March 3, 2011
We visited Lafarge WAPCO’s Lakatabu plant currently under construction on Friday, February 25, 2011 to obtain a direct perspective and update on the construction of the plant. Please find attached the details of the visit and see highlights below:
Clinker Production would start by May: From all indications,Lakatabu plant is set to commence clinker production by May this year. The conveying systems, vertical roller mill, pre-calciner (with 5 cyclones) kiln, gas pipelines, clinker storage silos (2 silos of 60,000 tonnes each) are as good as set for operation. The company has also connected its gas pipeline to NGC (Nigerian Gas Company) mainstream for gas supply and limestone to be used for the testing and production has been conveyed from the quarry to the plant site.
600,000 tonnes of cement expected from Lakatabu: Plant management expects at least 600,000 tonnes of cement from the Lakatabu plant this year, indicating that the plant would operate at an average capacity utilisation rate of 65% for the five month period (August to December) of production since the plant is expected to start producing cement as from August. We believe this is achievable as it strongly aligns with our forecast of 63% average utilisation rate, translating into a cement volume of 576,200 tonnes. Notwithstanding, we believe the company is capable of producing more cement volume given the possibility of the plant reaching a higher optimal utilisation rate, if the performance testing goes well.
Overall project assessment very impressive: We are quite impressed with the speed of work at the Lakatabu plant, the dedication of the contractors and in all applaud the company for doggedly keeping up with announced timelines for the project. Overall, we rate Lakatabu plant as 90% complete.
We upgrade to BUY: With the speed of the work being done at the Lakatabu plant, Lafarge WAPCO is gathering momentum for strong earnings growth by FY’11. We broadly maintain our forecasts as we believe the company is on-course to meet our expectations. However, the stock, at yesterday’s closing price of
N40.58, now trades at an upside potential of 27% to our target price of N51.62. Hence, we upgrade Lafarge WAPCO to a “Buy” from an “Accumulate”.
OLUWATOSIN OLUWAKIYESI, Research Division, Vetiva Capital Management Limited
Plot 266B, Kofo Abayomi Street, P. O. Box 73530 Victoria Island
Lagos, NIGERIA, Tel: +234-1-4617521-3, 2700657-8; Fax: +234-1-4617524
Email:email@example.com, Website: www.vetiva.com