
Market Cap (USD m) 640.8
Shares (m) 363.0
Free Float (%) 16.3%
Share Pric e Performanc e
6 months (%) -5.5%
Relative change (%)* 5.9%
12 months -16.7%
Relative change (%)* 8.9%
* Relative to NSE index
Financ ials (KES m) 31 Dec 2010 2011F 2012F
Revenue 28,075.0
EBITDA 7,655.0
Attributable profit 5,299.0
EPS (KES) 14.0
DPS (KES) 8.5
NAV/Share (KES) 59.6
Ratios
34,976.8
9,361.2
6,033.1
14.6
8.9
67.1
43,175.5
11,786.7
7,385.5
17.9
10.9
76.4
RoAE 27.3% 26.8% 27.3%
RoAA 14.3% 15.1% 16.7%
EBIDTA Margin (%) 27.3% 26.8% 27.3%
Valuation Ratios
PBV (x) 2.8
PER (x) 12.1
EV/EBITDA 7.0
EV/Tonne (USD) 169.9
STRENGTHS WEAKNESSES
2.5
11.6
5.6
166.8
Lafarge parentage unlocks access to Premium priced products
modern technology and research Heating competition in Kenya
2.2
9.5
4.5
166.7
Dominant position in Kenyan market Grip on market share has lately been
Strong brands in the region loosening
OPPORTUNITIES THREATS
Hima expansion allows further exports ARM and other new entrances bringing
Lowering prices can open up volumes more efficient plants
growth Market share can be wrestled away
using pricing as a competitive tool

Nature of business
Bamburi is a member of the Lafarge group and engages in the
manufacture and sale of cement and cement related products in
eastern Africa, principally in Kenya and Uganda. It sells Portland
cement under Power Plus, Supa Set, Multi-Purpose, Nguvu, and
Plasta Plus brand names. The company also manufactures
paving blocks under the brand name ‘BamburiBlox’. In addition,
it is involved in the rehabilitation of used quarries, managing the
Haller Park, the Bamburi Forest Trails, and the Whistling Pine
Restaurant; and conducting various farming activities, including
forestry and aquaculture. The company has the largest cement
capacity in Kenya (2.2mtpa) which is 36% of total capacity, and
controls 42% of the market. Bamburi plans no further additions
to capacity before 2015 and as such its share of installed
capacity is set to decline to 26%. The company owns 100% of
Hima Cement in Uganda with 0.9mtpa installed capacity.
H1 11Financials review and outlook
� Bamburi’s H1 11 results were impressive, coming on the
backdrop of intensifying competition in Kenya and pressure on
opex emanating largely from the depreciating KES and double
digit inflation.
� Revenues went up 26% y-o-y driven in the main by growth in
volumes. Hima’s added capacity, which came on line in 2010,
was key in driving volumes in the region and we expect its
contribution to group income to increase in H2 11. Additionally,
a 4% price hike helped revenues as the company successfully
passed on increases in input costs, especially fuel, to
customers.
� Profit margins softened marginally with both PBT and PAT
margins shedding 3% to 26% and 18%, respectively. We however
expect this trend to turn especially as Hima improves its
contribution from the more efficient newer plant.
� Rolling EPS for the half year worked out to KES 18.10 which
translates to a rolling PER of 9.4x. We expect an EPS (+1)
outturn of KES 14.60 which works out to a PER (+1) of 11.6x, a
premium to the peer average of 10.7x
Valuation and recommendation
We value Bamburi at KES 194.18 which is 14.6% higher than the
current price, pointing to good upside. The biggest risk to our
valuation, however, is Bamburi’s cement pricing policy. Removal of
the premium of the company’s products is likely to see the
company gain market share and volume growth accelerating faster
than our assumptions.
Bamburi’s share price has shed 16.7% over the past twelve months,
but is trading 8.9% stronger than the NSE 20 over the same period.
Given Bamburi’s EV/tonne of USD 167 and EV/EBIDTA of 5.6x which
are both lower that the peer averages of USD 185 and 7.0x,
respectively, we expect the company to maintain its relative
strength and recoup some of its losses especially with any turn in
the fortunes of the market in general. BUY.
27
Top ten shareholders
Fincem Holding Ltd 29.3%
Kencem Holding Limited 29.3%
Board of Trustees - NSSF 14.1%
Paramount Company Ltd 11.0%
Baloobhai Chhotabhai Patel 1.4%
Board of Trustees - NSSF 0.7%
Standard Chartered Nominees Ltd – A/c 9230 0.6%
Kenya Reinsurance Corporation Ltd 0.3%
Kenya Commercial Bank Nominees Ltd – A/c 769G 0.3%
Standard Chartered Nominees Ltd – A/c 9389 0.3%
Other 12.7%
H1 11 financials (KES m)
16.0
12.0
8.0
times EV/EBITDA 2011F
4.0
-
Tanga
Twiga
Bamburi
WAPCO
EV/EBIDTA East Africa Average
100.0%
H1 10 H1 11 % ch
Turnover 13,045 16,421 25.9%
Pertaing profit 3,254 3,920 20.5%
PBT 3,504 4,260 21.6%
PAT 2,442 2,970 21.6%
Shareholders' fund 20,165 20,358 1.0%
Total Assets 25,842 26,485 2.5%
TTM EPS 18.08
NAV/Share 56.09
Ratios
PBT margin 26.9% 25.9% -3.4%
PAT margin 18.7% 18.1% -3.4%
RoE 24.2% 29.2% 20.5%
RoA 18.9% 22.4% 18.7%
TTM PER 9.37
PBV 3.02
ARM
Source: IAS Forecasts/ Company reports

Notes
Athi River Mining Company 5year CGR and Forecats
2,005 2,006 2,007
Turnover 2,208.7
EBITDA 318.1
PBT 295.9
PAT 199.5
EPS 2.1
DPS 0.8
Non current assets 2,181.6
Current assets 1,057.0
Total assets 3,238.7
Shareholder's Funds 1,210.0
Interest Bearning Debt 1,378.8
Non current Liabilities 219.4
Current Liabilities 430.4
Total Assets
Ratios
3,238.6
2,605.0
417.1
387.9
264.6
2.8
1.0
3,197.7
1,056.8
4,254.5
1,374.5
1,920.3
388.6
570.9
4,254.3
3,881.7
765.0
620.6
421.7
4.3
1.3
3,321.7
1,183.0
4,504.7
1,772.0
1,704.0
561.0
467.7
4,504.7
2,008
4,619.5
967.5
705.5
503.5
5.1
1.3
4,467.5
1,885.0
6,352.5
2,127.5
2,670.7
743.3
811.0
6,352.5
28
2,009
5,144.8
1,015.4
948.7
645.8
6.5
1.5
8,778.3
3,068.4
11,846.8
4,128.9
5,212.7
1,644.9
1,154.5
12,141.1
2,010
5,964.7
1,339.2
1,113.0
792.0
8.1
1.8
12,324.8
4,240.1
16,564.9
4,643.6
8,718.8
1,950.1
1,252.4
16,564.9
2011F 2012F CAGR
8,313.8
1,836.4
867.0
598.4
6.0
1.3
16,776.8
3,863.4
20,640.2
5,185.6
10,945.2
2,768.9
1,740.6
20,640.2
11,473.0
2,579.5
2,292.9
1,582.8
16.0
3.5
18,583.0
5,997.9
24,580.9
8,009.2
8,065.0
1,829.6
2,429.9
20,333.8
Shares in issue
99.06 99.06 99.06 99.06 99.06 99.06 99.06 99.06
Capacity
1.00 1.00 2.30
EBITDA Margins 14.4% 16.0% 19.7% 20.9% 19.7% 22.5% 22.1% 22.5%
NI Margin 9.0% 10.2% 10.9% 10.9% 12.6% 13.3% 7.2% 13.8%
RoAA 7.1% 9.6% 9.3% 7.0% 5.5% 3.2% 7.7%
RoAE 20.5% 26.8% 25.8% 20.6% 18.1% 12.2% 24.0%
Enterprise Value 25,084.7 27,255.2 24,137.3
EV/EBTDA 18.7 14.8 9.4
EV/Tonne 261.4 284.0 109.3
22.0%
33.3%
30.3%
31.8%
30.9%
18.5%
38.6%

Efficiency enhancement has been the notable development at
EAPCC as the company commissioned a coal plant halfway
through FY 11. Additionally the company has hedged 25% of its
YEN denominated loan which should come as a relief especially
given the downward momentum in the shilling. We however do
not expect this to offset the crippling effects of the debt. As
long as exchange rate risk remains inherent in the business
model, earnings will continue to be volatile thereby reducing
the attraction of the counter.
� GoK’s 52% control of the company will ensure EAPCC
remains a value trap. Management’s expression of its
inability to pass on the cost of the loan owing to an
obligation to provide cheap cement testifies to the
company’s pursuit of government objectives rather than
growth in shareholder value. The mooted privatisation
would be positive although we do not expect it to come
any time soon.
� EAPCC has the second largest cement factory in Kenya with
grinding capacity of 1.3mtpa which translates to a 26%
share of installed capacity. 2.7mtpa additional capacity for
Kenya is planned and this will reduce the company’s share
of installed capacity to 13.8%. Its grip on market share will
become even weaker when other more efficient players
like DCP make their entrance in the EAC block with the
possibility of exports from Tanzania to Kenya.
� The company plans to sell 1,000 acres of land in Athi River
whose limestone deposits were exhausted. Although the
process is subject of some court proceedings, expectations
are that cKES 5.0bn can be realised. Management expects
to utilise the funds to acquire a 300 acre piece of land in
Mutomo that, reportedly, has huge limestone deposits.
� We value EAPCC at KES 62.13 which implies 13.0% upside.
We however maintain our sell rating as we expect the debt
and GoK ownership to underpin low market valuations. Sell
Thousands
EAPCC: prive vs volume
250
200
150
100
50
East Africa Portland
Debt still a drag on earnings…
0
Jan,08 Sep,08 May,09 Jan,10 Sep,10 May,11
Volume- RHS Price (KES)-RHS
29
160
140
120
100
80
60
40
20
0
EQUITY RESEARCH
KENYA
28 November 2011
BUILDING MATERIALS
BLOOMBERG: EAPCC:KN SELL
Current price (KES) 55.00
Current price (US$) 0.57
Target price (KES) 62.13
Upside/Downside 13.0%
12 month High/Low (KES) 119.00; 51.00
Liquidity
M arket Cap (KESm) 4,950.0
M arket Cap (US$m) 51.6
Shares (m) 90.0
Free Float (%) 6.0%
Share Price Performance
6 months (%) -34.1%
Relative change (%)* -26.2%
12 months -50.0%
Relative change (%)* -34.6%
* Relative to NSE index
Financials (KES m) 30 June 2011 2012F 2013F
Revenue 10,172.0
EBITDA 653.0
Attributable profit 560.0
EPS (KES) 6.2
DPS (KES) -
NAV/Share (KES) 69.6
Ratios
11,237.7
862.7
841.6
9.4
-
69.9
12,415.0
1,419.7
917.4
10.2
-
81.3
RoAE 18.0% 12.2% 24.0%
RoAA 5.6% 3.2% 7.0%
EBIDTA Margin (%) 6.4% 7.7% 11.4%
Valuation Ratios
PBV (x) 0.8
PER (x) 8.8
EV/EBITDA 13.2
EV/Tonne (USD) 69.0
STRENGTHS WEAKNESSES
0.8
5.9
9.9
68.7
Change over to coal as source of energy Exchange rate exposure fron its YEN
Acess to government projects owing to denominated loan
0.7
5.4
6.1
68.9
ownership structure Startegic thrust more towards meeting
Staff rationalisation excersise brings government objectives that shareholder
efficiencies going forward value maximisation
OPPORTUNITIES THREATS
Possible privatisation Increasing capacity by competition
Fast growing market in the EAC block DCP entrance into EAC market
Elimination of exchange rate exposure Depreciation of the Shilling
can lead to a leap in profitability

Nature of business
EAPCC’s history dates back to the 1930s, where it started off as a
trader in imported cement from England, a grinder of clinker
imported from India and as the operator of a 0.12mtpa Athi River
cement plant in 1958. Capacity has since been upped to 1.3mtpa
and for 70 years now the company has availed to the market its
flagship Blue Triangle Cement brand. The company also
manufactures concrete pavers, kerbstones, cement slabs, and
cement fence posts. It also makes cement tiles, culverts, panels,
and tubes for the construction industry.
Review of results for the year ended June 2011
The highlight was the turning around from a loss position last year
to a profit courtesy of a KES 680m tax credit as the company booked
income from its deferred tax assets. Operating efficiencies saw
enhanced operating profitability while exchange losses continued to
weigh down performance.
� Revenue grew by a moderate 8.1% to KES 10.2bn while an
improvement in gross margins from 21.6% to 23.3% saw gross
profit grow by 16.5%. Benefits from the changeover to coal were
only enjoyed in the second half of the year and hence we
expect the current financial year to better the 2011 outturn.
� Operating expenses declined by 3.1%, driven by administration
expenses which shed 12.1%. Operating income consequently
leapt 7.1x to KES 653m.
� The depreciation of the KES saw the company book an
additional KES 783m loss despite erecting a hedge to cover
possible losses on 25% of the YEN denominated loan.
� Interest bearing loans stood at KES 3.7bn, the majority of which
relate to the YEN denominated loan. The loan amounted to KES
3.0bn when it was acquired and it continues to grow despite the
company making regular payments over the years.
Valuations and recommendation
We value EAPCC at KES 62.12, which translates to a 13.0% premium
over the current price. The share lost half its value over the past 12
months and is trading with relative weakness to both its peers and
the market (NSE 20).
We expect efficiency enhancement moves effected in the second
half of 2011 to drive operating profitability during the current year.
Additionally, the intervention of the Kenyan authorities to stabilise
the shilling is expected to be largely successful. As such, we do not
expect exchange losses to provide a significant drag to earnings in
Q4 2011. Risk of earnings however will remain for as long as the
debt position is not fully hedged.
However, the low free float of 6% and government ownership are
the biggest bear factors for EAPCC. The EV/tonne of USD 66.4
compared to a peer average of USD 200 represent the potential
upside that can be unlocked especially if the company is privatised.
On the other hand, the EV/EBIDTA of 9.6x is a premium to the peer
average of 7.1x. We therefore maintain our SELL call on the stock.
30
Top shareholders % age
NSFF 27.0%
GoK 25.3%
Cementia (Lafarge) 14.6%
BCI 14.6%
Bamburi (Nominees) 12.5%
Others 6.0%
mtpa
East Africa: Clinker capacity vs. Grinding capacity
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Kenya Tanzania Uganda Rwanda
and
Burundi
Clinker capacity Cement capacity
9% 9%
Source: ARM presentation/ AIS
Per capita consumption vs. 10 tear CAGR in consumption
140
120
100
80
60
40
20
0
8%
10%
Nigeria Uganda Kenya Tanzania
Consumption (KG) per capita 5 year CAGR
100.0%
Source: IAS/ Cemnet
12%
10%
8%
6%
4%
2%
0%

Notes
East Afric an Portland Cement Company -5 year CAGR and forecasts
2,006
Revenue 6,181
EBIDTA 587
PBT 925
PAT 412
EPS 5
DPS
Non Current Assets 5,570
Current Assets 3,481
2,007
6,403
758
1,113
765
9
5,768
3,170
2,008
7,205
1,053
716
537
6
6,411
2,171
Cash 490
Total assets 9,052
Shareholders' funds 3,076
Interest bearing borrowings -
Non Current Liabilities 4,577
Current Liabilities 1,397
Total Assets 9,052
Ratios
Shares in issue 90.00
8,938
3,607
-
3,896
1,435
8,938
90.00
9,073
4,026
2,696
1,416
934
9,073
90.00
31
2,009
8,102
2,742
1,882
1,835
20
8,922
2,845
286
12,053
6,114
3,260
1,480
1,198
12,053
90.00
2,010
9,409
91
(339)
(285)
(3.16)
9,125
2,648
263
12,037
5,701
3,401
1,459
1,475
12,037
90.00
2011 2012F 2013F CAGR
10,172
653
(120)
560
6.24
10,359
2,956
216
13,531
6,262
3,689
1,889
1,690
13,530
90.00
Capacity 1.30
11,238
863
692
842
9.35
10,672
2,794
464
13,930
6,294
3,901
1,916
1,819
13,930
12,415
1,420
1,330
917
10.19
11,000
3,839
570
15,408
7,317
4,036
2,054
2,001
15,408
Gross Profit Margin 33% 31% 22% 23% 24% 28%
EBITDA margin 9% 12% 15% 34% 1% 6% 8% 11%
Operating margin 9% 12% 15% 34% 1% 6% 8% 11%
RoAA 9% 6% 17% -2% 4% 6% 6%
RoAE 23% 14% 36% -5% 9% 13% 13%
Enterprise value 8,603
EV/EBITDA 13
ET/Tonne 69
90.00
1.30
8,567
10
69
90.00
1.30
8,597
6
69
10.5%
2.2%
n/a
6.3%
6.4%
8.4%

Tanga Cement
No efficiency to match volume growth…
Cement volumes posted solid growth as expected, but the company
needs to overcome major efficiency challenges to maintain the high
earnings growth that the market had come to expect prior to 2009.
Diesel powered generators that the company uses as an alternative
for the erratic TANESCO power supply have clearly impacted
efficiency negatively; innovation on this front will be value adding.
Nonetheless, the company is among the cheapest cement plants in
the region, pays a regular handsome dividend and is in a country
witnessing a construction boom.
� Tanga acquired an additional 40% stake of Cement Distributors
(EA) LTD (CDEAL) to bring its total holding to 60%. CDEAL
specialises in cement distribution logics in East Africa. This
makes Tanga the only cement company in Tanzania to have
control of the whole cement value chain from mining materials,
manufacturing, packaging and transportation.
� Control of CDEAL opened new opportunities with the company
establishing depots in Rwanda (Kigali) and Burundi (Bujumbura),
thus setting the ground for exports for when Tanzania has
excess supply. As of 2010, Tanzania had capacity to produce
c3.0mtpa while consumption was c2.1mta. By 2015, production
capacity would have raced ahead of consumption to 6.8mtpa,
calling for exports if optimum production levels are reached.
� Tanzania imports 0.75mtpa of clinker to meet the shortfall
between grinding and clinkering capacity. Tanga is one company
that relies heavily on imported clinker and as such will always
suffer on efficiency compared to its closest competitor, Twiga.
Additionally, new entrants DCP and ARM are bringing integrated
plants and hence will have more flexibility to use pricing as a
competitive tool.
� Using a combination of DCF and relative valuation methods, we
arrive at a target price of TZS 6,635.21, which is more than
double the current price. Tanzania however limits foreign
participation to 65% and given Holcim’s 62.5% shareholding, the
opportunity is available to a limited extent.
Thousands
Tanga Cement: prive vs volume
1,000
800
600
400
200
0
Jan,08 Sep,08 May,09 Jan,10 Sep,10 May,11
Volume (LHS) Price TZS -RHS
2500
2000
1500
1000
500
0
32
EQUITY RESEARCH
TANZANIA
28 November 2011
CEMENT
BLOOMBERG: SIMBA:TZ BUY
Current price (TZS) 2,380.00
Current price (USD) 1.44
Target price (TZS) 4,976.41
Upside/Downside 109.1%
12 month High/Low (TZS) 209.00; 145.00
Liquidity
Market Cap (TZSm) 151,537.1
Market Cap (USDm) 91.8
Shares (m) 63.7
Free Float (%) 20.9%
Share Price Performance
6 months (%) 22.7%
Relative change (%)* 11.1%
12 months 25.3%
Relative change (%)* 12.8%
* Relative to DSEI
Financials (TZS m) 31 Dec 2010 2011F 2012F
Revenue 199,428 248,027 277,623
EBITDA 53,073 46,400 82,711
Attributable profit 32,526 26,438 32,367
EPS (TZS) 522.0
DPS (TZS) 249.0
NAV/Share (TZS) 1,707.0
Ratios
415.2
207.6
1,914.3
508.4
254.2
2,168.8
RoAA 24.1% 16.1% 18.1%
RoAE 32.4% 22.9% 24.9%
EBIDTA M argin (%) 26.6% 18.7% 29.8%
Valuation Ratios
PBV (x) 1.4
PER (x) 4.6
EV/EBITDA 2.9
EV/Tonne (USD) 73.4
STRENGTHS W EAKNESSES
1.2
5.7
3.1
69.6
Intergrated from limestone mining to Poor distribution infractructure
cement transportation Tanzania
1.1
4.7
1.7
68.5
Newer and more efficient equipment More expensive ergeny alternatives in the
Strong cash generation event of TANESCO incapable of meeting
Luckrative divident payment policy demand
OPPORTUNITIES THREATS
Exports to inland nations of East and DCP and ARM to bring in higher capacity
Central Africa and more efficient plants
Low per capita consumption and Markets share vulnerabile to chaper
EV/Tonne indicating room for growth imports

Nature of business
Tanga Cement is a relatively newer plant than many in Africa.
The cement plant was commissioned in 1980 courtesy, largely,
of donated funds from the Danish government. Holcim
Mauritius eventually acquired a controlling stake (62.5%),
making Tanga a member of the world’s second largest cement
company. In Tanzania, Tanga has the second largest plant with
1.25mtpa accounting for 42% of installed capacity. This is,
however, expected to come down to 18% once all the planned
capacity additions come on line in 2015. Tanga has a hold on
34% of the Tanzania cement market and has recently started
exports to Rwanda and Burundi. Additionally, the company is
in the process of carrying out a feasibility study on a new kiln
at Tanga with the aim of expanding clinkering capacity.
H1 11 financials review
� Cement volumes went up 14% courtesy of both the doubling
in capacity and firm cement demand. We expect the trend to
continue in H2 11, with infrastructure expenditure
underpinning consumption.
� Efficiency, however, suffered largely due to extensive use of
diesel powered electricity generators, the increased use of
road transportation to distribute cement as the railway
system continued to crumble and unplanned maintenance
that took place during the period under review.
� Net income for the period therefore ended flat. Except for
the unscheduled maintenance, most of the negative factors
mentioned above are likely to be carried forward to the
second half, thus we do not expect a dramatic improvement
in profitability in H2.
� Earnings relative valuations remain very attractive. PER (+1)
of 5.4x and PBV (+1) of 1.2x compare favourably to peer
averages of 10.7x and 2.4x respectively.
Valuation and recommendation
We maintain our buy call on Tanga with a target price of TZS
6,635.21, which is 178.8% above the current price. We note the
imminent transformation of the Tanzania cement industry as both
ARM and DCP are set to bring integrated cement plants which will
clearly outperform companies relying on imported clinker.
Additionally, Tanga’s relatively lower liquidity, compared to
Twiga, is expected to remain a source of discounted ratings.
Nonetheless, the company remains cheap compared to its
regional peers with an EV/EBITDA (+1) of 3.1x compared to the
peer average of 7.1x and an EV/tonne of USD69.7 against the
peer average of USD 185.
Tanzania limits foreign ownership to 65% and Tanga is very close
to the threshold given Holcim’s shareholding. Limited foreign
participation thwarts liquidity and as such, it is likely to remain
value traps until the quota is lifted. This poses the greatest risk
to our targeted price not being realised. Nonetheless, we
reiterate our buy call based on the massive room for valuations
to improve as they catch up with regional peers. BUY.
33
Top ten shareholders
AfriSam (Mauritius) Investment Limited 62.50%
Public Service Pension Fund 7.18%
National Social Security Fund 6.54%
Social Action Trust Fund 1.79%
Trustees of Tanga Cement Company Limited 1.07%
Sajjad F. Rajabali 0.58%
Aunali F. Rajabali 0.53%
Government Employees Provident Fund 0.35%
The Local Authorities Pensions 0.35%
BP Tanzania Provident Trust 0.32%
Other 18.8%
H1 11 financ ials (TZS m)
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
H1 10 H1 11 % ch
Turnover 61,090 108,111 77.0%
EBITDA 11,862 12,635 6.5%
PBT 14,641 15,424 5.3%
PAT 10,254 10,428 1.7%
Shareholders' fund 90,739 108,348 19.4%
Total Assets 127,786 153,244 19.9%
TTM EPS 356
NAV/share 1,702
Ratios
PBT margin 24.0% 14.3% -40.5%
EBITDA margin 19.4% 11.7% -39.8%
PAT margin 16.8% 9.6% -42.5%
RoE 22.6% 19.2% -14.8%
RoA 16.0% 13.6% -15.2%
TTM PER 6.68
PBV 1.40
100.0%
Tanzania planned cement capaciy by 2015
1.6
Million tonnnes per year
Source: IAS, cemnet, cemfocus

Notes
Tanga Cement - 5yr CGR and forecats
Revenue 67,022.8
EDITDA 11,642.9
PBT 10,528.0
PAT 7,233.0
EPS 114.00
DPS 57.00
Non Current Assets 22,475.4
Cash 1,083.0
Current assets 16,113.3
Equity 24,610.4
Interest bearing loand 3,126.1
Non Current liabilities
2005 2006 2007 2008 2009 2010 2011F 2012F CAGR
3,553.8
Current liabilities 10,424.5
Total Assets 38,588.7
77,626.6
24,922.1
23,065.4
15,997.9
251.00
188.00
25,897.4
10,112.6
23,132.8
35,455.9
419.6
4,512.6
9,061.8
49,030.2
93,784.4
36,403.1
34,421.8
23,590.7
371.00
185.00
41,326.9
6,552.6
27,460.1
50,514.5
1,027.4
3,845.4
14,427.2
68,787.1
121,349.2
45,006.6
43,219.0
30,253.3
475.00
120.00
59,285.6
3,804.3
29,544.1
61,407.1
6,078.1
6,394.3
21,028.3
88,829.7
34
119,898.2
47,599.6
43,834.6
30,420.2
478.00
179.00
84,990.5
10,169.9
31,155.5
91,881.9
-
13,350.9
10,913.2
116,146.0
199,428.3
53,072.9
46,011.2
32,526.1
522.00
249.00
104,986.6
9,566.7
48,681.1
108,686.3
7,500.0
17,500.5
27,480.9
153,667.7
248,027.4
46,399.6
38,316.0
26,438.1
415.23
207.61
112,382.6
14,757.4
63,486.7
121,887.6
5,000.0
19,624.5
33,502.7
175,014.8
277,622.7
82,710.5
46,909.2
32,367.4
508.35
254.18
120,372.3
17,166.6
73,851.3
138,090.5
5,000.0
16,717.6
28,540.2
183,348.3
Shares in issue 63.671 63.671 63.671 63.671
Production Capacity (mtpa) 0.75 1.25 1.25 1.25
EBITDA Margins 17.4% 32.1% 38.8% 37.1% 39.7% 26.6% 18.7% 29.8%
Operating Margins 15.8% 29.7% 36.7% 35.3% 37.7% 23.8% 15.7% 17.1%
RoAA 36.5% 40.0% 38.4% 29.7% 24.1% 16.1% 18.1%
RoAE 53.3% 54.9% 54.1% 39.7% 32.4% 22.9% 24.9%
Enterprise Value 151,406.0
EV/EBITDA 2.85
EV/Tonne (USD) 73.37
143,697.6
3.10
69.63
141,307.6
1.71
68.47
24.4%
35.4%
34.3%
35.1%
29.7%
24.4%

Twiga Cement
Improving efficiency to drive performance…
Cement volumes growth on the back of a successful upgrade in
capacity in 2010, coupled with improving efficiency make a very
compelling investment case for Tanzania Portland Cement
Company Limited (Twiga). Firm cement demand on the other
hand, driven by massive infrastructure spend by government,
underpins a positive outlook for cement consumption going
forward. Twiga however, went a step further than the competition
achieving strong earnings growth in H1 11, during a period in which
its closest competitor, Tanga Cement, saw a significant drop in
profitability owing largely to uncharacteristically high opex.
� Twiga controls c42% market share, with management
estimating that 3 in every 4 bags of cement sold in the key
Dar-es-Salaam market wears a Twiga logo. The company is
currently undertaking a refurbishment program of its main
production line and expectations are that this will be complete
in Q1 12. The line that is currently in use will also be shut
down for refurbishment with the project targeted for
completion in early 2013. We expect this to enable the
company to defend a significant share of the market once DCP
and ARM come on line.
� Power outages and accompanying production bottlenecks
necessitated the importation of clinker. Given that own
produced clinker costs less than imported clinker, the strong
H1 11 performance points to significant profit potential in
2012 once the refurbishment project is complete. The
company however remains the most independent of imported
clinker among its Tanzanian peers.
� The cost of imported raw materials soared on the back of the
depreciation in the TZS and dictated a TZS 13,000 hike in
cement prices which, however, did not affect volume growth
during the period under review.
� We value Twiga at TZS 3,489.45, which is 67.8% above the
current price. However, like Tanga, 65% the cap on foreign
participation drives the discounted valuation. BUY.
1,200
Thousands
Twiga Cement: prive vs volume
1,000
800
600
400
200
0
Nov,07 Jul,08 Mar,09 Nov,09 Jul,10 Mar,11
Volume (LHS) Price TZS -RHS
2500
2000
1500
1000
500
0
35
EQUITY RESEARCH
TANZANIA
28 November 2011
CEMENT
BLOOMBERG: SIMBA:TZ BUY
Current price (TZS) 2,080.00
Current price (USD) 1.26
Target price (TZS) 3,489.45
Upside/Downside 67.8%
12 month High/Low (TZS) 2,100.00; 1,800.00
Liquidity
Market Cap (TZSm) 374,240.0
Market Cap (USDm) 226.7
Shares (m) 179.9
Free Float (%) 30.8%
Share Pric e Performance
6 months (%) 11.8%
Relative change (%)* 1.3%
12 months 15.6%
Relative change (%)* 4.1%
* Relative to NSE index
Financ ials (TZS m) 31 Dec 2010 2011F 2012F
Revenue 199,600.7
EBITDA 85,859.3
Attributable profit 50,205.1
EPS (TZS) 279.0
DPS (TZS) 139.5
NAV/Share (TZS) 935.6
Ratios
246,817.6
99,619.1
60,703.8
337.4
168.7
1,104.2
292,995.7
118,257.3
72,061.2
400.5
200.2
1,304.5
RoAE 24.5% 25.4% 25.5%
RoAA 32.4% 33.1% 33.3%
EBIDTA Margin (%) 43.0% 40.4% 40.4%
Valuation Ratios
PBV (x) 2.2
PER (x) 7.5
EV/EBITDA 4.1
EV/Tonne (USD) 150.5
STRENGTHS W EAKNESSES
1.9
6.2
3.5
151.0
Located closer to Dar-es-Salam, Coastal markets are vilnerable to
tanzania's biggest cement market cheaper imports
Has the highest clinker capacity, which Lack of transport infrastructure
1.6
5.2
2.9
149.7
provides pricing flaxibility makes regional penetration difficult
OPPORTUNITIES THREATS
Governemnt infrastructure Erratic power supply
development Entrance of formidable competition in
Higher EBITDA margings now allows the ARM and DCP
company to eploit pricing as a Removal of the protctive import duty
competitive edge

Nature of business
Twiga was established in 1959 and German's Heidelberg
Cement now owns a controlling stake (69%) in the cement
manufacturer. The company has 1.4mtpa installed capacity
which works out to a 47% share of total cement capacity in
Tanzania. However, by 2015, this is expected to shrink to 21%
as DCP, ARM, Banco and Lee Building all add 3.8mtpa to the
current cement capacity in Tanzania. Twiga’s market share
currently stands at 42% with a firm hold on the Dar-es-Salaam
market, which consumes the bulk of cement in Tanzania. The
company manufactures the Twiga ordinary and Twiga Extra
brands.
H1 11 financials review and outlook
� Cement volumes growth and a TZS 13,000/tonne price hike
drove revenues 24% higher than H1 10. The trend is set to be
maintained in the second half with 2012 expected to be
better owing to the on-going refurbishment exercise.
� The relatively newer plant saw efficiency improving
notwithstanding power supply challenges as TANESCO
continues to struggle to provide electricity to meet the
nation’s needs. EBITDA margins added 2.2 percentage points
to 42%, which are among the highest amongst East Africa
cement companies.
� The company, however, mitigated power shortages by
stepping up clinker imports. This should have acted against
profit margins given the comparatively higher production
costs when using imported clinker. Growth in profit margins
therefore indicates strong efficiencies inherent in Twiga’s
business model.
� Valuations are also relatively lower for Twiga compared with
Tanga. PER (+1) of 6.17x and PBV (+1) of 1.88x are also lower
than peer averages of 10.7x and 2.4x respectively.
Valuation and recommendation
Twiga cement looks better placed to take on competition from
new entrances, especially ARM and DCP. Improving efficiency
following capacity expansion and the on-going refurbishments are
encouraging and we expect the trend to continue at least for the
next two years when the refurbishment exercise is complete. We
maintain our buy call and target a price of TZS 3,489.45
indicating a 67.8% premium on the current price.
As in the case of Tanga, Twiga looks cheap in relation to its
regional peers. EV/EBITDA of 3.5x is at a 50% discount to the peer
average of 7.0x, while EV/tonne of USD 151 compares favourably
to the peer average of USD 185. However, German's Heidelberg
already controls 69% of the company’s shares meaning the
opportunity is unavailable for foreign investors. We however
maintain our buy call noting the space that stands to be covered
for the company to trade in line with regional peers. BUY.
36
Top ten shareholders
Name Scancem International DA 69.3%
Aunali F. Rajabali 3.2%
Parastatal Pension Fund 3.1%
Public Service Pension Fund 2.7%
Sajjad F. Rajabali 2.6%
Umoja Unit Trust Scheme 0.9%
Wazo Hill Saving & Credit 0.8%
National Social Security Fund 0.6%
Murtaza Basheer Nasser 0.5%
Sayed, Basharat, Mehboob, Khalid, 0.4%
Other 16.0%
Half year results as of 30 June 2011
H1 2010 H1 2011 % ch
Turnover 86,419 107,018 23.8%
EBITDA 34,817 45,032 29.3%
PBT 28,623 41,000 43.2%
PAT 19,971 28,587 43.1%
Shareholders' 168,329 171,816 2.1%
Total Assets 217,169 223,651 3.0%
TTM EPS 315
NAV/share 955
Ratios
PBT margin 33.1% 38.3% 15.7%
EBITDA margin 40.3% 42.1% 4.4%
PAT margin 23.1% 26.7% 15.6%
RoE 23.7% 33.3% 40.2%
RoA 18.4% 25.6% 39.0%
TTM PER 6.60
PBV 2.18
Markets share for Tanzania cement companies
Mbeya
Cement
12%
Imported
Cement
12%
Tanga
Cement
34%
Twiga
Cement
42%
100.0%
Source: IAS/ ARM presenataion

Notes
Twiga Cement - 5yr CGR and forec ats
Revenue 69,038.6
EBITDA 26,160.7
Operating profit 23,579.1
PAT 15,628.4
EPS 86.9
DPS 17.4
Non current assets 27,019
Cash -
Current assets 25,009
Equity 37,441
2005 2006 2007 2008 2009 2010 2011F 2012F CAGR
80,203.2
31,020.0
28,251.1
19,500.0
108.4
28.0
29,416
-
39,422
53,816
119,764.9
48,147.2
45,240.3
30,111.6
167.4
43.0
60,201
-
42,766
78,890
148,709.6
56,480.6
53,159.8
34,962.3
194.3
70.0
122,153
-
46,513
106,116
37
178,999.6
79,479.1
71,982.8
47,993.0
266.7
130.0
142,383
10,141
49,953
141,514
Interest bearing loans 551
Non-current liabilities 8,266
Current liabilities 6,320
Total assets 52,027
8,292
6,731
68,839
7,235
16,842
102,967
11,166
51,384
168,666
24,169
26,653
192,336
Shares in issue 179.9
199,600.7
85,859.3
75,881.7
50,205.1
279.0
139.5
138,879
26,865
78,291
168,329
499
25,729
23,112
217,170
179.9
Production Capacity 1.40
246,817.6
99,619.1
90,964.7
60,703.8
337.4
168.7
166,655
25,668
93,995
198,679
542
31,140
30,831
260,650
292,995.7
118,257.3
107,983.7
72,061.2
400.5
200.2
199,986
28,775
105,373
234,707
589
35,502
35,150
305,359
EBITDA Margin 37.9% 38.7% 40.2% 38.0% 44.4% 43.0% 40.4% 40.4%
Operating Margins 34.2% 35.2% 37.8% 35.7% 40.2% 38.0% 36.9% 36.9%
RoAA 32.3% 35.1% 25.7% 26.6% 24.5% 25.4% 25.5%
RoAE 42.7% 45.4% 37.8% 38.8% 32.4% 33.1% 33.3%
Enterprise Value 347,874
EV/EBITDA 4.05
EV/Tonne (USD) 150.51
179.9
1.40
349,114
3.50
151.04
179.9
1.40
346,054
2.93
149.72
23.7%
26.8%
26.3%
26.3%
26.3%
33.1%

Notes
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