[2008-09-02]  Expansion into property strains Crown Berger
Shareholders of paint manufacturer Crown Berger decided to hold onto their shares rather than sell them at a loss after the company’s share price slumped by 48 per cent on announcement of the company’s half year results.

The company isdiversifying into the properties market.The company’s expansion and diversification expenditure left a negative net cash flow position of Sh57.3 million from positive Sh22.2 million in the corresponding half year period last year.

In yesterday’s trading at the Nairobi Stock Exchange (NSE), investors put in buy orders for 101,800 shares at a price of Sh21.50 per share, but there were no matching sellers and therefore no activity was recorded on the counter.

Crown Berger’s share price slumped to an average price of Sh19.75 in Friday’s trading from an average of Sh38 per share at close of trading on Thursday, after the company announced a 15 per cent increase in its half-year pre-tax profits to Sh74.2 million.

A total of 10,000 Crown Berger shares were moved in Friday’s trading.The company managing director Rakesh Rao yesterday termed Friday’s price slump to a year low of eight shillings a share a “mistake” and a possible case of “mischief.”

The previously recorded lowest price in the last 12 months was Sh33 per share according to NSE statistics.

Mr Rao said someone could have been trying to capitalise on market trading rules that allow for the fluctuation of a company’s share price by over 10 per cent upon release of material information by a listed company.

He said the fact that other shareholders were not willing to sell their shares at the new low price means that the slump was not driven by deterioration in the company’s fundamentals.

NSE chief executive Chris Mwebesa could not be reached for comment as he was said to be in meetings for most of the day yesterday.

Trading rules, however, allow for fluctuation of the share price of a company by over 10 per cent upon announcement of material information by a listed company. The share price movement is then restricted to a maximum of 10 per cent in the next trading session.

Independent analysts argued that Crown Berger’s share price could have been investors’ reaction to the increasing competition in a saturated paints market, and the low liquidity associated with the counter.“Investors are not happy with the poor performers at the bourse and are quick to move their money to counters that show better performance and are more liquid,” said Standard Investment Bank executive director Job Kihumba.

Global Credit Rating Company last year warned in a rating brief on Crown Berger that the decorative paints market was approaching maturity, and advised local firms to intensify their activities in other market segments. These segments include powder, automotive and industrial paints.


Export business
Growing competition has forced Crown Berger to venture into Uganda and Rwanda, with plans to boost its presence in Congo and Southern Sudan as it plans to double the contribution of its export business to 20 per cent of its annual sales.

Mr Rao disclosed that the company has spent about $1.5 million (about Sh105 million) on paint manufacturing plant in Uganda.
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