RAK Cement shares begin to show cracks

Drop in share price, shortage of gas and power worry analysts

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 Dh77.9 million 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. RAK Cement stocks have hit several 52-week lows in the last two months and dropped 51.4 per cent from their Dh1.42 peak last October. The shares yesterday closed 2.8 per cent lower at 69 fils, just a notch above its 52-week low of 68 fils reached at the start of the month.

"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." The company produces and distributes clinker and ordinary portland cement. It is more than 42 per cent held by corporate investors while the rest is traded on the Abu Dhabi Securities Exchange.