BTG Pactual begins coverage of CPAC with a buy recommendation

Brazilian investment bank BTG Pactual has begun coverage of Peruvian cement company Cementos Pacasmayo ( CPAC) (BVL: CPACASC1; NYSE: CPAC), with a buy recommendation on the company's stock and a target price of US$15.3/ADR. CPAC is Peru's second-largest cement company and operates in the north of the country, which generates 18% of the country's GDP and accounts for 33% of the population, as well as being home to three of Peru's five largest cities: Piura, Trujillo and Chiclayo. "We see CPAC as a solid business with a strong competitive advantage thanks to its natural monopoly in the dynamic northern Peruvian economy. It has a proven track record and, due to the decentralized nature of its market, a hard-to-copy distribution network," a research note reads. The company plans to invest US$300mn in its cement business to meet growing demand, which BTG Pactual expects to be an annual 10% growth in cement demand for the 2012-16 period. CPAC seeks to expand capacity at its two facilities and build a third one, which would boost cement output by 48% by 2015. Additionally, CPAC plans to invest over US$500mn in its phosphate and brine projects, according to the note. Some of the risks identified by BTG Pactual for CPAC's numbers include weaker economic activity, which would translate into lower cement demand, disappointing reserve updates and higher costs due to unscheduled stoppages.