Analysts bullish on cement stocks

Bamburi, ARM Cement and EAPCC underwent a price correction last year.
Bamburi, ARM Cement and EAPCC underwent a price correction last year. PHOTO/FILE
The Kenyan cement stocks are poised to rally in coming months as investors bet that the State’s massive infrastructure spending will spur rapid growth of the local cement industry.

The three NSE-listed cement makers; Bamburi, ARM Cement and East Africa Portland Cement (EAPCC), underwent a price correction in the second half of last year.

“Going forward, as they supply cement for the infrastructure projects, we should see investor interest go up again and hence the upside in their valuations,” says Old Mutual Securities analyst Eric Munywoki.

The rally is, however, not expected to be as steep as the one seen in 2013 due to the stocks high trading multiples, according to Genghis Capital analyst Mercyline Gatebi.


“ARM is trading at high trading multiples with a price to earnings (P/E) ratio of 30.29 which is above both the industry and market P/E of 16.76, making the share overvalued. Bamburi is trading at a P/E of 15.92 which is slightly undervalued compared to the market,” said Ms Gatebi in a recent statement.

Kenya’s biggest cement maker, Bamburi has gained 13.3 per cent over the last three months to Sh164, while ARM is up 1.2 per cent to Sh85.

Bamburi reported a pre-tax profit of Sh3.9 billion for 2014, while ARM posted a pre-tax profit of Sh2.0bn for the last year.

Both firms said they were optimistic of higher growth in 2015.

EAPCC has, however, dropped 6.0 per cent to Sh54 in the past three months after reporting a half-year loss of Sh124 million in the six months to December 31, 2014.

The listed cement manufacturers, as well as the non-listed ones, are expected to receive a major boost from the proposed 10,000km roads project that seeks to open up remote areas of the country by 2017.

READ: Kenya’s cement industry seen getting big boost

Multi-billion-shilling infrastructural projects such as the Lamu Port Southern Sudan-Ethiopia Transport (Lapsset) corridor, the standard gauge railway, as well as the booming real estate sector are expected to boost fortunes of the cement firms.

The Kenya National Bureau of Statistics data shows that local cement makers produced 5,229,016 metric tonnes by end of November compared to consumption of 4,554,846 metric tonnes.

However, in the long term, there is still some underlying risk to the valuation of cement stocks due to stiff competition that is likely to intensify price wars.