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Dar assets sale key to loss-making ARM turnaround plan

A worker at an ARM Cement plant. file photo | nmg
A worker at an ARM Cement plant. file photo | nmg 

Cement maker Athi River Mining (ARM) #ticker:ARM should quicken the sale of its assets and consider disposing off its Tanzanian subsidiary, analysts at Standard Investment Bank (SIB) say.

The Dar subsidiary was among those where loss-making ARM investments were fully impaired in the course of last year. The company does not expect to recover the value investments in a total of six subsidiaries including that in Tanzania.

As a result of the losses investors have oversold the share on the Nairobi Securities Exchange (NSE) leaving the company valued at only 12 per cent of its book value, the analysts noted.

“Asset disposal is likely the most viable option for ARM, and could involve a look at the Tanzania unit,” said SIB.

The company has said it might sell towards the end of the year, but has not indicated any intention to sell the Tanzanian unit.

In the year-to-date (YTD), the group’s share price has fallen 79.6 per cent, but SIB said investors may have overreacted even though the company is in a distress situation.

Compared to the same period last year, the cement-maker’s net asset value (NAV) had fallen by a quarter.

“NAV for ARM is at Sh24.5, down 25.2 per cent year-on-year. The stock is trading at -79.6 per cent YTD and about 12 per cent of NAV. We think investors might have oversold the stock, despite its distress situation – but a solution has to be found soon for its key assets,” said SIB.

According to the manufacturer’s annual report, investments amounting to Sh530.8 million in ARM Tanzania, Kigali Cement Company, Mafeking, ARM South Africa, Mavuno Fertilizer and Maweni Limestone were all lost in 2017.

The loss in the subsidiaries was among the contributors to the Sh6.5 billion bleeding the group saw by the end of the year. In the previous year, the loss stood at Sh2.8 billion – showing that last year bleeding was more than double that of the year before.

The firm said the operating economic conditions were the cause of the losses in the separate units with the performance in Kenya affected by excess capacity, pricing cuts and slowdown in the construction sector.

In Tanzania, the company suffered from a ban on coal imports, excess capacity and price cuts amounting to 30 per cent arising from competitive pressures.