Centum embarks on cash retention to grow asset base

Centum Investment shareholders could do without dividend for a given period as the firm embarks on an aggressive cash retention with eyes on private equity and real estate.

The firm is focusing on total return — the change in market prices and income.

James Mworia, Centum’s chief executive officer, says investors are keener on the total investment returns from asset value in a game changing move that shifts the company towards capital appreciation model.

“It makes more sense to conserve capital and reinvest in viable investment projects for a greater total return,” says Mr Mworia.

According to Mr Mworia, the share price reflecting the changes in the value, assuming dividends and capital gains were reinvested, is a more compelling investment strategy than dividend payout policy.

“Within this strategy period running up to 2014, we do not intend to pay out any dividend,” says Mr Mworia.

Even after a return to profitability last year, Centum maintained a 100 per cent earnings retention policy opting instead for a bonus share issue for every 10 held.

This marks the second year running of a dividend drought for shareholders despite a 250 per cent rise in after-tax profits from Sh303 million in previous financial year to Sh1 billion in 2009.

Over the last one year, Centum’s investors’ funds recorded a 55 per cent return as the net asset value per share rose to Sh16.50 from Sh10.70.

Centum is now using the net asset value per share as a key measure of the firm’s performance in line with global benchmarks for investment companies.

Proponents of capital appreciation point out that a firm can focus on building up a large portfolio and focus on its annual growth and periodically sell off shares for income — more so the bonus shares issued — saving the taxes on dividends.

“Capital appreciation is a better way to realise the value of an investment especially for investors with a long term investment horizon,” says Lucas Otieno, managing director at African Alliance Kenya Securities.

It, however, remains to be seen how the move to cut the dividend payout will be received by an estimated 38,000 Centum’s shareholders, some of whom have received dividends from the company since the firm listed back in 1967 when it was known as ICDC.

The investor profile of the firm has remained largely unchanged over the years with most of the shareholders opting to hold their shares for dividends rather than trade in them for capital gains.

But armed with a strategy that targets increasing assets under management from the current Sh9.3 billion to Sh30 billion by 2014 — half of which will be invested outside Kenya — Centum is setting the market abuzz as avenues of growth present investors with a diversified investment opportunity.

“Power and infrastructure will be the next drivers of growth for the company,” says Rogers Kinoti, a fund manager at ICEA Asset Managers.

Among listed firms, Centum has stakes in Safaricom, British American Tobacco, Kenya Airways, Barclays Bank, East African Breweries, CMC Motors and Carbacid.

Within its private equity portfolio, the firm has substantial shareholding in UAP Insurance, General Motors, NAS Airport Services, AON Minet Insurers, K-Rep Bank and a number of bottling firms across the country.

Office building

The firm is in the process of acquiring prime urban development land in both Nairobi and Entebbe.

Centum has already made a purchase of Sh1.1 billion worth of land in Nairobi’s upmarket Runda and is starting the development of an office building within Nairobi’s Central Business District.

The firm is also in advanced negotiations with prospective partners in South Sudan to develop real estate in the emerging economy.

This strategy of venturing into real estate and private equity is seen as a way of hedging against the vagaries of the stock market that ravaged Centum’s portfolio in the last two years.

Before the earnings turnaround, the listed firm’s pre-tax profits had dropped from Sh407 million to Sh114 million in the six months to September 2009, pulled down by a 77.5 per cent drop in investment income.

Its investment income, which is normally driven by cash from dividends and sales of shares, remained low as the firm sold fewer shares in the first half of 2009 compared to 2008.