Cement shares defy new levy and stay firm

Kenya’s listed cement firms have weathered a new levy on their product to stage a modest stocks rally at the bourse. Photo/FILE 

By SCOLA KAMAU Special Correspondent

In Summary

• The government had announced that starting this month, a new tax — which will see producers and importers pay Ksh140 ($1.6) per tonne of cement — would apply.
• The levy is expected to turn the tide for an industry whose prices have been on the decline. When the levy was announced, cement producers said they would increase prices.
• Analysts project that the business environment could improve in the next few months on the back of a projected upturn in the economy and relatively low inflation, which could boost consumption of the commodity.

Kenya’s listed cement firms have weathered a new levy on their product to stage a modest stocks rally at the bourse.

The government had announced that starting this month, a new tax — which will see producers and importers pay Ksh140 ($1.6) per tonne of cement — would apply.

The levy is expected to turn the tide for an industry whose prices have been on the decline. When the levy was announced, cement producers said they would increase prices.

Three weeks since the new levy was introduced, share prices of the three main listed cement makers— Bamburi, Athi River Mining and East African Portland Cement (EAPC) — have been steady.

While the EAPC share lost 6 per cent last week to sell at Ksh62.50 ($0.7) from Ksh66.50 ($0.8), Bamburi and ARM saw their shares gain marginally.  

Bamburi Cement share price averaged at Ksh210 ($2.50) last week, up 0.5 per cent from Ksh209 ($2.45) the previous week. Comparatively, ARM averaged Ksh97 ($1.14) up from Ksh96($1.12) up from Ksh88.5 ($1.04) posted on December 31.

“Investors might bet on the outlook of the  demand to buy more shares, rather than get scared by a minimal price increase, which cannot shake the high appetite demonstrated by the construction industry across the region,” said Geoffrey Maina, an analyst with Old Mutual Securities.

“Bamburi has seen investors shy away from the stocks and a down trend is expected to prevail if the matter is not resolved,” said Mr Maina.

Analysts project that the business environment could improve in the next few months on the back of a projected upturn in the economy and relatively low inflation, which could boost consumption of the commodity.

Cement prices in Kenya have fallen to a 12-year low in a market war triggered by new entrants, cutting of manufacturers’ margins. The retail price of a 50kg bag of cement stands at about Ksh650 ($7.6) in Nairobi from a high of Ksh740 ($8.7) in 2008 and 2009.

READ: More revenues but low margins for cement producers

Kenya’s construction sector registered the fastest growth in the third quarter of 2013 compared with agriculture, manufacturing, financial and transport and communication sectors. The sector posted a 13.3 per cent growth during the quarter under review compared with a marginal growth of 0.2 per cent over the third quarter of 2012, thanks to a robust real estate industry and increased government infrastructural projects.

A recent report by Kenya National Bureau of Statistics indicates this demand pushed production and consumption of cement to grow by 12.8 per cent and 13.4 per cent, respectively. 

The firms are expected to raise funds for expansion, a development that could eat into the firms retained earnings, analysts said. 

ARM plans to raise Ksh25.5 billion ($300 million) in the next five years through debts and bank loans for its expansion.