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Rwanda's new airport not a game changer for East African cement suppliers

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

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    Tellimer Research
    12 December 2019
    Published byTellimer Research

    Earlier this week, the Government of Rwanda and Qatar Airways signed an agreement to build a new international airport c25km southeast of the capital Kigali. Qatar Airways has agreed to take a 60% stake in the US$1.3bn airport. The first phase of the project will take five years to complete and serve 7mn passengers every year. The second phase, which aims to serve 14mn passengers, is expected to be completed by 2032. The project will use local materials and is expected to become the single largest employer in the country. We estimate it will require 85-100 kilotonnes per annum (ktpa) of cement (c19-22% of Rwanda’s consumption).

    Kenya’s Bamburi Cement (BMBC KN), one of the few cement suppliers in Rwanda, could benefit from this project if the Rwanda-Uganda border crossing reopens (after being closed since February 2019 amid political tensions between the two countries). Bamburi has a 70% stake in Hima Cement, which operates two 0.85mn tonnes per annum (mtpa) grinding units in Uganda; one of the two facilities is located in Kasese, 365km from the project site. Although thinly traded, it is the only liquid exposure to the East African cement space. The stock trades at a trailing PE of 30.7x and P/BV of 1.0x versus five-year midpoints of 13.0x and 2.0x, respectively.

    If, however, the Rwanda-Uganda border crossing remains closed, PPC (PPC SJ) could be the prime beneficiary. The company has a 51% stake in Cimerwa Cement, which operates a 0.6mtpa integrated plant (5% of PPC’s 11.5mtpa pan-African capacity) in the southwest region of Rwanda, 321km from the new airport site. Tanzanian cement companies could also benefit despite being more than 1,300km away. According to Rwanda Today, imports from Tanzania have doubled to fill the gap created by the embargo on Ugandan imports.

    Table 1: Listed cement companies' proximity to the new airport
    CompanyDistance from project (km)CountryCityCapacity (ktpa)

    PPC

     321 

    Rwanda

    Muganza

     600 

    Bamburi Cement

     365 

    Uganda

    Kasese

     850 

    Bamburi Cement

     739 

    Uganda

    Tororo

     850 

    Tanga Cement

     1,301 

    Tanzania

    Tanga

     1,250 

    Tanzania Portland Cement

     1,388 

    Tanzania

    Dar es Salaam

     1,900 

    Dangote Cement

     1,930 

    Tanzania

    Mtwara

     3,000 

    Source: CemNet.com, Tellimer Research
     
    Table 2: Tellimer East African cement universe
    Company

    Ticker 

    Mkt cap
    (US$m)
    6M ADV
    (US$k)
    1Y return
    (US$,%)
    P/E (x)
    TTM
    P/BV (x)
    TTM
    ROE (%)
    TTM

    Bamburi Cement

    BMBC KN Equity

    290 

     24 

     (40)

    30.2 

     1.0 

     3.1 

     East African Portland Cement 

    EAPC KN Equity

    13 

     0 

     (2)

    0.2 

     0.1 

     37.5 

     Tanga Cement 

    SIMBA TZ Equity

    17 

     0 

     (7)

     

     0.3 

     

     Tanzania Portland Cement 

    TWIGA TZ Equity

    157 

     3 

     9 

     6.3 

     1.6 

     27.6 

    Source: Bloomberg