RAK Cement sees profitability pressures, UAE

RAK Cement sees profitability pressures, UAE
Published: 08 July 2010

Cement company shares are showing a few cracks lately, and those of Ras Al Khaimah Cement are no exception.

But the drop in its share price is not the only worry for the cement maker. It is also struggling to cope with the chronic gas and electricity shortages in RAK, which analysts say will affect its future profitability.
“Their production has gone down and they have issues with gas and electricity supply, which will affect the production and profits throughout the summer until the end of third quarter,” said Hettish Kumar, a senior analyst at Global Investment House in Kuwait.

Given those troubles, RAK Cement’s recent performance so far this year is that much more impressive. It outperformed most of its peers mainly on the strength of backlog of orders.
The firm declared a profit of Dh77.9m for the first quarter of this year, a 15.5 per cent growth from Dh67.4m in the same period last year.

But with that backlog of orders cleared, analysts expect the firm to underperform other manufacturers in the country.
Investor psyche is more to be blamed for the rapid drop in RAK Cement shares,” Mr Kumar said. “The company is in a better position than many but investors don’t want long-term holdings in a falling market.

“In a market where blue chips stocks have gone down, chances of second-tier stocks like RAK Cement to go up are very limited.”
Source: The National