BUACEMENT | BUA Cement Plc Initiation of Coverage : Unearthing returns from aggressive expansions- 25 October 23

    BUACEMENT embarked on an aggressive capacity rollout between 2018 and 2022, growing from 5 million metric tonnes (MT) at the start of the period to 11.0MT in January 2022, aided by the 6.0MT capacity expansion across its Kalambaina plant in Sokoto and Obu plant in Edo. Its management took the capacity expansion drive further in 2023 by commencing an additional 6.0MT plant capacity project, following a $500 million capital raise from the International Finance Corporation (IFC). This project should raise the total installed capacity to 17.0MT by 2024, boost economies of scale potential, and drive down cash costs per ton.

    However, in light of slowing demand owing to the tough macroeconomic environment, the company has decided to reduce its ex-factory price to capture additional market share. Aided by these potential market share gains, the company's revenue is expected to grow at a CAGR of 34.6% between FY23E and FY27E vs 32.0% over the last five years. In addition, we forecast EBITDA to grow by a CAGR of 34.8% over the forecast period, translating into an EPS CAGR of 38.7%.

    Valuation and Rating: BUACEMENT is currently trading at a forward EV/EBITDA of 19.6x, which looks expensive relative to our select EMEA average of 14.1x and ahead of its four-year mean of 18.7x. However, the company also boast a LTM ROE of 22.1%, which is at a premium to its historical mean of 21.5% and the average of EMEA peers (13.4x), suggesting some little justification for its EV/EBITDA.


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