Mergers and acquisitions are on the horizon for the UAE's cement sector, with shares in Ras al Khaimah Cement Company set to benefit
RAK Cement in focus for possible takeover
Ras Al Khaimah Cement Company, a mid-cap building materials producer from the Northern Emirates, has crept back into the spotlight as a potential takeover target, which could boost the stock price.
Although demand for cement is still muted, analysts say mergers and acquisitions (M&A) in the sector are likely because of the attractive pricing of some producers amid the property industry malaise.
"There are reasons why transnational cement companies may explore the possibility of acquiring assets in the UAE," said Ankur Agarwal, an analyst at Nomura in Dubai, pointing to RAK Cement as a credible candidate.
RAK Cement rose 1.3 per cent to 81 fils on the Dubai Financial Market yesterday, and was among the most actively traded, with almost 19 million shares changing hands. The shares have risen 37 per cent since the middle of last month but are still well below their book value of Dh1.58.
UltraTech Cement, an Indian company controlled by the Aditya Birla Group, completed the acquisition of Eta Star in September for US$380 million. This year, Raysut Cement, an Omani company, acquired the UAE company Pioneer Cement for $172m.
Mr Agarwal has a "buy" recommendation on RAK Cement, and a target price of Dh1.35.
"We see continued M&A interest in cement assets in the region that could be a catalyst for the cement stocks in the UAE," he said.
He said Ras Al Khaimah's proximity to the Oman border could boost the area's cement exports to regions experiencing shortages - including sub-Saharan Africa - with attractive returns.
Investing in cement companies in the UAE is also a "defensive move" for international players, he said, to pre-empt any threat on profitability as a result of dumping. However, investors will have to wait for a dividend payout after the company decided at its last meeting not to distribute profits.