[2008-10-02]  Bear beaters emerge at Nairobi bourse
Investors looking to survive the bear run at the Nairobi Stock Exchange may need to look beyond the blue chips and cherry pick among low cap companies that have displayed tenacity as counters around them slide.

Although the crop of companies that have weathered the bear storm offers no indication as to what has helped them stand out, market watchers say the general outlook in sectors of the economy in which they belong may serve as a guide.

“Investors may also look out for the issuer’s strategic direction and market dynamics such as the free float, and the number of shares available for regular trading at the bourse,” says Suntra Investment Bank in its latest market review.

In the list of bear beaters that survived the market storm between January 2 and September 22 this year are AccessKenya, Equity Bank, National Bank, CMC Holdings, Athi River Mining, BAT, Scangroup and East African Breweries.

Official statistics indicate that shareholders in these companies have suffered only a modest knock on the gains they had made in the past year.

This has left these stocks in positive capital gain positions with an average appreciation of more than one third in the year.

For instance, despite losing a hefty 37 per cent in the latest round of share price drop at the bourse from a year’s peak of Sh315 to Sh203 on September 30, Equity Bank’s share price remains much higher than the Sh141 price traded at close of September last year.

Stock traders say the fact that a significant fraction of the bear beaters are companies that do not belong to the blue-chip NSE 20-share index is a pointer to the need for diversification in the stock market.

Skeptics however maintain that the mixed performance of shares at the Nairobi Stock Exchange (NSE) only supports the belief that the market has sacred counters immune to freezing even when the polar bear strikes.

Although index-linked buying of shares is yet to strike a chord with ordinary investors, it remains the main signpost for professional fund managers, retail punters and their “hunch” advisors who have a preference for the blue chips.

In the recent past, however, many shares in this index have swung wildly to settle at lower levels than they were a year ago.

Barclays Bank of Kenya for instance has shed 24.7 per cent of its value in the last one year as has Mumias Sugar which is down 42 per cent after adjusting for recent issues.

The Kenya Power and Lighting Company has also not been spared, falling 20 per cent, while Kenya Airways has shed 28.7 per cent over the period.

This decline in blue chip share prices has however been compensated for by other counters to an extent that between January and September 22, 2008, market capitalisation — a proxy for investors’ wealth at the NSE — remained relatively stable at an average of Sh811 billion, excluding Safaricom, the mobile phone operator that entered the market in June.

Fairly stable

During the same period, the 20-share index lost 16 per cent while the all-share index remained fairly stable, pointing to the fact that holding a prudent mix of blue chips and emerging company shares offers the best protection from a bear market.

But there are those who believe that a look at the business model being pursued by any listed company offers investors a good insight on what to do with their shares in a bull and bear market.

Equity Bank’s share price growth has, for example, been attributed to its recent double digit growth and consistent focus on brand building.

Shareholders have also benefited from the mix of organic growth, the adoption of new technological solutions, growth of commission income and expansion in regional markets through acquisitions and partnerships.

This plan saw the bank triple its half-year results to nearly three billion shillings in pre-tax profits, pointing to the fact that it may be headed for Sh6 billion for the full year.

Investment bankers believe that a lower share price is good for all investors because it signals the right time to buy.

“Some people have, for example, been claiming that Equity is overvalued and that the high price is not sustainable,” said Mr Peterson Mwangi, the CEO of African Investment Bank.

“With statistics indicating that the average consumer goes to the ATM at least once a week and is charged Sh30 for every withdrawal, the bank earns Sh2.3 billion a year in commissions alone taking into account just half the account holders, ” he said.

AccessKenya, on the other hand, has been on a product launch and acquisition spree in the past two years, keeping investors upbeat about its potential.

The technology company has recently launched a broadband service for home users at a cost of between Sh4,000 and Sh6,000 per month for download speeds of more than 128kbps.

AccessKenya has also brought into its stable a new marketing plan that rides on the back of Nakumatt Supermarkets’ big customer base.

Through its branches, the retail chain that is Kenya’s biggest, is selling AccessKenya’s broadband kit giving it a much wider reach than its competitors.

Customers have the option of asking Equity Bank for financing to buy the kit, culminating into a case where the bear beaters are coming together to leverage on each other’s expertise and brand presence.

AccessKenya’s half-year results for the period to June 30, 2008 show that turnover was up 76.26 per cent compared to the same period last year.

Its net profit after an extraordinary item stood at Sh94 million, 46 per cent higher than last year’s half year result of Sh64 million.

Also in the league of bear beaters is CMC Holdings. Suntra’s report indicates that sales of new motor vehicles rode on the back of the expansion of the middle class to grow by 15 per cent despite a steep surge in prices.

East African Breweries on the other hand made a profit before tax of Sh12.3 billion — a 16 per cent rise from the previous year — with significant revenue coming from new streams such as the low-cost Senator beer.

Though its share price has grown only marginally, its attractiveness appears to hinged on the expected growth of new products such as Senator and the soft drink Alvaro.

Besides, the brewer has endeared itself to investors through its dividend policy that pays big cheques every year.

Also keeping their heads above the bear market floods are National Bank, cigarette maker BAT and media services firm Scangroup.

National Bank has for a long time been a subdued share until the Government run to its rescue with a Sh20 billion bond which effectively wiped out its huge debt book.

Expectations that the bank’s performance could only get better has helped it resist pressure for the downward movement seen in other counters.

Scangroup appears to be a growth company though this may be mainly outside Kenya. It had made a false start in West Africa but it has gone back to the region having learnt its lessons.

Athi River Mining, with the cement consumption still high, has been a beneficiary of the construction industry.

This factor also explains why Bamburi itself is also among the companies least affected by the bear run having lost less than two per cent in the share price.






Source: © Copyright 2000-2007 by Nation Media Group