Construction shares fall on real estate slowdown

The share prices of companies linked to construction and real estate have been in the red over the past year due to slowdown in the sector’s activity in an economy that has shed jobs and seen stagnant wage growth.

Bamburi Cement #ticker:BAMB share has declined by 55 percent to trade at Sh59 in the past 12 months, while East Africa Portland Cement #ticker:PORT is down by 8.1 percent to Sh14.25.

Another listed cement firm, ARM, remains suspended from trading after falling into financial difficulties and has already seen its Kenyan assets taken over by a new owner.

Crown Paints #ticker:BERG is trading at Sh62, representing a 22.98 percent decline, while East Africa Cables has shed 40 percent in the past one year to trade at Sh1.94 amid a liquidation threat by creditors.

Market analysts attributed this to the poor performance and reduced yields of the construction and real estate sector.

“The decline in the share prices is reflection of the decline in production and consumption in the cement sector since 2017. Demand for cement has reduced as activity in the real estate sector has declined. Meanwhile, producers have been forced to reduce their utilisation rate as demand for cement has decreased,’’ said Sarah Wanga, head of research at investment bank AIB Capital.

Real estate firm Home Africa #ticker:HAFR —which is listed under the investment segment— is trading at Sh0.43, a 25 percent drop from a year ago.

Ms Wanga added that given individual households have historically been the largest consumers of cement, the loss of purchasing power due to job losses and a tough business environment for the self-employed was bound to affect the players in the sector.

Data by Kenya National Bureau of Statistics shows the production of cement has consistently declined over the years, falling by 3.18 percent to 5.366 million tonnes in the 11 months to November 2019 compared to a similar period in 2018.

Similarly, consumption has declined to 5.331 million tonnes, attributed to depressed private consumption in light of job cuts in 2019.

“The sector generally has challenges—slow investment environment, consumer spending challenges and capacity investments by cement companies leading to a decline in cement prices. All these reflect in the market prices of these companies at the NSE,” said Genghis Capital analyst Gerald Muriuki.