Is the cable company wired to fail? - myStocks: Opinion and Commentary

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Is the cable company wired to fail?

By Odhiambo Ramogi (Elim Consulting)
Comments Wednesday, March 19, 2014 at 10:22 AM EAT

Photo: cio.co.ke


EA Cables released its final year results on Friday 14th March. The net profit stood at KES 398 million, a 23.7% drop in profits compared to KES 522 million the company made the previous year. The company saw a 5% increase in revenue in the year under review but was weighed down by an increase in operational expenditure.

The drop in profits is attributed to the slow rate of business at the beginning of 2013 due to the general elections in March and high metal prices in the global markets.

The company announced a first and final dividend of 0.10 per share.

The drop in profits herald a company which has not grown versatile to the market forces to remain profitable. The cable company is wired to fail if management does not change tact to deliver growth.

Risk Profile

The real threat to the business of EA Cables remains to be the counterfeit products peddled across the country. However, cheaper imports getting into the country also pose a real threat to business.

Due to high costs of energy and metal prices, the company’s prices are not competitive internationally making it lag behind in growth.

Market and Industry Dynamics

EA Cables is no doubt the market leader in cable manufacture and distribution in an industry where the players could be counted with one’s fingers. Competition is rising locally and regionally from newly established firms doing both manufacturing and importation.

From a distance, one would expect the fiber optic cabling and layover all over the country to be a source of business for the company. However, on a closer analysis, it would seem that EA Cables is not a manufacturer of the fiber optic, locking it out of the lucrative business.

Growth spectrum

Given the company already has significant regional presence; growth will not come from the physical expansion but from the deepening of its product range. A strategy in this direction is not evident in the managements briefing leaving the company in uncertainty about its growth prospects.

Labels: CABL


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