Big shift in brokers’ fortunes

The combination of electoral chaos and global recession that left a prolonged bear run on its tail at the Nairobi Stock Exchange is changing the fortunes of key players, giving rise to a new club of stock market barons.

Fresh stock market data indicates that as the emerging wave of recovery lifts all boats at the bourse, the dominance of the cabal that built its front seat status on political leverage is gradually waning, creating space for a new group to lead the queue.

Market watchers however say that unlike the 2005-2007 stock market boom that gave rise to leveraged growth in the club of stockbrokers and investment banking, the emerging barons
are the product of well-managed organic growth whose main driver is the growing demand for value added services such as detailed market research, quick execution of transactions, and personalised customer feedback.

With the market activity having slipped from the hands of retail traders into the tight grip of institutional and foreign investors, Kestrel Capital, African Alliance, Apex Africa and Afrika Investment Bank are emerging as the new kids on the block that are controlling billions of shillings worth of equities being bought and sold at the Nairobi bourse.

Although the big players such as Faida, Dyer and Blair, Standard Investment Bank remain profitable, market insiders say formerly fringe players such as CfC Stanbic Investment Bank, Sterling and Renaissance Capital are staking a claim to a piece of the pie, and earning millions of shillings in commissions.

NSE’s trading data shows that Kestrel Capital, Dyer & Blair, CfC Stanbic Financial Services, Apex Africa and Standard Investment Bank respectively topped the leader board in equity transactions in the first quarter of the year accounting for 62 per cent of all trades.

But another crop of players including Sterling and Renaissance Capital have been riding the recovery wave to sit at the gates of the leaders’ club.

Out of the Sh37.8 billion worth of shares traded in the first quarter of this year, Kestrel Capital’s share of the transactions was worth Sh5 billion, Dyer & Blair Sh4.8 billion, CfC Stanbic Sh4.7 billion, Apex Africa Sh4.6 billion while Standard Investment moved Sh4 billion worth of equities.

Higher turnovers

Analysts said higher turnovers at the bourse are signs of improved market activity that should translate to bigger revenues for stockbrokers and investment banks at the end of the year.

How the players will turn this income into profits in a trading environment that is now under deeper scrutiny by the regulators remains the acid test for stockbrokers and investment banks.

Last year as the market hit rock bottom under the weight of the global economic recession and its ripple effects on the key sectors of the Kenyan economy such as tourism and horticulture exports, nearly all the brokerage firms reported a steep decline in both earnings and revenues that left many in the loss-making territory.

Revenues from fees and commissions fell by 58 per cent from Sh3.4 billion in 2008 to Sh1.4 billion last year cutting the industry’s pre-tax profits by 32 per cent from Sh2.5 billion in 2008 to Sh1.7 billion.

Out of the 18 firms with brokerage licenses, only three – Afrika Investment Bank, Apex Africa and African Alliance – reported an increase in pre-tax profits.

Half of the 18 firms realised marginal profits while the other half finished in the loss-making territory.

It is against this backdrop that the performance of last year’s top five firms is attracting interest as the market activity continues to rise with the ongoing economic recovery.

In the past three years, Kestrel Capital has been a permanent fixture in the list of top five firms at the bourse.

Last year, the firm topped the earnings board with Sh24 million in pre-tax profits compared to Sh69 million in 2008.

The firm, which controls the largest fraction of the lucrative foreign investor transactions at the bourse, is the brainchild of former Wall Street investment banker Andre Desimone and appears set to keep its position at the top.

What has worked for Kestrel Capital is a strong history of detailed research reports and a formidable global network that has put foreign investor cash firmly in its hands.

That Kestrel Capital still tops the leader board accounting for 14.9 per cent or Sh5.6 billion of the bourse’s turnover is being seen as an indicator of the premium value that foreign investors place on a strong track record.

Cited as the preferred player for the big local equity buyers, Apex Africa Investment Bank has used its elaborate network among local institutional and high net worth individual investors to occupy one of the five front seats at the bourse.

Kassim Bharadia, Apex Africa’s chief executive officer has built vast networks among business tycoons in Mombasa, many of who form the core of his company’s clientele.

At African Alliance Kenya Securities, the chief executive officer Lucas Otieno has been executing a stealth growth plan that mainly uses market research to rope in and keep customers.

The broker is not only backed by one of the strongest research departments in the Kenyan market but also relies on a continent-wide network to grow its customer base.

Brain power

Where African Alliance has used its brain power to climb the pecking ladder, CfC Financial Services can be said to have made the most of the rebranding plan it executed last year to win a share of local and foreign institutional investor cake at the NSE.

A rebranded CfC Stanbic Financial Services has made a clear shift of its earnings mix cutting back its presence in the retail segment of the market that once accounted for 90 per cent of its business in favour of institutional investors.

By tapping into a global network of financial services firms under the umbrella of Standard Bank, Nkoregamba Mwebesa, CfC Stanbic Financial Services managing director, is keen to widen the firm’s product offering and reach for a place among the top dogs.