EA Cables set to gain from fall in copper prices

Copper prices have dropped by more than 12 per cent since the beginning of the year, a fall that is expected to result in better revenue margins.

“Despite the broadly flat half year results, we see the outlook for the business as positive, especially with the ongoing factory modernisation and expansion plan,” said Standard Investment Bank (SIB) in a research note to investors.

The listed cable-maker’s expansion was largely in the copper unit. It also produces low voltage aluminum cables.

In the six months to June, the company recorded an after-tax profit of Sh231 million up from Sh228 million in a similar period last year. The firm posted a 23.7 per cent net profit drop last year, which has seen investors shy away from the counter.

The stock has shed 12 per cent in the 12 months to trade at an average Sh15.35 per unit on Wednesday.

SIB holds that the stock is trading below its fair value, which it estimates to be Sh19.50. Earlier this year the company acquired a two-acre piece of land for Sh250 million to expand its factory and storage space.

READ: EA Cables buys two-acre land for new factory

The expansion works cost its Sh880 million. It operates in the five East African countries, but Kenya remains its main market where it has a 48 per cent market share.

“EA Cables stands to gain from a lower effective tax owing to capital expenditure-related allowances, which we have only partly factored in our estimates,” said SIB.

EA Cables is said to have reduced its lead time for orders to a month from the previous three months through the expansion.

During this financial year, the government has allocated Sh23 billion to installation of power transmission systems by the Kenya Electricity Transmission Company (Ketraco).

Kenya Power also plans to spend Sh52 billion on electricity distribution and new substations.

It is also banking on a government directive requiring all contractors to have 40 per cent of their raw material sourced locally.