Gulf News - RAK Ceramics could be an interesting investor play once projects return

Vijay Valecha, Special to The Gulf News, Dated 11 Feb 2021

During the week ended February 11, the Abu Dhabi index gained a marginal 0.05 percent, while DFM closed lower 1.40 percent.

A 5.32 percent decline for du, which has a 10.72 percent weightage in the index, pulled the Dubai index lower this week. du reported a profit that was 17 percent lower and cut dividends also. This week's top-performing stocks are Dubai Insurance Company (up 51.76 percent), Emirates Refreshment Co. (21.07 percent), Ras Al Khaimah Poultry (15 percent), Dubai National Insurance & Reinsurance (14.88 percent), and Abu Dhabi National Takaful (11 percent).

An exciting company for investor play is RAK Ceramics, which can benefit from the reopening and economic recovery in the GCC. The company reported revenues of Dh2.35 billion in 2020 and a loss of Dh128 million.

Its production lines were running smoothly throughout the year, and it also benefitted from demand in Saudi Arabia, Europe, the UK and Australia despite intermittent supply chain issues. Its India and Bangladesh's operations had to be shut down in the last week of March 2020, but resumed by the first week of June.

The pandemic triggered a revenue decline, but the losses were due to an impairment of Dh213 million related to investment properties. RAK Ceramics still reported a profit of around Dh153 million on an operational level, which points to its strong manufacturing efficiency.

Handle on expenses

Of the reported sales of Dh2.35 billion, the Middle East accounted for Dh1.25 billion, Asia generated Dh590 million, Europe contributed Dh387 million, while others added about Dh121 million. RAK Ceramics took further measures to boost operational efficiency, reducing admin and general expenses to Dh199 million from Dh210 million. On expenses, staff salaries and other associated costs were reduced from Dh143 million to Dh120 million.

The company's overall business scenario is likely to get materially better, with revenue anticipated to grow to Dh2.54 billion. The same could be the case for profits.

But shipping costs spike

Last year, freight and transportation costs jumped by a third to Dh178 million from Dh133 million. This rise was primarily due to a surge in shipping costs as well as supply chain bottlenecks.

The abnormal scenario is likely to get resolved during the year. With a market capitalisation of Dh1.68 billion, RAK Ceramics trades at almost 10 times next year's earnings and the shares yield 8.4 percent. Indeed an attractive proposition for the value investor.