Saudi cement companies had a dreadfullast month, with all eight listed companies losing ground. But they may have further to fall. The Saudi investment bank NCB Capital sees the stocks as still slightly overvalued and reduced its target price for each of the six companies it covers. The main reason is a glut of cement in the market and increased competition that will put pressure on the companies' ability to maintain market share.
For companies that have exposure to Saudi Arabia's central region, flooding and sandstorms will affect performance as well. Coming off a difficult first quarter in which net income fell by almost 1 per cent for the companies, the Saudi cement firms are also on track to post less-than-stellar results for the current quarter. The bank projects that while revenue should rise slightly, net income will decline by 2.3 per cent.
The sharpest price-target reductions from the bank were for Qassim Cement Company (QACCO) and Yanbu Cement. The target for Yanbu fell 15.6 per cent, from 46.9 riyals to 39.4 riyals. The stock closed yesterday at 42.40 riyals. The target for Qassim was lowered 11 per cent, from 80.1 riyals to 71.3 riyals. It closed at 69 riyals. NCB Capital remains relatively bullish on Yamama Cement, keeping its "overweight" recommendation for the stock but still reducing the target from 61.6 riyals to 58 riyals.
That is an upside of about 20 per cent over yesterday's closing price of 48.3 riyals. The stock could be doubly attractive for those seeking healthy dividends, as it returns north of 7 per cent. All of the companies offer dividends of at least 5 per cent, which, paired with the slide in the share prices, has some traders thinking now is the time to buy. NCB Capital says wait just a bit longer. "Valuations are increasingly attractive ? however, we would need most stocks to fall another 5 to 10 per cent before we become interested," the bank's analysts wrote.
breagan@thenational.ae
