Nigerian Cement Building Capacitymarket will ultimately shift the focus of the manufacturers to...

Contents Executive Summary 2 Introduction 4 The Cement Industry: Main Characteristics 4

The Cement Making Process 5

Global Cement Market 7 Demand Growth Is On The Decline 7

Regional Consumption: North Asia Leads 7

Top Consumers 8

China Tops Consumption 8 Global Imports And Exports 8

Lafarge And Holcim Are World-Leading Companies 9

The Nigerian Cement Market 10 Strong Demand Fuelling Growth... 10

...But Per Capita Consumption Is Low 10

Fiscal Improvement, Infrastructure Development To Further Drive Demand 10

Supply: Imports Augment Local Production... 11

...But Local Production Is Fast Growing 11 The Energy Challenge 12 Production Costs And Profitability 12

Capacity Expansion 13 Up And Coming 13

Capacity Utilization Improves 13

Future Glut: Domestic Prices To Fall By 2013... 14

...Leading To Exports 14

Cement Companies: Initiating Coverage 15 AshakaCem Plc 15

Benue Cement Company Plc 19 Cement Company Of Northern Nigeria Plc 23

Lafarge Cement WAPCO 27

Other Major Cement Producers 31

Operating And Valuation Stats 32

Disclaimer 34 Contacts 35

Nigerian Cement: Building Capacity

Cement production is a capital intensive activity and requires complex plants that are expensive

to install and maintain. The average cost of a cement plant is over $200M per million tonnes of

annual capacity, and plant modification costs are equally as high. The cost of a new cement plant is equivalent to around three years of turnover, thus ranking the cement industry among

the most capital-intensive in the world.

The demand for cement is a function of construction activity spurred by the growth and

development of an economy, and the continuous inflow of investment into the development of both residential and commercial estates by government, corporate, and private developers. Up

to the peak of world economic growth at the end of 2006, global cement consumption grew at a

remarkable rate and peaked at about 10% per annum. Similarly, as the negative growth

experienced by the world economy culminated in weakening demand in the construction market in 2007, growth in cement consumption softened, and then fell at a faster pace in 2008, growing

at just 3.4%. Global cement consumption is expected to experience marginal growth in 2010

following weak demand in 2009.

Over the last couple of years, the global cement industry has mirrored the trends in the global

economy. In regions and economies where the recent economic crisis has been severe, cement consumption declined noticeably. Conversely, regions that experienced strong

economic growth saw an increase in their cement consumption. In regional terms, North Asia

(including China and Japan) accounts for 53% of global consumption with 1.5 billion tonnes in

2008, up from 44% a decade earlier. Central America and Africa accounted for some of the lowest consumption in 2008.

The Nigerian cement industry grew rapidly from about N26 billion in 2004 to an estimated value

of N134 billion in 2008. According to industry sources, the estimated total consumption grew by

about 10% to 14.8 million tonnes in 2009, and an annual average of 12% since 2004. Although Nigeria’s cement consumption continues to rise, per capita usage (consumption per head) has

remained low. With a population of about 150 million, Nigeria’s per capita consumption was

approximately 98Kg in 2009, one of the lowest in the world, compared to South Africa’s 280Kg

and the BRIC nations’ average of over 400kg.

Improvement in oil production and the recent rally in oil prices have both increased government

revenue. Thus, we expect demand to continue to rise in the short to medium term on the back

of increased infrastructure spending (2010 budget of N4.6 trillion is 48% higher than the 2009

actual budget; while capital expenditure increased by 82% to N1.5 trillion). Another growth

driver is the Central Bank of Nigeria’s quantitative easing initiative which in addition to other objectives will provide about N500 billion for infrastructure projects in the power sector.

Historical capacity limitations in local cement production led to a virile import market. According

to International Cement Review Magazine (the foremost publication of the cement industry),

Nigeria imported an annual average of 10 million tonnes of cement in the five year period to 2008. By 2009, the volume of imports had started to decline as local manufacturers began to

expand their capacity.

Executive Summary


2 April 2010

Demand for cement is a function of construction activity spurred by growth and development in an economy, and the continu-ous inflow of investments into the development of both residential and com-mercial estates by govern-ment, corporate, and pri-vate developers

The Nigerian cement in-dustry grew rapidly from about N26 billion in 2004 to an estimated value of N134 billion in 2008. Ac-cording to industry sources, estimated total consumption grew by about 10% to 14.8 million tonnes in 2009, and an annual average of 12% since 2004

Reliable energy supply continues to pose challenges for cement operators in Nigeria. The

estimated power requirement for manufacturers is between 25,000 to 30,000 MW, however, the

Power Holding Corporation of Nigeria (PHCN) generates only about one-tenth of this requirement. The inconsistent supply of energy during the first half of 2008 hampered the rate of

production and led to the loss of numerous production days. In order to maintain or increase their

production output, manufacturers have to rely on generating alternative power, thereby

increasing their production costs and markedly cutting profitability. On a five-year average basis, the ratio of cost of sales to turnover for Nigerian manufacturers is 60% (an improvement from the

80-90% recorded in the early 2000s due mainly to technological improvements).

Following the installation of a new plant by Lafarge WAPCO in 2003, total industry capacity rose

by 108%. Further plant commissioning by other major players including Dangote and UniCem,

raised capacity from 5.45 million metric tonnes in 2003 to about 11.35 million metric tonnes in 2009. With more capacity scheduled to come on line in the next two years, we estimate that total

installed capacity will reach 26.75 million metric tonnes by 2012.

Our estimates of capacity development and demand growth reveal that by 2013, capacity will

exceed demand by 5.08 million metric tonnes. Our analysis is based on the assumption that cement consumption will continue to grow at an annual rate of 10%, and that total installed

capacity would reach 26.75 million metric tonnes per annum after 2012, as earlier stated. Thus,

we forecast that demand will increase from 14.8 million metric tonnes in 2009 to 21.67 million

metric tonnes by 2013. We expect that the ensuing glut will invariably lead to a reduction in domestic prices of cement.

As cement supply is expected to exceed demand by 2013, the saturation of the Nigerian cement

market will ultimately shift the focus of the manufacturers to export markets in neighbouring

African states where demand is still high and supply limited. We estimate that the excess of 5.08 million metric tonnes between estimated demand and planned expansion would serve as the

export capacity threshold for Nigerian cement manufacturers (especially companies that have

access to international markets). Cement Companies: Initiating Coverage We conclude this report by initiating coverage on Nigeria’s cement manufacturers, with our evaluation of the operations of the four major quoted cement companies - AshakaCem, Benue

Cement Company (BCC), Cement Company of Northern Nigeria (CCNN) and Lafarge Cement

WAPCO. We also profile other major cement producers, Dangote, BUA and UniCem. We are of

the opinion that these companies operate in a profitable sector with strong fundamentals. While

we hold a positive view on the cement industry, we note that recent price run-ups have placed cement companies in steep valuation territory. Collectively, the cement stocks have appreciated

by 63.8%, with some individual performances of over 80%.


3 April 2010

While we hold a positive view on the cement indus-try, we note that recent price run-ups have placed cement companies in steep valuation territory

Inconsistent supply of energy during the first half of 2008 hampered the rate of production and led to loss of production days. In order to maintain or in-crease production output, manufacturers have to generate alternative power, thereby increasing production costs and cut-ting profitability

Summary Ratings

Share price as at

23/4/2010 (=N=)

Target Price

(=N=) Upside Rating

AshakaCem 21.4 21.64 1% Hold

BCC 65..97 69.69 6% Hold

CCNN 21.9 20.71 -5% Sell

Lafarge WAPCO 42.28 49.7 18% Buy

The last two centuries have seen a significant shift in construction methodology from wood and

clay, to stone and mortar, and currently, concrete and steel. Cement, a common and essential

constituent of mortar and concrete, serves as the most common and widely used building mate-rial in the world.

Following the end of the world war two, cement consumption in industrialized countries in-

creased six fold, as these economies embarked on rapid construction activities until the 1975-oil

crisis, after which mature markets saw a decline of about 20% in consumption. A priori, infra-structure growth and development, brought about by increased income and output, leads to an

increase in cement consumption. Furthermore, there is evidence that once a society attains a

certain level of infrastructure development, its main focus shifts towards the maintenance and

improvement of this infrastructure. Hence, it is normal for the per capita usage of cement to eventually peak and then moderate over time.

The Cement Industry: Main Characteristics

Economic Growth, Population, and Infrastructure Pro gramme Drives Growth

The cement industry thrives in growing economies where new construction projects are occur-ring. Economies with young populations where mortgage and new housing plans are under im-

plementation would also exhibit strong demand for cement consumption.

A Process, Capital-Intensive Industry...

Cement manufacture is highly capital intensive and requires complex plants that are expensive

to install and maintain. The average cost of a cement plant is over $200M per million tonnes of

annual capacity, and modification costs are correspondingly high. The cost of a new cement

plant is equivalent to around 3 years of turnover, making the cement industry rank among the

most capital-intensive in the world.

...Energy Intensive Also

Globally, the cost of cement production is high with energy being the major cost driver. In Nige-

ria, energy accounts for about 40% of the total cost. Each tonne of cement requires 60-130Kg of fuel oil or its equivalent, depending on the cement variety and process used, and about 105KWh

of electricity.

Proximity To Raw Materials Is Key

The main source of raw material necessary for cement production, limestone, is cheap to obtain and is abundant in Nigeria. Limestone is a natural resource that constitutes approximately 10%

of sedimentary rocks exposed on the earth’s surface. Cement manufacturing plants are usually

located near quarries of limestone in order to avoid the costs of transporting large tonnes of

these materials over long distances. For example, one of Nigeria’s quoted cement producers, the Cement Company of Northern Nigeria Plc (CCNN) is located by a quarry with limestone re-

serves of 100 years at current production capacity of 0.5 million metric tonnes.

Introduction Nigerian Cement: Building Capacity

4 April 2010

Following the end of the world war two, cement con-sumption in industrialized countries multiplied by about six times

Economies with young populations where mortgage and new housing plans are under implementation would also make strong demands for cement consumption

Cement manufacturing plants are usually located near quarries of limestone in order to avoid the costs of transporting large tonnes of these materials over long distances

Extensive Distribution Network

An extensive distribution network is a critical consideration for operators of the business since

plants are located near limestone quarries and are usually remote from their markets. The main

players in the Nigerian cement industry are operators with established distribution channels.

Oligopolistic Structure

Because of its high entry requirements, such as significant fixed costs, brand establishment,

highly skilled staff, and distribution channels, there are relatively few operators in the Nigerian

cement industry. The structure of the industry is therefore oligopolistic, as the constituents typi-

cally consolidate via acquisitions and mergers to strengthen their positioning. The Cement Making Process

Quarry

Most plants rely on a nearby quarry for ready access to limestone. The most common combina-

tion is limestone (for calcium) plus much smaller quantities of clay and sand (for silica, alum, iron). Other sources such as mill scale, shale, bauxite, and fly ash are brought in from outside sources

when necessary.

Proportioning, Blending, and Grinding Raw materials are analyzed in the plant laboratory, blended in the proper proportion and then finely ground. Plants grind the raw materials with heavy wheel type rollers that crush these mate-

rials into powder against a rotating table. After grinding, the material is now ready for the kiln or

pre-heater; depending on plant type.

Pre-heating The pre-heater tower supports a series of vertical cyclone chambers through which the raw mate-

rials pass on their way to the kiln. To save energy, modern cement plants pre-heat the materials

before they enter the kiln. Rising more than 200 feet, hot exit gases from the kiln heat the raw

materials as they swirl through the cyclones. Kiln Raw materials now enter the huge rotating furnace called a kiln, which is the heart of the cement

making process- a horizontally sloped steel cylinder, lined with fire brick, turning from about one

to three revolutions per minute. Typically, a kiln is the world’s largest piece of moving industrial equipment. The raw material enters the kiln at the upper end and slides/tumbles down the kiln

through progressively hotter zones towards the flame. At the lower end of the kiln, fuels such as

powdered coal and natural gas feed a flame that reaches 1870oC (3400oF) – one third of the tem-

perature of the earth’s surface. This is the hottest part of the apparatus and the raw materials

reach about 2700oF (1480oC) and become partially molten. Calcination Intense heat triggers chemical and physical changes. Expressed at its simplest, these series of

chemical reactions converts the calcium and silicon oxides into calcium silicates, cement’s pri-

mary constituent, through a process known as calcination. At the lower end of the kiln, the raw materials emerge as a new substance; red-hot particles called clinker.


5 April 2010

The kiln is the heart of the cement making process, and is the world’s largest piece of moving industrial equipment

Because of its high entry requirements, such as sig-nificant fixed costs, brand establishment, highly skilled staff, and distribution chan-nels, there are relatively few operators

Clinker Cooler and Finish Grinding

The clinker tumbles out on to a grate that is cooled by forced air. Once cooled, the clinker is ready to be ground into the

gray powder known as Portland cement.

Re-circulate : to save energy, heat recovered from this cooling process is circulated back through to the kiln or pre-heater tower.

Ball-mill and Finish Grinding

The clinker is ground in a ball mill (a horizontal steel tube filled with steel balls). As the tube rotates, the steel balls

tumble and crush the clinker into a superfine powder considered as Portland cement. The cement is so fine it will easily

pass through a sieve that is fine enough to hold water. A small amount of gypsum is added during the final grinding to

control the set. Gypsum is a mineral that slows down the hardening process of the powder after it has been mixed with

water and makes it moldable before application.

Bagging and Shipping

Silos : From the grinding mills, the cement is conveyed to silos where it awaits shipment.

Transportation : Most cement is shipped in bulk by trucks, rail, or barges.

Bagging : A small percentage of the cement is bagged for customers who need only small amounts or for special uses such as making mortar. Most cement is shipped to ready-mixed concrete producers. There it is combined with water,

sand, and gravel to make concrete delivered in the familiar trucks with revolving drums. Cement is also used for a wide

variety of pre-cast concrete products.


6 April 2010

Chart 1: The Cement Making Process

The Limestone Quarry

Proportioning, Blending and Grinding

Pre-heater tower

Kiln

Clinker Cooler & Finished Grinding

Bagging & Shipping

The production process starts here. Mining of limestone deposits takes place coupled with smaller quantities of clay and sand, and crushed to the size of gravel.

Raw materials are analyzed in the plant laboratory, then blended in the proper proportion before they are ground to a finer form with heavy wheel type rollers.

The materials are pre-heat before they enter the kiln to save energy. Hot exit gases rising more than 200 feet heat the raw materials as they swirl through cyclones to the kiln.

The kiln is the heart of the cement making process and the world’s largest moving industrial equipment. Here, fuels such as powdered coal and natural gas fire the raw materials at 14800C to convert the raw materials into partial molten mixture – clinker.

The clinker (semi-finished form) flows from the kiln to a grater through which it is cooled by forced air. The clinker is then ground in a ball mill, with a small proportion of gypsum (2-5%), into a super fine powder.

From the grinding mills, the finished product is conveyed to silos where it is bagged or shipped in bulk by trucks, rail, or barges.

Source: Portland Cement Association (PCA)

Demand Growth Is On The Decline…

The demand for cement is a function of construction activity spurred by growth and development of an economy, and the continuous inflow of investment into the development of both residential

and commercial estates by government, corporate, and private developers. Up to the peak of

world economic growth at the end of 2006, global cement consumption grew at a remarkable rate

and peaked at about 10%. Similarly, as the negative growth experienced by the world economy culminated in weakening demand in the construction market in 2007, growth in cement consump-

tion softened, and then fell at a faster pace in 2008, growing at just 3.4%. Global cement con-

sumption is expected to experience little growth in 2010 over the declines experienced in 2009.

Global Cement Market Nigerian Cement: Building Capacity

7 April 2010

Global cement consumption is expected to experience little or no growth in 2010 over the declines experi-enced in 2009

Chart 2: Cement Consumption (2006-2009e) Chart 3: Global Economic Growth, % (2006-2011)

Regional Consumption: North Asia Leads

In regional terms, North Asia (including China and Japan)

accounts for 53% of global consumption with 1.5 billion tonnes in 2008, up 44% a decade earlier. During the

same period, the Indian sub-continent accounted for 8%

or 220 million tonnes of cement consumption in 2008

from its 7% share in 1998. The Middle East, Eastern Europe, and Central America also saw their share of ce-

ment expand over the last decade. Western Europe was

the second largest consumer at 266 million tonnes, repre-

senting 9% of total consumption from 16% in the previous

decade. Central & Southern Africa, and Central America accounted for the lowest consumption at 1% each.

Chart 4: Regional Consumption

-10

-8

-6

-4

-2

0

2

4

6

8

10

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

World Advanced economies Emerging economies

North Asia (China &

Japan), 53%Indian

Subcontinent, 8%

Middle East, 5%

Central & Southern

Africa, 1%

North & W est

Africa, 4%

Central Europe, 1%

Eastern Europe, 4%

Western Europe,

9%

Central America, 1%

South America, 4%North America, 5%

Australasia, 5%

Source: Cemnet, AIS Research Source: IMF

Source: Cemnet

9.9

7.6

3.4

1.00.0

2.0

4.0

6.0

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12.0

2500

2600

2700

2800

2900

3000

2006 2007 2008 2009Global Consumption Value (Mt)

Global Consumption Growth %

1,200

1,320

1,390 1,368

1,443 1,467

1,000

1,100

1,200

1,300

1,400

1,500

2006 2007 2008

Million MT

China Rest of the world

0

50

100

150

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250

Ind

ia

USA

Ru

ssia

Bra

zil

Jap

an

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ore

a

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Top Consumers...

The top consumers of cement include the three largest economies, USA, Japan, and China and

the other three BRIC countries (Brazil, Russia, and India). This is an indication that cement con-sumption is a function of strong economic growth and industrial activity. Long overdue infrastruc-

ture and housing programmes and a per capita consumption of about 146 Kg have buoyed In-

dia’s consumption, indicating strong cement demand over the next decade. Consumption in the

US dropped by about 15%, due to the financial crisis of 2008. However, being a mature con-suming nation, its strong industrial activity continues to support strong consumption. Vietnam,

however, has increased its consumption based on its young, fast growing population and devel-

opment needs.

China Tops

With strong economic growth (approximately 9% in the last two years), cement consumption in

China has been strong over the last decade rising (at a CAGR of 10.5%) from 511 million tonnes

in 1998 to 1.4 billion tonnes in 2008. China accounted for 49% of global consumption in 2008

from 34% in 1998. However, the annual growth rate continues to slide, from 13% in 2006 to 5%

in 2008. This slide serves as an indication of the restraint in Chinese consumption during the global financial crisis that prevailed during the period. With a $586 billion stimulus package

launched in the wake of 2009, Chinese consumption is expected to remain strong. During the

recession in 2008, consumption in the rest of the world dropped 5.5% in 2007, to just 1.7% in

2008.


8 April 2010

Chart 5: Consumption (Excluding China) Chart 6: China Vs Rest of The World

China accounted for 49% of global consumption in 2008 from 34% in 1998

Source: Cemnet

Global Imports And Exports

China remains a leading exporter of cement, even after it had to scale back on its level of ex-ports during the global recession of 2008 due to improved supply-demand balance and lower

external demand. With declining domestic demand, Japan is one of the leading exporters, with

its trade largely concentrated in the Asian region.

Despite a significant reduction of about 70% of its import volumes during the recession, the US

still maintains its position as the largest importer of cement. Domestic cement production short-ages, massive domestic price increases, and lack of a coordinated distribution network led to a

rise in Russia’s imports. Russia’s import level would expectedly decrease as domestic cement

supply and demand imbalance normalizes. Similar to Russia, Nigeria is one of the top importers

because of the cement demand-supply imbalance, which is gradually declining, with significant new domestic capacity being added. Massive building and construction activities also increased

Dubai’s ranking as one of the top importers of cement in recent times.

Despite a significant reduc-tion of about 70% of its im-port volumes during the re-cession, the US still main-tains its position as the larg-est importer of cement

Source: Cemnet

0

50

100

150

200

250

sales Capacity

70%

75%

80%

85%

90%

95%

Lafarge And Holcim Are World-Leading Companies…

Lafarge and Holcim continue to dominate the global cement market. Despite recording declines in

sales and operating income in 2009, both companies emerged as the leaders in sales and pro-duction capacity. In 2009, Lafarge led with a sales figure of $21.2 billion compared to Holcim’s

$19.7 billion and production capacity of 204 million metric tonnes to Holcim’s 202 million. Other

leading companies are Heidelberg (Germany), Cemex (Mexico), Italcementi (Italy) and Buzz

Unicem (Italy). Most of the international cement companies experienced a decline in their top and bottom lines in 2009 due to the tough economic environment. The companies experienced solid

market growth in the emerging economies (especially the Middle East and Africa) and a slowdown

in the advanced countries.


9 April 2010

Chart 7: Top 10 Exporters Chart 8: Top 10 Imports

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Ch

ina

Jap

an

Thai

lan

d

Turk

ey

Ge

rman

y

Pak

ista

n

taiw

an

S. K

ore

a

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t

ind

ia

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2.0

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8.0

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USA

Ru

ssia

Nig

eri

a

UA

E

Sp

ain

Ba

ng

lad

esh

Iraq

Sin

ga

po

re

An

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ds

In 2009, Lafarge led with a sales figure of $21.2 billion compared to Holcim’s $19.7 billion and production capac-ity of 204 million metric ton-nenes to Holcim’s 202 million

Chart 9: Leading Global Cement Companies Chart 10: Capacity Utilization

Source: Cemnet Source: Cemnet

Source: Cemnet Source: Cemnet

0

100

200

300

400

500

India USA Russia Brazil S.Africa Nigeria

Kg

Strong Demand Fuelling Growth…

The Nigerian cement industry grew rapidly from about N26 billion in 2004 to an estimated value

of N134 billion in 2008. According to industry sources, the estimated total consumption grew by 8% to 14.8 million tonnes in 2009, and approximately 10.5% annually over the last six years.

Potential aggregate demand for cement is in excess of supply and estimated at 18 million tonnes.


10 April 2010

The Nigerian Cement Market

Chart 11: Cement Consumption (2004-2009) Chart 12: Cement Contribution to GDP

Source: Cemnet, AIS Research

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

0.12%

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

…But Per Capita Consumption Is Low

Although Nigeria’s cement consumption continues to

rise, per capita usage (consumption per head) is low by global standards, and as evidenced by the housing

deficiency of about 12 million units and relatively poor

infrastructure within the country. With a population of

about 150 million, Nigeria’s per capita consumption was approximately 98Kg in 2009, one of the lowest in

the world, compared to South Africa’s 280Kg and the

BRIC nations’ average of over 400kg.

Source: Industry sources, AIS Research estimates Source: CBN

Chart 13: Per Capita Cement Consumption

Fiscal Improvements, Infrastructure Development To Further Drive Demand…

Improvements in oil production techniques and the recent rally in oil prices have both increased the Nigerian govern-ment’s revenue. Thus, we expect demand to continue to rise in the short to medium term on the back of increased infra-

structure expenditure (2010 budget of N4.6 trillion is 48% higher than the 2009 actual budget; while capital expenditure

increased by 82% to N1.5 trillion). Another growth driver is the Central Bank’s quantitative easing initiative which is de-

signed to provide about N500 billion for infrastructure projects in the power sector. In addition, we anticipate that Nigerian

banks will resume lending (and help boost credit to the building and construction sector) by the third quarter of the year when the uncertainty in the financial sector would have in all likelihood abated to a noticeable degree. Expectations are

that these drivers will help fuel demand for cement further, as building and construction activities continue.

6.0

8.0

10.0

12.0

14.0

16.0

2004 2005 2006 2007 2008 2009

Million MT

Dan gote,

5 0%

Easter n

Bulcem, 5%Unicem, 3%

Atlas, 7%

Ibeto

Group, 9%

Flour

Mills, 23%

Diamond,

3% Lafarge

Wapco

Ashakacem

CCNN

BCC

Obajana

Unicem

Supply: Imports Augment Local Production…

Historical capacity limitations in local cement production, has led to a virile import market in

Nigeria. According to the International Cement Review Magazine, Nigeria imported an annual average of 10 million tonnes of cement over the past five years to 2008. By 2009, the volume of

imports started to decline as local manufacturers expanded their capacities. Out of the estimated

14.8 million metric tonnes of cement consumed in 2009, only about 6.3 million metric tonnes

(43% of total consumption) was imported, compared to about 8.2 million metric tonnes per an-num (about 58%) in 2008. We expect the volume of imported cement to continue to decrease as

local production ramps up.


11 April 2010

According to the global cement report, Nigeria im-ported an annual average of 10 million tonnes of cement over the past five years to 2008

Source: Industry sources, AIS Research Source: Industry sources, AIS Research

Chart 14: Local Supply (2004-2009) Chart 15: Cemen t Imports, Million Metric Tonnes Per Annum

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2003 2004 2005 2006 2007 2008 2009

Million MT

0.0

2.0

4.0

6.0

8.0

10.0

2008 2009

Chart 16: Importers’ Market Share Chart 17: Local P roducing Companies’ Market Share

...But Local Production Is Fast Growing

Due to the high cost of freight, it is cheaper to produce cement locally than to import. By plac-

ing a ban on the importation of bagged cement in 2003 (later reversed), and bulk cement in 2007, the government raised incentives for further investments. To this end, the volume of

local cement production improved considerably from about 2.5 million tonnes in 2004 to about

9 million tonnes in 2009, largely owing to the commencement of production at Dangote’s Oba-

jana facility (commenced production in 2007 and accounts for 34% of the market) and Unicem’s plant (commissioned in 2009). In 2009, local production grew by over 50%, but still

lagged overall demand which is growing at an estimated 10% annually. There is a readily

available market for cement in Nigeria on the back of high potential demand of about 18MT,

thus there is significant opportunities for expansion. The emergence of large players in the

local market has helped to assuage the challenge of poor funding, and catalyzed the growth of expansion.

In 2009, local production grew by 50%, but still lagged overall demand which is growing at an esti-mated 10% annually

Source: Industry sources, AIS Research Source: Industry sources, AIS Research

Production Costs And Profitability

As stated earlier, the high cost of manufacturing cement is a global phenomenon, mainly because

of the large amounts of energy utilized during the production process. Power supply (electricity) is essential for operating the machines, while fuel (LPFO, coal and natural gas) is required for firing

the kilns. Each tonne of cement requires 60-130kg of fuel oil or its equivalent, depending on the

cement variety and process used, and about 105kwh of electricity. Energy supply continues to

pose challenges for cement operators in Nigeria. The estimated annual power requirement for manufacturers is 25000/30000 MW, however, the Power Holding Corporation of Nigeria (PHCN)

generates only about one-tenth of this requirement. The inconsistency in the supply of energy

during the first half of 2008 hampered the rate of production and led to loss of production days in

some cement production plants. In order to maintain or increase their production output, manufac-

turers have to generate alternative power, thereby increasing production costs and reducing their profits. On a five-year average basis, the ratio of cost of sales to turnover is 60% (an improvement

from 80-90% recorded in the early 2000s due mainly to technological improvements).


Power supply (electricity) is essential for operating the machines, while fuel (LPFO, coal and natural gas) is required for firing the kilns Inconsistent supply of energy during the first half of 2008 hampered the rate of production and led to loss of production days

12 April 2010

The Energy Challenge

Source: Companies Annual Reports, AIS Research

In addition, high fuel prices and shortages in supply are twin challenges faced by cement manu-

facturers. The price of diesel and LPFO has increased by over 100% in the last three years,

while militant activities in the oil-rich Niger Delta region of Nigeria continues to hinder the steady supply of natural gas. Consequently, many production plants have seen their production outputs

fall drastically and their profitability.

Cement companies are facing up to this challenge in various ways. For instance, as a substitute to the expensive and erratic supply of LPFO, AshakaCem switched to the use of coal and em-

barked on a coal-mining project. This is expected to reduce its overall energy costs, and guaran-

tee supply in the long-run. It also embarked on roller press refurbishment to reduce power con-

sumption on cement grinding and increase efficiency of the cement mill. Lafarge WAPCO has

also embarked on the installation of gas fired power plants to cut energy costs and guarantee power supply to its plants. But for its erratic supply, natural gas is considered one of the more

efficient energy sources for Nigerian cement production.

Chart 18: Industry Gross Margins Chart 19: Industry Cost of Goods Sold

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009e

0%

10%

20%

30%

40%

50%

60%

70%

2005 2006 2007 2008 2009e

Source: Companies’ Annual Reports, AIS Research

The price of diesel and LPFO has increased by over 100% in the last three years, while militant activities in the oil-rich Niger Delta region contin-ues to hinder steady sup-ply of natural gas

Parent/Group Current Installed

Capacity (2009)

New Capacity

(2010-2012)

Estimated Total

Installed Capacity

Post 2012

Lafarge WAPCO Lafarge S.A 2.20 2.00 4.20

AshakaCem Lafarge S.A 0.80 0.20 1.00

CCNN BUA 0.50 0.75 1.25

BCC Dangote 0.50 2.30 2.80

Edo Cement BUA 0.35 1.65 2.00

Obajana Dangote 4.50 3.50 8.00

Ibeshe Dangote 0.00 5.00 6.00

UniCem Holcim/Lafarge S.A/Flour

Mills

2.50 0.00 2.50

Total 11.35 15.4 26.75

Up And Coming

Total installed capacity of cement manufacturing plants remained at 5 million metric tonnes

between 1987 and 2003. Following the installation of a new plant by WAPCO in 2003, total in-dustry capacity rose 108.3%. Further plant commissioning by other major players such as Dan-

gote and UniCem, raised capacity from 5.45 million metric tonnes to about 11.35 million metric

tonnes in 2009. The demand-supply imbalance prevalent in the industry necessitated this ca-

pacity expansion. By expanding their plant capacity, manufacturers stand to gain economies of scale, as their average cost per unit falls. Investment is typically by way of new and existing

players acquiring and refurbishing old cement plants, building new facilities, and the expansion

of current facilities. With a host of new facilities scheduled to come on line in the next two years,

we estimate that total installed capacity will reach 26.75 million metric tonnes by 2012.


With a host of new facili-ties scheduled to come on line in the next two years, we estimate that total installed capacity will reach 26.75 million metric tonnes by 2012

13 April 2010

Capacity Expansion

Source: Companies’ Data, AIS Research

Capacity Utilization Improves…

Between 2003 and 2007, average capacity utilization of

Nigeria’s cement plants was at 54%. However, aggressive improvements of these plants, through

equipment upgrades and new installations have led to

an increase in the existing capacity utilization to 75%

by 2009. We see this as a significant improvement that will further boost the output and profitability of the

cement manufacturers.

Chart 20: Capacity Development

0%

10%

20%

30%

40%

50%

60%

70%

80%

2003-2007 Average 2009

Chart 21: Capacity Utilization

Source: Industry sources, AIS Research

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2009 2013

Million MT

demand installed capacity

Estimated Export Capacity (5.08MT)

Future Glut: Domestic Prices To Fall By 2013…

The price of cement in Nigeria is relatively high and is directly attributable to the prevailing sup-

ply-demand imbalance in Nigeria. We expect that as local production capacity increases, there will be a corresponding increase in domestic supply and the volume of imports will reduce sig-

nificantly. Furthermore, we expect that with the ongoing rapid development, the production ca-

pacity will ultimately catch up with and overtake demand.

Our estimates of capacity increases and demand growth reveal that by 2013, capacity will ex-

ceed demand by 5.08 million metric tonnes. Our analysis is based on the assumption that ce-

ment consumption continues to grow at an annual rate of 10%, and that total installed capacity

would reach 26.75 million metric tonnes per annum after 2012, as earlier stated. Thus, we fore-

cast that demand will increase from 14.8 million metric tonnes in 2009 to 21.67 million metric tonnes by 2013 at a compounded annual rate of 10%. We expect that the ensuing glut is likely

to lead to a noticeable reduction in domestic prices of cement.


Our estimates of capacity development and demand growth reveal that by 2013, capacity will exceed de-mand by 5.08 million metric tonnes… ...we expect that the ensu-ing glut would invariably lead to a slump in domestic prices of cement

14 April 2010

Source: AIS Research

…Leading To Exports

As cement supply is expected to exceed demand by 2013, the saturation of the Nigerian cement

market will ultimately shift the focus of the manufacturers to export markets in neighboring African states where demand is still high and supply limited. We estimate that the overage of 5.08 million

metric tonnes between estimated demand and planned expansion would serve as the export

capacity threshold for Nigerian cement manufacturers (especially companies that have access to

international markets). Furthermore, given that these companies utilize over 80% of their installed capacities over 80% (it takes an average 12 months to reach full capacity), we believe that they

will further increase their production capacity for the export market.

Chart 22: Capacity Development

We estimate that the overage of 5.08 million metric tonnes between estimated demand and planned expansion would serve as the export capacity threshold for Nigerian cement manufacturers

Chart 23: Sensitivity on Export Capacity

Capacity

Utilization

Planned Installed

Capacity by 2013

(Million MT)

Actual

Production

(Million MT)

Estimated

Demand

(Million MT)

Export Capacity

(Million MT)

Export Potential

(Million MT)

55% 26.75 14.71 21.67 5.08 2.79

65% 26.75 17.39 21.67 5.08 3.30

75% 26.75 20.06 21.67 5.08 3.81

85% 26.75 22.74 21.67 5.08 4.32

95% 26.75 25.41 21.67 5.08 4.83

Source: AIS Research

AshakaCem Plc

Overview

AshakaCem Plc is a leading supplier of cement in the Northern region of Nigeria. The company

was incorporated in 1974, but commenced operations in 1979 at its Ashaka Cement Works lo-

cated in the North Eastern corner of Funakaye LGA of present day Gombe State. AshakCem became a member of the Lafarge Group after the 2001 acquisition of Blue Circle Industries Plc.

Lafarge holds 50.2% of the issued ordinary shares of the company through the parent company

and Lafarge Nigeria Limited, a subsidiary, which holds 0.16% of the total issued shares. Since

the acquisition, Lafarge has provided AshakaCem with technical and operational support. The

company produces and distributes the ‘Ashaka’ brand of ordinary Portland cement, covering the north eastern and north western region of Nigeria.


15 April 2010

Cement Companies: Initiating Coverage

Chart 24: Price Performance (2009 to Date)

Source: Company’s Annual Reports, AIS Research

Rating HOLD

Price as at

23/04/10 N21.40

DCF Value N21.64

2009 P/E 19.3x

2010 P/E 15.1x

2010 EV/

EBITDA 9.0x

Chart 25: Cement Sector Price Performance (Year to Date)

Chart 26: Income Statement (2006-2010F)

Source: NSE, AIS Research Source: NSE, AIS Research

(Millions) 2006 2007 2008 2009E 2010F

Turnover 16,772 16,474 21,378 17,103 22,217

Cost of Sales 8,794 10,868 14,039 11,145 14,589

Operating Expenses 3,962 3,422 4,073 3,234 4,233

Operating Income 4,016 2,184 3,266 2,724 3,395

Interest Expense - - - - -

Other Income 935 330 165 - 170

Profit Before Tax 4,951 2,515 3,431 2,724 3,565

Taxation 1,574 911 1,361 872 1,141

Profit After Tax 3,377 1,603 2,070 1,852 2,424

30.0

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NSE AshakaCem0% 20% 40% 60% 80% 100%

AshakaCem

BCC

CCNN

WAPCO

NSE

AshakaCem Plc: Operations and Capacity

At its plant in Gombe State, AshakaCem is able to produce over 850,000

metric tonnes of cement per annum. In 2006, and as part of its efforts to en-sure improved performance, the company placed emphasis on plant improve-

ments. Since then, extensive work has gone into its realisation with some

projects completed, while others are at very advanced stages. Some of the

major investments were the kiln up rating aimed at increasing capacity and heat consumption, the power project aimed at improving the utilization factor

for cement mills, roller press refurbishment and the coal project as a substi-

tute for LPFO used for kiln firing. The company has an installed coal capacity

utilization of 300,000 tonnes per annum and the prospect of expanding cur-

rent capacity utilization after the uprating project in the company. It is the ob-jective of the AshakaCem plants management that lignite will represent 90%

of its fuel requirements at 3000tpd of clinker after the initial capacity increase.

AshakaCem plans to secure fuel supply of at least 25 years in order to avoid

production short falls. In its quest to switch over to lignite usage, the company has finished exploration within a selected area in Maiganga in Akko Local

Government of Gombe State with an estimated proven reserve of 4.5 million

tonnes. This reserve is expected to satisfy the Company’s requirement for

more than 25 years. These improvement efforts were partially reflected in the

2008 financial performance where sales volume reached a record high of 866,000 metric tonnes of cement compared to 677,000 in 2007.


16 April 2010

Chart 28: Profit After Tax(2006-2010f)

Chart 27: Sales and EBIT (2006-2010f)

-

5,000

10,000

15,000

20,000

25,000

2006 2007 2008 2009e 2010f

N'Millions

Sales EBIT

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2006 2007 2008 2009e 2010f

N'Millions

Profit After Tax


Liquidity

AshakaCem had historically shown liquidity ratios above its peers’ average. The company’s current ratio (a measure-

ment of the company’s ability to pay short term obligations) topped 2.7 in 2005. Since then, the current ratio has fallen to 0.8 as at 2008, and averaged 1.2 over the last three years, but remains above the industry average of 0.8 over the three

year period. The company’s quick ratio (i.e. the company’s ability to meet its short term obligations with its most liquid

assets) has fallen from 0.9 in 2006 to 0.4 as at 2008, while its cash ratio dropped from 0.6 to 0.2 over the same period.

The decline in liquidity can be attributed to the company’s ongoing improvement projects which were funded from inter-nally generated funds. Cash and bank balances fell at a CAGR of 34% between 2006 and 2008, with a consequential

rise in (PPE) plant, property and equipment (up 43% CAGR) over the same period. The company’s liquidity position was

also worsened by increases in its current liabilities (up 31% CAGR), driven by large increases in non-trade creditors and

accruals, as well as related company balances. Overall, Ashakacem’s working capital dropped from a surplus of N4,513

million in 2006 to a deficit of N1,677 million in 2008. We expect Ashakacem’s liquidity position to gradually improve as the company begins to realise the benefits of recent investments.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2005 2006 2007 2008

Current Ratio Quick Ratio

Chart 29: AshakaCem Liquidity Ratios (2005-2008) Chart 30: Companies’ Liquidity Ratios (3 Year Avera ge)

Source: Company’s Annual Reports, AIS Research Source: Companies’ Annual Reports, AIS Research


0.0

0.5

1.0

1.5

AshakaCem BCC CCNN Lafarge

WAPCOCurrent Ratio Quick Ratio

AshakaCem Plc: Activity

AshakaCem seems to enjoy favourable trade terms with its suppliers and customers. On the customer side, the com-

pany’s average collection period rose by 9 days, from 36 days to 45 days between 2006 and 2008, in line with its peers’ average of 45 days. On the supplier side, average payable period rose 41 days from 149 days in 2006 to 201 days by

2008 (industry average payable days over the same period is 152 days). This implies that in 2008, AshakaCem de-

manded payments on average from customers in 45 days, while delaying payments on average for as much as 201

days, thus enjoying a net credit period of 166 days. AshakaCem’s efficiency comes to bare when we consider its fixed asset turn, which has averaged 5.3x in the last three years compared with its peers’ average of 2.3x over the same pe-

riod. We expect efficiency ratios to hold steady as the company consolidates the gains of recent improvements.


17 April 2010

Chart 31: Receivable Collection Period (2005-2008)


Chart 32: Operating Cycle


Profitability

Rising energy costs are eroding AshakaCem’s margins. The company’s gross margin have fallen from a high of 59% in

2005 to 34% by 2008 and has averaged 39% in the last three years compared with the industry average of 41%. The company’s operating margins also dropped from 41% in 2005 to 16% in 2008 with a four year average of 20% compared

with peers’ average of 21%, while net margin has dropped from 28% in 2005 to 10% in 2008, with period average of

13% compared with peers’ average of 15%. Between 2006 and 2008, return on equity has averaged 20% compared with

its peers’ average of 31%. Over the same period return on assets has averaged 12% compared with 14% for the indus-try. We expect AshakaCem’s attempt at substituting more expensive, less reliable LPFO supply for firing its kiln with

more stable, locally available coal, to bring savings in energy costs and boost profitability going forward.

Chart 33: Ashakacem Profit Margins (2005-2008) Chart 34: Cement Sector Gross Margin (3 Year Averag e)

Source: Company’s Annual Reports, AIS Research Source: Companies” Annual Reports, AIS Research

0%

10%

20%

30%

40%

50%

60%

70%

2005 2006 2007 2008

Gross Profit Margin Operating margin Net Profit Margin

0

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20

30

40

50

60

2005 2006 2007 2008

Average Receivable Collection Days

0%

10%

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30%

40%

50%

60%

AshakaCem BCC CCNN Lafarge WAPCO

Gross Profit Margin

0

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100

150

200

250

300


Operating Cycle (Days)

0

5

10

15

20

25

30


Times Interest Earned

AshakaCem Plc: Solvency

AshakaCem has historically financed its operations entirely from equity. Total Shareholders’ fund

grew at a CAGR of 5% from N11.6 billion in 2006 to N12.7 billion in 2008. AshakaCem is the only quoted cement company that has no long term debt on its balance sheet, and as such records no

interest expense. When we compare operating cash flow (CFO) to total liabilities, AshakaCem’s

2006-2008 average of 0.6 compares favourably with its peers’ average of 0.4 over the same pe-

riod.


18 April 2010

Chart 35: Financial Leverage (2005-2008)


Chart 36: Times Interest Earned (3 Year Average)


Valuation

Based on relative valuation, AshakaCem is trading at a P/E ratio of 19.3x 2009 estimated net income, compared to the

cement sector’s average of 19.4x and NSE market P/E 27.0x trailing net income. Our earnings projections for 2010 show that AshakaCem’s P/E is expected to fall to 15.1x, compared to the cement sector average of 14.7x. In terms of absolute

valuation, discounting free cash flow before dividends at a discount rate of 26.2% with a terminal growth rate of 6% after

five years, places a fair value of N21.64 on AshakaCem. This valuation yields only a 1% upside to the current market price of N21.40. Our discount rate for AshakaCem is higher than that for other cement companies partly because of the company’s equity only capital structure.

Our view is that AshakaCem is a high quality, well managed company in a profitable sector with strong fundamentals.

However, we think that the company's current valuation appears stretched, given the recent run, with year to date (YTD)

performance of 85.3%, which is the highest in the sector, and the limited upside scope vis a vis our intrinsic valuation.

We therefore place a HOLD rating on AshakaCem stock.

AshakaCem is the only quoted Cement Company that has no long term debt on its balance sheet, and as such records no inter-est expense

0.00

0.50

1.00

1.50

2.00

2.50

2005 2006 2007 2008

Financial Leverage

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350

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450

500

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NSE BCC

Benue Cement Company Plc

Overview

Benue Cement Company (BCC) was incorporated on July 16, 1975. The company was

established primarily to manufacture and distribute ordinary Portland cement under the ‘Lion’

brand. BCC was majority owned by the Benue State Government. The government’s holding was diluted in 1986 when the company went public. In 2005, local entrepreneur, Aliko Dangote,

through Dangote Industries Limited (DIL), acquired the government’s remaining stake and

emerged as the majority shareholder, controlling 74% of the company’s shares. Dangote has

since re-positioned the company to become one of the largest cement companies in the country.

Its existing plant now has the capacity to produce 3 million metric tonnes of cement per annum (from 0.85 million prior to Dangote’s arrival). In 2008, BCC’s product was re-branded from ‘Lion

Portland Cement’ to ‘Dangote Cement’ in line with the company’s new marketing strategy, which

includes leveraging the Dangote brand.


19 April 2010

Chart 37: BCC Price Performance (2009 to Date)


Rating HOLD

Price as at

23/04/10 N65.97

DCF Value N69.69

2009 P/E 20x

2010 P/E 15.1x

EV/EBITDA 11.4x


Chart 39: BCC Income Statement (2006-2010F)


2006 2007 2008 2009 2010F

Turnover 6,029 5,473 16,454 35,012 43,438

Cost of Sales 3,070 2,711 8,252 15,203 18,244


Operating Profit 1,917 1,650 5,808 16127 23,022

Interest Expense 138 53 1,218 1872 743

Other Income 2,082 273 144 180 -

Profit Before Tax 3,861 1,870 4,734 14436 22,279

Taxation 756 618 590 63 2,775

Profit Loss After Tax 3,105 1,252 4,144 14373 19,504

0% 20% 40% 60% 80% 100%

AshakaCem

BCC

CCNN

WAPCO

NSE

BCC: Operations and Capacity

BCC supplies cement to the middle and eastern states of Nigeria. The

company’s plant (located in Gboko, Benue state) was commissioned in the 1970s, but suffered from poor operational management over the years,

resulting in significant under utilization of the then 0.85 million metric tonnes

per annum capacity. This operational challenge led to losses in the early

2000s with the company recording no sales in 2004 due to its plant’s refur-bishment. With the coming onboard of DIL, the fortunes of BCC changed for

the better, as DIL made significant strides toward ramping up production with

both existing kilns refurbished and expanded to the targeted 3 million metric

tonnes. The results of the expansion are already evident in the company’s

recent financial performance. As at Q3 2009, sales had risen to N27.2bn from N9.8bn in the corresponding period of 2008. Pre-tax profits have also im-

proved from N4.8bn in Q3 2008 to N13bn in Q3 2009. AIS Research esti-

mates overall sales for 2009 to more than double to N36bn from N16.5bn in

2008, and pre-tax profit at N15bn from N4.7bn in 2008. This impressive result is expected on the back of 54% capacity utilization in 2009. Management

expects capacity utilization to inch up to over 65% in 2010. We expect sales

for 2010 to top N43bn, while pre-tax profits are expected to come in at

N19.5bn.


20 April 2010

Chart 41: Profit After Tax (2006-2010F)

Source: Company Annual Reports, AIS Research

Chart 40: Sales and EBIT (2006-2010F)

Source: Company Annual Reports, AIS Research

Liquidity

Irrespective of its emerging dominant position in the cement industry, BCC’s liquidity profile falls below its peers. Aver-

age current ratio over the last three years stood at 0.15 against peer average of 0.81, while quick and cash ratios over the same period stood at 0.10 and 0.01 against industry averages of 0.38 and 0.20 respectively. We interpret this lower

than average liquidity ratios as arising from operating challenges in previous years, but note that liquidity indicators have

gradually improved over time. We expect the company’s liquidity to improve further as the company continues to con-

solidate on the gains of capacity expansion and increased sales.

Chart 42: BCC Liquidity Ratios (2005-2008) Chart 43: Liquidity Ratio (3 Year Average)


-

5,000

1 0,000

1 5,000

2 0,000

2 5,000

3 0,000

3 5,000

4 0,000

4 5,000

2006 2007 2008 2009 2010f

N'Mil lions

Turnover EBIT

-

4,000

8,000

12,000

16,000

20,000

2006 2007 2008 2 009 2010f

N'Millions

Profit / Loss After Tax

0.00

0.05

0.10

0.15

0.20

0.25

0.30

2005 2006 2007 2008


0.0

0.5

1.0

1.5



BCC: Activity

The company’s activity ratios show that BCC has tightened its credit terms with customers, as average receivable col-

lection days tightened from 151 days in 2003 to 45 days by 2008. However, BCC’s 2008 collection days trails the in-dustry average by 12 days. The numbers for BCC also suggest that the company has very strong bargaining power

with its suppliers. Average payable days over the period 2003-2008, run into thousands, a figure we consider meaning-

less given its wide variance with its peers’ average of 151 days. We think that payable periods such as BCC’s are out-

side of normal operations for any company. We suspect that these numbers arose from renegotiations/leeway granted by suppliers to BCC in view of the operating difficulties encountered by the company in prior years. That notwithstand-

ing, when we consider the operating cycle, BCC’s at 175 days is ahead of its peers’ average by 15 days.


21 April 2010

Chart 44: BCC Receivable Collection Period (2005-20 08)

Source: Company's Annual Reports, AIS Research



Profitability

BCC’s operating margin has averaged 32% over the last four years compared with its peers’ average of 21%, reflecting

the company’s significantly improved operations. BCC’s net profit margin which has averaged 22% over the last three years also beats the peers’ average of 15% over the same period. We note that there is “a lot of noise” in the reported

earnings for cement companies, arising from exceptional items such as insurance claims, write backs and asset sales,

and have factored these into our calculations for after tax margins. BCC’s average return on equity (ROE) of 46% towers

over the industry average of 31%. The company has never declared a cash dividend, but issued stock dividends be-tween 2006 and 2008. Now that the company is in good shape, with improving operations, we expect that shareholders

will benefit from a generous cash dividend in the 2009 financial year to compensate for the poor performance in previous

years.

Chart 46: BCC Profit Margins (2005-2008) Chart 47: Cement Sector Gross Margin (3 Year Averag e)


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BCC: Solvency

A look at BCC’s solvency ratios shows that there is adequate capacity to meet long-term obliga-

tions, well ahead of its major local competitors. Average interest coverage at 18x over the last three years, stood ahead of peers’ average of 12x. BCC’s coverage ratio also improved from -2.2x

in 2003, peaked at 36.2x in 2007 before declining to 4.9x in 2008 – a coverage ratio that could be

good enough to earn the company an A rating on a standalone basis.


22 April 2010

Chart 48: Solvency Ratios (2005-2008)


Chart 49: Times Interest Earned (3 year Average)


Valuation

On a relative valuation basis, BCC is trading at P/E of 20x 2009 net income, compared to cement sector average of

19.4x and NSE market P/E 27.0x trailing net income. Our earnings projections for 2010 show that BCC’s P/E is expected to fall to 15.1x, compared to the cement sector average of 14.7x. BCC’s 2009 EV/EBITDA Multiple* of 11.4x compared

to cement sector average of 9.3x, further validates the positive investor sentiment about the BCC stock. We believe this

premium placed on BCC, reflects investors’ expectations following capacity expansion, and strong recent performance.

In terms of absolute valuation, discounting free cash flow before dividends at a Weighted Average Cost of Capital

(WACC) of 21.3% with a terminal growth rate of 6% after five years, places a fair value of N69.69 per share on BCC. This valuation is 5.6% higher than the current price of N65.97.Our view is that BCC is a high quality, well managed, blue

chip company in a profitable sector with strong fundamentals. However, we think its current valuation does appear

stretched, given the recent run (year to date performance of 53.4%) and that the upside potential of 5.6% from the cur-

rent market price offers limited return. We would acquire BCC on further price dips but place a HOLD rating on it for now.

BCC’s coverage ratio improved from -2.2x in 2003, peaked at 36.2x in 2007 before declining to 4.9x in 2008

-10.00

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* A multiple of the firm’s value and its earnings before interest, tax, depreciation and amortization

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30



Cement Company Of Northern Nigeria Plc

Overview

Incorporated in 1962, Cement Company of Northern Nigeria Plc (CCNN) was founded by the

Premier of the then Northern Region, Alhaji Sir Ahmadu Bello, Sardauna of Sokoto. The com-

pany, then known as Sokoto Cement and owned by the government, commenced operations in 1967 with an initial installed capacity of 100,000 metric tonnes per annum, using the wet proc-

ess of production, at the Kalambaina Plant. In 1985, CCNN commissioned a second line to bring

its total installed production capacity to 600,000 metric tonnes per annum. In 1986, the first line

was shut down due to its uneconomic mode of operation, thus leaving the plant with a rated out-

put of 500,000 tonnes per annum. CCNN has gone through numerous ownership and board changes. In July 2000 the company was privatised, with Scancem International ANS of Norway,

a member of Heidelberg Cement group emerging as core investor and technical partner. Follow-

ing a strategic reorientation, Heidelberg divested in 2008 and its shares were acquired by Nige-

rian company, Damnaz Cement Company Limited. In 2009, local conglomerate, BUA Group,

with interest in various sectors of the economy, announced that it had acquired a controlling in-terests in CCNN and Edo Cement Company for a combined sum of N15 billion. BUA also an-

nounced that it was retaining existing management and had budgeted US$300 million for ex-

pansion in both companies. CCNN produces and distributes the ‘Sokoto’ brand of ordinary Port-

land cement in the northern region of Nigeria.


23 April 2010

Chart 50: CCNN’s Price Performance (2009 to Date)


Rating HOLD

Price as at

23/04/10 N21.9

DCF Value N20.71

2009 P/E 13.2x

2010 P/E 12.6x

2010 EV/

EBITDA 8.4x


Chart 52: CCNN’s Income Statement (2006-2010F)


2006 2007 2008 2009E 2010F

Turnover 6,374 8,043 9,878 12,296 13,525

Cost of Sales 4,615 5,759 5,709 6,482 7,130


Operating Profit (221) (182) 1,267 2,518 2,769

Interest Expense 313 387 537 146 190

Other Income 523 742 950 - -

Profit Before Tax (10) 173 1,681 2,371 2,579

Taxation 25 34 150 356 387

Profit After Tax (35) 139 1,531 2,016 2,192

0% 20% 40% 60% 80% 100%

Ashaka

Cem

BCC

CCNN

WAPCO

NSE

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100.0

200.0

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400.0

500.0

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Liquidity

In line with its reinvigorated operations, CCNN’s liquidity has improved in recent years. The company’s current ratio rose

from 0.64 in 2006 to 1.14 by 2008. Its quick ratio has also risen from 0.17 to 0.31, while cash ratio has improved from 0.05 to 0.11 over the three year period. This improvement in CCNN’s liquidity position is attributable mainly to a reduc-

tion in current liabilities than increases in current assets. Astute working capital management resulted in a compounded

annual decline of 23% in current liabilities while current assets were rose at a CAGR of 3% over the period. The major

improvement was the reduction of creditors and accruals which fell at a compounded annual rate of 88% between 2006 and 2008. Overall, working capital improved from a negative N2,232 million in 2006 to a surplus of N506 million in 2008.

We expect working capital to continue improving as the company maintains efforts geared toward optimizing its produc-

tion line.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2005 2006 2007 2008


CCNN: Operations and Capacity

CCNN’s plant, located on a pure limestone belt of over 200 million tonnes, is

capable of sustaining the plant's operation for at least 100 years at its current production level. Over the last two years, capacity utilisation has averaged

69%, and plans are underway to add a second line with a capacity of 750,000

metric tonnes per annum to bring total capacity to 1.25 million. In its bid to

improve operational efficiency, CCNN has embarked on the deployment of less expensive biomass to replace 30% of its facilities heavy oil consumption.

Plans are underway for a rights issue in 2010, probably to invest in energy

and improve efficiency at CCNN’s plants. CCNN’s focus on optimizing the

present production process is reflected in the companies financial perform-

ance over the last four years. Sales grew at a CAGR of 19% between 2006 and 2008, while operating profit margin improved from 5% to 22% over the

same period. This impressive performance continued into the first half of

2009, with sales up 50% from the corresponding period in 2008. Although

management has hinted that the second half performance might be relatively lower due to slow a down in construction activities in its core north-western

market, we expect overall performance in 2009 to remain strong.


24 April 2010

Chart 54: Profit After Tax (2006-2010f)



Chart 55: CCNN’s Liquidity Ratios (2005-2008) Chart 56: Liquidity Ratios (3 Year Average)


(500)

-

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009e 2010f

N'Millions

Profit / Loss …

(2,000)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2006 2007 2008 2009e 2010f

N'Millions

Sales EBIT


0.0

0.5

1.0

1.5



CCNN: Activity

CCNN tightened its trade terms with customers between 2006 and 2008. This was reflected in the average receivables

collection period falling from 50 days in 2006 to 28 days. However, the company did not enjoy much latitude with its suppliers as average payable period fell marginally from 246 days in 2006 to 240 days in 2008. The operating cycle

which averaged 242 days over the period was the highest among the quoted cement producers with an average of 190

days. On working capital turnover, CCNN’s four year average of 1.9x is below its peers’ average of 2.4x. We see

CCNN as a company in turnaround mode and expect its activity ratios to fully reflect the improvement in operations going forward.


25 April 2010

Chart 57: CCNN’s Average Payable Period (2005-2008)


Chart 58: Operating Cycle (3 Year Average)


Profitability

Over the last four years, CCNN’s gross margin has improved as a direct reflection of the company’s improvement in op-

erations. Gross margin of 28% in 2006, remained flat in 2007 before rising to 42% in 2008. This improvement is a reflec-tion of the key operational decisions such as the replacement of damaged kiln shell segment and energy savings

achieved through the substitution of diesel by LPFO for powering the plants. CCNN’s operating margin rose from -3% in

2006 to 13% in 2008, while its after-tax margin reversed from -9% to a 6% over the same period. The company’s return

on equity has also improved from -2% in 2006 to 43% by 2008, while its return on invested capital improved from -46% to 30% over the same period. As CCNN continues to improve on key production processes and optimize production

lines, we expect overall profitability to continue to improve.

Chart 59: Profit Margins (2005-2008) Chart 60: Cement Sector Gross Margin (3 Year Averag e)


0

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100

150

200

250

300

350

400

2005 2006 2007 2008

Average Days Payables Outstanding

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

2005 2006 2007 2008


0%

10%

20%

30%

40%

50%

60%


Gross Profit Margin

0

50

100

150

200

250

300



CCNN: Solvency

There has been a noticeable improvement in CCNN’s solvency ratios in recent years. In the three

year period 2006-2008, the company’s interest coverage rose from 0.97x to 4.13x – a coverage ratio that could be good enough to earn the company an A rating on a standalone basis. However,

CCNN’s solvency ratios fall below industry average. Over the last four years, CCNN’s coverage

ratio has averaged 2.18x compared to 12x for the rest of the industry, while operating cash flow

(CFO) to debt has averaged 0.25x against its peers’ average of 0.36x. Despite the lag in compari-son with its peers, CCNN’s solvency ratios indicate that the company has the ability to meet its

long term obligations as they mature.


26 April 2010





Valuation

On a relative valuation basis, CCNN appears cheaper than its peers, trading on P/E of 13.2x 2009E net income, com-

pared to the cement sector average of 19.4x and the NSE market P/E 27.0x trailing net income. This is despite its year to date (YTD) share price performance of 76%. Our earnings projections for 2010 show that CCNN’s P/E is expected to

fall to 12.6x, compared with the cement sector average of 14.7x. CCNN’s 2009E EV/EBITDA multiple of 8.4x comes in

lower than the cement sector average of 9.3x.

In terms of CCNN’s absolute valuation, discounting free cash flow before dividends places a fair value of N20.71 on CCNN, a 5% markdown on the current market price of N21.9. Our view is that CCNN has enjoyed a significant rally YTD,

and a 5% markdown to our intrinsic value provides no scope for further appreciation. Details of capacity expansion have

not been made clear by the company, thus, limiting the scope of our earnings projections. We therefore recommend a

SELL on CCNN stock pending further news of capacity expansion.

Comparatively though, CCNN’s solvency ratios fall below peer averages

0.00

1.00

2.00

3.00

4.00

5.00

2005 2006 2007 2008

Financial Leverage Times Interest Earned

0

5

10

15

20

25

30



Lafarge Cement WAPCO Plc

Overview

Lafarge Cement WAPCO Plc (WAPCO) is a leading supplier of cement to the South western

region of Nigeria. The company was established in 1960 with the commissioning of its first plant

at Ewekoro, Ogun State. The second factory, located in Sagamu, was commissioned in 1978. Until recently, WAPCO was the largest cement producer in Nigeria, with a capacity to produce 2

million metric tonnes. The company’s flagship product – “Elephant Cement” brand, for many

years, was the benchmark of cement quality in Nigeria, and has won the NIS Certificate for

product quality from the Nigerian Standard Organization for over two decades. Via its acquisition

of Blue Circle Industries Plc in 2001, Lafarge SA became the majority shareholder in WAPCO and provides the company with technical expertise under a Technical Service Agreement. The

company was renamed Lafarge Cement WAPCO in February 2008. Lafarge SA controls 60% of

WAPCO, the Odua Group, 10.55%, and the remaining 29.45% is free floating.


27 April 2010

Chart 63: WAPCO’s Price Performance (2009 to Date)


Rating BUY

Price as at

23/04/10 N42.28

DCF Value N49.70

2009 P/E 25.1x

2010 P/E 15.9x

EV/EBITDA 8.3x


Chart 65: Income Statement (2006-2010F)


2006 2007 2008 2009 2010F

Turnover 39,518 38,665 43,274 45,589 51,060

Cost of Sales 21,694 23,323 26,607 28,030 31,394


Operating Profit 12,873 10,499 12,125 10,721 12,007

Interest Expense 1,347 831 228 240 269

Other Income 110 1,947 376 - -

Profit Before Tax 12,120 11,665 12,769 8,955 11,738

Taxation 1,173 1,358 1,781 3,900 3,756

Profit After Tax 10,946 10,679 11,252 5,055 7,982

0% 20% 40% 60% 80% 100%

Ashaka

Cem

BCC

CCNN

WAPCO

NSE

0.0

50.0

100.0

150.0

200.0

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-09

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NSE WAPCO

-

10,000

20,000

30,000

40,000

50,000

60,000

2006 2007 2008 2009 2010f

N'Millions

Sales EBIT

Liquidity

WAPCO boasts of some of the better liquidity ratios in the Nigerian cement market. The company’s current ratio has

averaged 1.04 over the last three years, against peer average of 0.81. This is an improvement from the 0.77 figure re-corded in 2005. A look at the company’s quick and cash ratios over the same period puts WAPCO at 0.57 and 0.36

against peer averages of 0.38 and 0.20 respectively. We attribute WAPCO’s improved liquidity profile to increases in

cash generated from operations and the slower growth in current liabilities. Overall, the company’s current assets were

up 60% between 2005 and 2008, compared to current liabilities growth of 21%, improving working capital from -N3,396 million to a surplus of N488 million over the period.

-

2,000

4,000

6,000

8,000

10,000

12,000

2006 2007 2008 2009 2010f

N'Millions

Lafarge WAPCO: Operations and Capacity

During the late 1990s, WAPCO faced operational challenges from its aging

equipment and higher energy costs at its Ewekoro and Sagamu factories. Following the takeover by Lafarge, a state-of-the-art gas fired dry process

plant was commissioned in Ewekoro in August 2003, with 1.32m MT annual

capacity. Together with the older wet process plant at Sagamu, WAPCO’s

total annual capacity is currently 2.3 million metric tonnes. Both plants have been operating close to full capacity, however, owing to shortages of electric

power and disruptions in gas supply from the Nigerian Gas Company,

capacity utilization has been impaired to around 75%.

Following extensive feasibility studies, WAPCO announced in 2008 that it had signed a contract to build a new plant - the Lakatabu plant at Ewekoro with 2.2 million metric tonne capacity. Construction has since begun with comple-tion planned for the second quarter of 2011. The new plant is designed to be fired using gas, LPFO and coal. WAPCO is also investing in dual firing op-tions at both its existing plants to use LPFO in the event of disruptions to gas supply.


28 April 2010

Chart 67: Profit After Tax (2006-2010f)




Chart 68: WAPCO’s Liquidity Ratio (2005-2008) Chart 69: Liquidity Ratio (3 Year Average)


0.00

0.20

0.40

0.60

0.80

1.00

1.20

2005 2006 2007 2008


0.0

0.5

1.0

1.5



Lafarge WAPCO: Activity

WAPCO commands best in class efficiency ratios with an average receivable turnover at 32x over the last three years,

against its peers’ average of 14x. Trade terms show that the company has a strong bargaining position with customers as the average receivable collection days is 12 days compared with the industry average of 44 days. The company’s

operating cycle at 121 days compares favourably with peer average of 190 days, further establishing WAPCO’s opera-

tional strength relative to its local competitors. Other efficiency ratios such as working capital turnover (2.5x) and asset

turnover (0.8x) equally outstrip its peers’ average of 2.4x and 0.7x respectively.


29 April 2010

Chart 70: WAPCO’s Average Payable Period (2005-2008 )




Profitability

Attendant gas shortages, which prevailed in 2008 and intensified in 2009, and clinker importation which is more expen-

sive than locally produced clinker, combined to force margins down in FY 2009. WAPCO utilizes gas to heat up its kilns to very high temperature levels in order to convert the raw material mix into clinker. Thus, during gas shortages, clinker

production practically grinds to a halt. Prior to 2009, WAPCO enjoyed decent margins. Gross margin which averaged

41% in the three years to 2008 is in line with the industry average over the same period. WAPCO is able to demonstrate

some cost savings, which underlines its efficient operating structure with operating and after-tax margins at 29% and 27%. This compares favourably with the industry average operating and after-tax margins of 21% and 15%. As men-

tioned earlier, WAPCO is investing in alternate firing options at its plants which should mitigate disruptions in gas supply.

We expect this to lead to more stable cost management and return margins to pre 2009 levels going forward.

Chart 72: WAPCO’s Profit Margins (2005-2008) Chart 73: Cement Sector Gross Margin (3 Year Averag e)


0

50

100

150

200

2005 2006 2007 2008

Average Days Payables Outstanding

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008


0%

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30%

40%

50%

60%


Gross Profit Margin

0

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150

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300



Lafarge WAPCO: Solvency

To fund its expansion program, WAPCO is using a combination of debt and equity. The company

took on a 225 million Euro debt facility, terms of which allow WAPCO to capitalise interest until the completion of the expansion. This explains WAPCO’s ostensibly high interest coverage of 57x in

2008. Interest coverage ratio for the cement industry as a whole was 4.5x in 2008. Despite this

leverage, WAPCO’s debt to equity ratio of 18%, serves as an added comfort to capital providers.

Overall, WAPCO has established a consistent ability to meet its long term liabilities as they fall


30 April 2010





Valuation

WAPCO is currently trading at a P/E of 25.1x 2009 net income compared with the cement sector average of 19.4x. Our

earnings projection for 2010 indicates that WAPCO’s P/E is expected to fall to 15.9x against the sector average of 14.7x. As noted in earlier sections, the company’s 2009 performance was dampened by energy problems and expensive clinker

importation leading to significant margin erosion. We expect earnings to recover in 2010-2011 and given the ongoing

investment in new capacity due to come on line in 2011, we expect further growth in the company’s top and bottom line.

Assuming new capacity comes on line in 2011 and capacity utilization ramps up in subsequent years, discounting free

cash flow before dividends places an absolute fair value of N49.70 on WAPCO, which represents a potential premium of 18% over the current share price of N42.28. WAPCO’s share price is up 41% YTD, compared to the 63.8% average for

the cement sector, thus providing scope for price appreciation. We consider WAPCO to be a well managed company in

a profitable sector with strong fundamentals. In light of the 18% under-pricing of the company’s value by the market we

are placing a BUY recommendation on WAPCO.

WAPCO’s debt to equity ratio of 18%, serves as an added comfort to capital providers

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2005 2006 2007 2008

Financial Leverage Times Interest Earned

0

10

20

30


WAPCOTimes Interest Earned

Dangote Cement

Overview

Dangote Cement is wholly owned subsidiary of Dangote Industries Limted, owned by local entrepreneur, Aliko Dangote.

The company has projects and operations in Nigeria, Benin and Ghana; with total existing production and import

capacity of 14 million tonnes per annum and new production projects in development with 11.1 million tonnes per annum additional capacity. Dangote operates the largest cement plant in sub-Saharan Africa, located in Obajana, near Lokoja

the confluence capital of Kogi state.

Dangote has a 74% stake in Benue Cement Company (BCC), Nigeria’s largest quoted cement manufacturer. BCC has

recently been upgraded to have installed production capacity of 2.8 million tonnes per annum from 0.5 million tones. Dangote also acquired 43% of the Onigbolo Cement Company in the Republic of Benin, following the privatisation of the

company by the Beninoise government. The plant produces 0.6 million tonnes of cement per annum, and is currently

under management contract that will expire in 2011. Dangote Cement is developing a greenfield project at Ibese in

Ogun State, Nigeria in partnership with Sinoma Engineering International. The project is to develop a 5 million tonnes

production capacity cement plant with an expected completion date in 2011. Dangote plans to consolidate the different cement businesses into one cement company.

BUA Cement

Overview

BUA Cement is a wholly owned Nigerian company and a member of the BUA group, a conglomerate with interests

across various industries including sugar, flour milling, oil milling, ports, oil & gas, and real estate. The company was

awarded a license to import cement in 2008, and later acquired a 3,000 metric tonnes/day floating cement terminal, BUA Cement 1 for production and delivery of cement in Lagos. As part of growth and expansion of the cement business BUA

acquired majority stakes in Cement Company of Northern Nigeria Plc (CCNN) and Edo Cement Company Limited. BUA

plans a $300 million upgrade for Edo Cement’s Okpella plant. The upgrade is to increase production by 2 million metric

tonnes before the end of 2011. The total production capacity of Edo Cement is expected to hit 2.35 million metric tonnes

per annum from the current 350,000 tonnes. Expansion plans are being considered for CCNN to push capacity up from 500,000 tonnes per annum to 1.25 million tonnes. With this, BUA is expected to have a combined production capacity

just under 4 million metric tonnes per annum by 2012.

UniCem

Overview

United Cement Company of Nigeria limited (UniCem) is the leading supplier of cement in south eastern Nigeria. The

company was formed in 2002 and is located in Calabar, Cross River State, in the south east area of Nigeria, close to Nigeria’s border with Cameroon. UniCem is a private limited liability company owned by Nigerian Cement Holding B.V.

(NCH) and Flour Mills of Nigeria Plc. NCH is majority controlled by multinational groups such as Holcim Ltd. of Switzer-

land, and more recently, the world’s biggest maker of cement, the Paris-based, Lafarge S.A. The company acquired

the assets of Calcemco, a state owned company sold by the Nigerian government after liquidation, and embarked on a

two phase project execution after the acquisition exercise was perfected. UniCem commissioned its plant at Mfamosing in early 2009 with an installed capacity of 2.5 million metric tonnes per annum. The plant is located in a limestone belt,

which is West Africa’s single largest limestone and marl reserve.


31 April 2010

Other Major Cement Producers


32 April 2010

Operating Statistics

Current Ratio Quick Ratio Cash Ratio CFO Ratio Cash Burn Rate

AshakaCem 1.19 0.61 0.34 0.42 123.37

BCC 0.15 0.10 0.01 0.34 168.62

CCNN 0.87 0.22 0.07 0.18 50.67

Lafarge WAPCO 1.04 0.57 0.36 0.74 105.08

Industry Average 0.81 0.38 0.20 0.42 111.94

Median 0.95 0.40 0.21 0.38 114.23

Debt To Assets Debt To Equity Financial

Leverage

Times Interest

Earned

CFO To

Interest CFO To Debt

Cashflow

Adequacy

CFO To Operating

Earnings

AshakaCem 0.01 0.03 1.75 0.00 0.00 0.61 0.79 1.21

BCC 0.31 1.10 4.70 18.33 38.51 0.02 1.44 2.17

CCNN 0.12 0.40 2.09 2.18 3.76 0.25 1.60 2.47

Lafarge WAPCO 0.61 0.20 1.83 27.35 35.76 0.63 2.13 0.91

Industry Average 0.26 0.43 2.59 11.97 19.51 0.37 1.49 1.69

Median 0.21 0.30 1.96 10.25 19.76 0.43 1.52 1.69

ROE ROA ROIC

Gross Profit

Margin

Operating

Margin

Net Profit

Margin

Cash Return

On Assets

Dividend

Payout

AshakaCem 20.3% 11.8% 13.8% 38.6% 20.3% 13.2% 19.1% 29.9%

BCC 46.0% 9.9% 23.7% 49.8% 32.4% 21.7% 23.2% 0.0%

CCNN 15.6% 12.9% 5.5% 32.7% 2.4% -3.5% 12.4% 12.4%

Lafarge WAPCO 40.3% 22.6% 36.0% 41.1% 29.2% 27.1% 23.9% 25.7%

Industry Average 30.6% 14.3% 19.7% 40.6% 21.1% 14.6% 19.6% 17.0%

Median 30.3% 12.4% 18.7% 39.9% 24.8% 17.4% 21.1% 19.1%

Av. Receivable

Collection (Days)

Av. Days in

Inventory

Av. Days

Payable

Operating

Cycle (Days)

WC Turnover

(Times)

Fixed Assets

Turnover

(Times)

Asset Turn-

over (Times)

Average PPE

Age (Years)

Useful Life of

Assets (Years)

AshakaCem 44.8 176.2 174.7 221.0 1.8 5.3 0.9 6.96 16.52

BCC 83.1 92.8 N/M 175.9 3.2 0.3 0.3 5.99 24.42

CCNN 37.2 204.4 298.8 241.5 1.9 2.4 1.0 4.62 17.65

Lafarge WAPCO 12.3 109.1 127.9 121.5 2.5 1.2 0.8 6.53 24.93

Industry Average 44.4 145.6 151.3 190.0 2.4 2.3 0.7 6.0 20.9

Median 41.01 142.7 174.67 198.5 2.2 1.8 0.8 6.3 21.0

Chart 76: Liquidity Ratios

Chart 77: Solvency Ratios

Chart 78: Profitability Ratios

Chart 79: Activity Statistics






33 April 2010

Valuation Statistics

Share

Price

(=N=)

Shares

Outstanding

(Millions)

Current

Market Cap.

(=N=M)

Enterprise

Value

(=N=M)

EBITDA (=N=M) Book Value

(=N=M) Trailing P/E 2010 P/E P/ BV

2010 EV/

EBITDA

AshakaCem 21.40

1,706

36,514

36,916

4,116

12,795 19.3 15.1 2.9 9.0

BCC 65..97

3,916

258,307

245,512

21,495

13,751 20.0 15.1 18.8 11.4

CCNN 21.90

1,257

27,521

26,665

3,185

3,976 13.2 12.6 6.9 8.4

Lafarge WAPCO 42.28

3,002

126,908

122,720

14,729

40,456 25.1 15.9 3.1 8.3

Industry

Average

19.4

14.7

7.9

9.3

Median

19.7

15.1

5.0

8.7

Chart 80: Valuation Statistics

Source: Companies’ Annual Reports, NSE, AIS Research

Share price as at

23/4/2010 Target Price Upside Rating

AshakaCem 21.40 21.64 1% Hold

BCC 65..97 69.69 6% Hold

CCNN 21.90 20.71 -5% Sell

Lafarge WAPCO 42.28 49.70 18% Buy

Summary Ratings

Source: NSE< AIS Research


34 April 2010

Disclaimer

This report has been issued and approved by Access Investment & Securities Limited (“AIS”), a wholly owned subsidiary of Access Bank Plc. It has been prepared without regard to the circumstances and objectives of those who receive it. This publication is for information purposes only. AIS makes every effort to use reliable and comprehensive information. The information contained herein does not constitute an offer to buy or sell any security or to participate in any trading strategy. Any investments discussed may not be suitable for all investors as the appropriateness of an investment or strategy will depend on an investor's circumstances and objectives. We therefore recommend that investors independently evaluate particular investments and strategies, and encourage them to seek advice from professional financial advisers. The value of and income from your investments may vary due to changes in interest rates, foreign exchange rates, securities prices, market indexes, operational or financial conditions of companies and other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. We are under no obligation to inform you of changes in our opinions or information in AIS Research Publications. AIS and/or any connected company may or may not have in the future a relationship with any of the entities mentioned in this document for which it has received or may receive in fees or other compensation in the future. This report may not be reproduced, distributed or published by any recipient for any purpose without prior written consent of AIS. AIS is licensed by the Securities and Exchange Commission (SEC) to conduct investment business in Nigeria.


35 April 2010

Contacts Research Pabina Yinkere [email protected] +234 1 7301476 Ajibola Alfred [email protected] +234 1 7301476 Sales Bisi Balogun [email protected] +234 1 2714554 Ezinne Chikwendu [email protected] +234 1 2714554 Pamela Jibunoh [email protected] +234 1 2714554 Portfolio Management Management Felix Johnson [email protected] +234 1 7301474 Olateju Orimoloye [email protected] +234 1 7301474 Private Equity Adekunle Adebiyi [email protected] +234 1 7301474 Access Investments & Securities Limited 14a, Idowu Taylor Street, Victoria Island Lagos, Nigeria. Telephone: +234 1 2714554, 7301476 Fax: +234 1 2714553

Access Investments & Securities Limited 14a, Idowu Taylor Street, Victoria Island Lagos Nigeria Telephone: +234 1 2714554, 7301476 Fax: +234 1 2714553 Email: [email protected]

Nigerian Cement Building Capacitymarket will ultimately shift the focus of the manufacturers to...

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