The proof in the pudding is whether AKS eats his own cooking. I am staying away from ARM until I know more. BTW, this is why I picked Bamburi as one of my LIFETIME holdings. Little debt.

Despite all the good stuff one thinks there is... If you do not trust the management/board, then do not invest. Simple.

My no-go firms include Olympia, Express, KQ, GoK firms [except KenRe & perhaps KCB and in the distant future KPLC], HAFR, etc among others. For such firms' the PER & PB will only take you so far.

SIB

We update our share recommendations for ARM and Bamburi ahead of FY15 results announcements.

In 2014, ARM’s revenue declined 4.1%y/y missing our forecasts by 14.6% (cement revenue was 16% below forecasts). Bamburi on the other hand reversed its 2013 9.5%y/y drop to grow 6.2%y/y (2.5% above target). EBITDA margins shrunk 67bpy/y and 35bpy/y – ARM missed our forecasts by 231bp but Bamburi beat our forecasts by 201bp. At 20.3%, ARM’s EBITDA margin remained above Bamburi’s for the fourth consecutive year. ARM’s EPS growth (+10.1%y/y) came in 9.2% below forecast, while Bamburi’s 2.6%y/y growth resulted in above forecast EPS (+9.0%).

In 1H15, ARM posted 1.6%y/y revenue growth but 142%y/y decline in EPS. Even after excluding unrealized FOREX losses, PBT was down 24.3%y/y – owing to 183%y/y jump in finance costs (driven by KES depreciation, higher rates on outstanding commercial paper and reduced interest capitalization). Cement revenue performance disappointed (-10.6%y/y) while low margin fertilizer sales grew 233%y/y. Over the same period, supported by increased domestic sales of its high grade cement (mainly used for infrastructure projects) and exports into Inland Africa (high margin markets), Bamburi registered 11.7%y/y and 77.4%y/y growth in revenue and EPS respectively.

Key FY15 forecast adjustments. Guided by improved 1H15 revenues for the 5 listed cement companies (3 in Kenya and 2 in Tanzania) in a weak pricing environment, we have revised our cement consumption estimates upwards (Kenya, Uganda and Tanzania) by 1.9% to 11.39mtpa (+12.1%y/y growth). Owing to delay in commissioning of the Tanga grinding line (expected in 2H14, but now pushed out to 1H16) and increased competition in Tanzania, we have cut ARM’s revenue forecast by 17.5%. For Bamburi, we have increased our FY15 revenue forecasts by 9.1%. On EBITDA margins, we have increased Bamburi’s (+201bp) but cut ARM’s (-231bp).

Our revised EPS estimates stand at KES 0.08 from KES 5.14 (ARM) and KES 14.95 from KES 12.76 (Bamburi).

Valuations and recommendations. In 2015, ARM’s share price declined 51.5% while Bamburi gained 25.9%. Against our updated fair values (ARM KES 35.47 from KES 69.78 and Bamburi KES 201.27 from KES 202.67), we retain our SELL recommendation for ARM (11.4% downside) and BUY recommendation for Bamburi (+18.4% upside). Against our FY15 forecasts, ARM is currently trading at 11.2x EV/EBITDA, against Bamburi’s 5.4x.

Whoa. The dilution happening to ARM is not small.

Current market cap at 35.00 is 17.5bn Kes

Incoming investment of preference shares is 12.5 bn Kes

After crunching some hypothetical numbers the eps will be diluted to become 55% of what it currently is. The last good/normal year it was 3.01 eps. 55% of 3.01 is 1.66 eps.

Current PE is 11.75, assuming this is maintained 11.75*1.66= 19.75.

So 1 ARM share should be at 19.75 when you factor in the dilution.

( some may argue. But they are preference shares? True, but the earn dividends and they WILL be converted, so other than not trading, they are dilutive to the equity, it would be wrong not to include them in the valuation)

If you use a pe of 10. 16.60 Kes per share.

Let's await the final numbers on the shares that will be issued, but it won't be far from this, depending on arm negotiating skills, I've pegged investors to buy price at 30.00 per share.

Talks with India's UltraTech flopped?