The Analysts of Taking Stock with Kalilah Reynolds are not anticipating a significant impact to Carib Cement’s books should they begin paying royalties to their parent, international construction company Cemex, for the use of its trademarks and other intellectual property.

The royalty proposal has been creating some concern for investors. The news led to Caribbean Cement being the biggest loser on the stock market last week. The stock fell 25%, opening trading Monday at $74.92.

“Why now would you introduce this trademark fee?” questioned Wealth Advisor at Ideal Portfolio Services, Dwayne Taylor before noting that “normally for these things it really translates to the consumer so if there is an additional cost for Carib Cement you can only imagine that us as consumers would feel that as persons who would need to use their product.” 

According to Taylor, there’s a 25% rule when it comes to trademarking, which means any profits Carib Cement were to make, would see them likely paying over 25% of that to the parent company. 

“It’s yet to be confirmed but obviously they’re going to meet and discuss it further but its causing a bit of concern [with investors asking] why would you [Carib Cement] place that on us now,”

The vote to pay trademark fees to the parent, Cemex, has been set for December 7.

Assistant Manager of Private Equity at PROVEN Management, Julian Morrison said while the news was a shock, he believes it won’t change the thesis around the company considering other fundamentals associated with the current building and real estate climate in the country.

“We’re going through a construction boom so what we’ve noticed is that construction is taking place in several parishes and not just in the Kingston and St. Andrew metropolitan region, so demand for cement should be sustained going forward and it may just offset some of the pressures that we’re seeing that could come from this new agreement,” he said.

He said while it could change how much more value shareholders could see, the company may not feel the pressure of paying out those monies.

Research and Strategy Analyst at Sagicor Investments, Jodian Aris agrees that it may not be a significant development for the cement maker. However she said it does feel like a hit in the face for investors, with the company having not paid out dividends in a long time.

They’ve however since indicated that they are working on a dividend policy to possibly provide some compensation for investors. 

“The company fundamentally still has a positive outlook on the basis of real estate. The main concern is in relation to the royalty structure that they’re implementing which is on revenue. There will have to be some consideration if there is going to be a shift for the company, seeing that the parent company will be getting their bulk from the top line and not focused from the bottom line where shareholders would get their reward.”

The royalty proposal comes, even as competition could be heating up in the region.

Kalilah Reynolds Media understands that a Guatemalan cement manufacturing company, Progresso, recently set up operations in Belize to tap into the Caribbean Community (CARICOM) market. The company reportedly has intentions to start exporting cement to Jamaica and the wider Caribbean region by next year.

The analysts have said that while the market share won’t change immediately, the new company could potentially hurt Carib’s profits should they come with cheaper substitutes that would be attractive to builders.

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