East African Cables (EACL KN) - Initiation of Coverage and Valuation Note (Recommendation: BUY, FV 19.46 upside +22.7%)
We initiate coverage on East African Cables Limited (EACL KN) with a BUY recommendation ahead of a major upgrade of its copper factory (completed in November 2014) and their new 100kv medium voltage cables manufacturing unit (completion by December 2015). EACL is undertaking bottleneck capacity expansion and process improvement that will effectively double capacity and create more storage for the copper unit thus reducing logistics costs. This constitutes the first major investment since 2007. The expansion is driven by a 40% local content requirement on public contracts along with an expected increase contractor demand. EACL is the leading cables manufacturer in East and Central Africa with its main manufacturing in Nairobi (Kenya) and now with scale comparable to other plants globally. Close to 50% of sales made by the cable company is through contractors for projects, 40% is retail business while 10% is made to utilities. While the copper market has been good to the company, aluminium sales have remained lackluster owing to local utilities continued use of imported cables (EACLs aluminium factory capacity utilization is less than 20%).
“I don’t regret the things I’ve done, I regret the things I didn’t do when I had the chance.”