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Saudi Cement Shares Lose 50% since February

Beirut (APD) - Listed companies in the Saudi cement sector experienced heavy declines of their shares since the beginning of the correction period in February of this year, the National Bank of Kuwait (NBK) said in a report published Saturday.

The cement index declined by 50.3% to reach 6,547.7 points in the first quarter of the correction period ending on May 23 compared to its peak at 13,179.91 points on February 23.

Nevertheless, Saudi cement companies are trading at 18.3 times EV/CFO (ratio of enterprise value to cash from operations) in terms of valuation multiples, NBK said in its MENA in Focus report.

"These valuation multiples are 55% higher than international cement companies multiples. We have selected a pool of 143 cement companies outside the MENA region and calculated the aggregate EV/CFO ratio, which stood at 11.8 times," NBK reported.

NBK noted that the eight cement companies which are listed on Tadawul have relatively low financing-debt to equity ratio. This means that performance is more influenced by operating profit rather than financing and/or investing activities, NBK explained.

Saudi cement production increased by 6% in 2005 and reached 27 million tons compared with 25.45 million in 2004. Higher production and higher realized operating profit per ton of sales in their combination led to an increase in the companies' aggregate operating profit by 17.9% in 2005, according to the report.

Improved operating performance, partly attributable to a 10% increase in average cement prices, was responsible for 70% in growth of operating profits, while increased selling volume contributed 30%.

Measured by operating profit per tons of sales, market performance was $428 per ton. NBK concluded that Yanbu, Qassim, Yamama and Southern Province Cement companies showed better operating performance than the market, while the remaining companies (Arabian, Saudi, Tabuk and Eastern Province cement companies) came in lower than the market.

The Saudi sector is buoyant when it comes to the cement sector since more plants are being established due to the high demand from local and regional countries for this commodity.

The latest addition to the Saudi cement companies was Dana Cement Company that was established on Saturday at a capital of SR 1.1 billion to construct the three million tons per year (tpy) Al Watan Cement plant in Jalajil, a town around 160 kilometers north of the capital Riyadh.

More new companies were established in 2005 including Riyadh Cement Company with a production capacity of two million tpy and a capital of SR 800,000; Gulf Cement Company with a capacity of 2.3 million tpy and paid-up capital of SR 1.1 billion and Al Jawf Cement with a capital of SR 1.02 billion and capacity of 1.8 million tpy. [TS]

By Nadim Issa, APD Staff Writer in Beirut

© APD (Arab Press Digest) 2006