East and West Africa Cement Companies Report November 2011

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