British American issues profit warning six months after IPO

British American Investment Company (Britak) has warned that its profits for the year ended December will fall by at least 25 per cent as erosion of share prices at the Nairobi bourse hit its investment income.

This is a blow to investors who bought shares into the firm upon its listing in September at the Nairobi Securities Exchange (NSE)—where the share has shed 40 per cent since its debut at the bourse.

The firm blamed the bearish run at the NSE for its soft 2011 results highlighting the influence of the stock market cycle on the company whose interest spans asset management, property and the insurance business.

Now, the company says it will focus its attention on the property market and fixed income market to reverse the results and cut its heavy reliance on the equities market, which accounts for 65 per cent of its portfolio.

“The weak performance of our quoted equity portfolio driven by the poor performance of the stock market will negatively impact on the profitability of the company and the group,” said Nancy Kiruki, the company said in a statement to the NSE.

In 2010, it reported a net profit of Sh2.7 billion up from a loss of Sh420 million in 2009 – highlighting the impact of the performance of the NSE on its earnings.

The Nairobi bourse witnessed a recovery in 2010 after a bearish run in 2009 and 2008, when Britak saw it profit drop to Sh242 million compared to Sh2 billion in 2007 – which was another good year for investors at the NSE.

Analysts reckon most investor had factored in the impact of the share price erosion on Britak’s 2011 performance, which they argue was behind the under-subscription of its IPO.

It raised Sh3.5 billion from the offer against a target of Sh5.8 billion, which forced it to scale down its investment plans, especially a deeper entry in Kenya’s property market.

“At the time of making their buy, investors were aware of these factors and this was one of the reasons for the under subscription,” said Eric Musau, a research analyst at Standard Investment Bank.

He added that a cut in profits deeper than the 30 per cent could hurt its dividend growth payout. It paid a dividend of Sh6.67 a share in 2010 compared to Sh4.44 in 2009.

Top on the list of owners are Peter Munga, the billionaire businessman who chairs Equity Bank board, Jimnah Mbaru, the investment banker, Equity Bank chief executive James Mwangi, Jane Michuki, a managing partner at Kimani & Michuki Advocates and Dawood Rawat, a foreign national.

The Britak IPO was priced at Sh9 per share and its close trading yesterday at Sh5—meaning that investors in the firm have lost Sh7.5 billion since its debut at the NSE. The NSE plunged 31.4 per cent in 2011 compared to 2010 on reduced participation by retail investors shackled by sky high inflation and net sell off by foreign investors—the first in three years.
pmutegi@ke.nationmedia.com