Construction & Allied

Building Kenya: Construction Stocks

The Construction & Allied sector includes companies that produce building materials such as cement, paints, and steel. These stocks are closely tied to Kenya's infrastructure development agenda and the broader construction industry cycle.

Key Listed Companies

• Bamburi Cement — Part of the Holcim Group (formerly LafargeHolcim), Bamburi is one of the largest cement manufacturers in East Africa. The company operates plants in Mombasa and Nairobi, producing Portland cement, ready-mix concrete, and other building products. Bamburi has faced challenges from cheap cement imports and a price war in the local market.
• ARM Cement — Previously a significant player in the cement sector with operations in Kenya, Tanzania, and Rwanda. ARM Cement faced financial difficulties and was placed under administration. Its future on the NSE remains uncertain and serves as a cautionary tale about the risks of aggressive expansion.
• Crown Paints — East Africa's largest paint manufacturer, producing decorative, automotive, and industrial coatings. Crown Paints benefits from urbanisation and the growing middle class investing in home improvement. The company has expanded into Uganda, Tanzania, and Rwanda.

Sector Drivers

Construction stocks are cyclical and driven by:

• Government infrastructure spending — Major projects like the Expressway, housing programmes, and road construction drive demand for cement and building materials. Government budget allocations to infrastructure are a key indicator.
• Real estate activity — Residential and commercial construction in Nairobi and other urban centres creates demand for cement, paint, and steel.
• Urbanisation — Kenya's urban population is growing rapidly, driving long-term structural demand for housing and infrastructure.
• Import competition — Cheaper cement imports from countries with lower production costs have pressured local manufacturers' pricing power and margins.

Analysing Construction Stocks

When evaluating construction and building material companies, focus on:

• Capacity utilisation — How much of the company's production capacity is being used. Higher utilisation means lower per-unit costs.
• Revenue per tonne — For cement companies, this indicates pricing power. Falling revenue per tonne suggests price competition.
• Operating leverage — Construction companies have high fixed costs. When volumes rise, profits can increase dramatically. The reverse is also true.
• Debt levels — Capital-intensive operations often require significant borrowing. High debt during a downturn can be dangerous, as ARM Cement demonstrated.