Companies

Investors in blue chip firms reap handsome returns

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A trader looks at the day’s tradings at the Nairobi Stock Exchange. The performance of a listed company and how well it is managed plays a key role in garnering investors. File

Investors who put their money in profitable companies have reaped handsome returns despite the bear run at the Nairobi Stock Exchange , making profit a key factor in the bourse’s performance .

Official market data shows that shares of KenolKobil, KCB, Nation Media Group, Athi River Mining and East Africa Portland Cement have defied the turbulence that characterised stock market trading since January.

At the tail-end of the performance scale are Eveready East Africa, Express Kenya, AccessKenya, CFC Stanbic Holdings and Sameer Africa, which have seen their share prices drop by double digits over the same period.

However, investors lost about Sh60 billion in the first half of the year due to rising cost of living , which has reduced the interest of retail players as institutional investors move to government securities due to higher rates of return.

The weakening of the shilling has also reduced the participation of foreign investors—who in recent months have emerged as drivers of the Nairobi bourse – fearing currency conversion risks.

“We believe equities in Kenya will continue to underperform generally for the rest of the year, especially for foreign investors who will take a hit on the exchange rate,” says an economic report by African Alliance.

As a result, analysts say investors look set to focus on companies that expected to post high profits and dividends in a market environment where the flow of funds has reduced, making dealers choosy on where to put their money. Eric Musau, a research analyst at African Alliance Investment Bank, said that investor interest is on stocks in the energy and agriculture sectors due to high prices of commodities.

Huge budgetary allocations for the infrastructure sector in the East Africa region is expected to boost earnings for cement makers, propping their prices.“Results are expected to be better especially from infrastructure projects,” said Robert Munuku, a research analyst at Drummond Investment Bank told the Business Daily in an earlier interview.

KCB, the best performing financial, is a favourite amongst investors due to the expected cost reduction.

“We also take a positive view on the internal re-engineering taking place in KCB,” said a market report by Renaissance Capital.

Corporate Kenya’s expected increase in ad-spend is expected to boost incomes for firms in media services, benefiting firms such as Nation Media Group.

Analysts are, however, tempering their optimism for the second half of the year.

“We still see good performance (second half) but it is not going to be exceptional,” said Mr Musau.

The shilling’s continued nose-dive is expected to thin margins of firms that import raw material or have dollar denominated liabilities.

Three of the five, AccessKenya, Eveready East Africa and Sameer Africa will be directly affected by the shilling’s woes due to increased imports costs. The weakening shilling saw Sameer Africa’s earnings drop by 63 per cent, as net profit declined to Sh57 million in 2010, compared to Sh158 million in the same period a year earlier.

“The question is whether CBK will allow for continued easing or whether sanity will prevail and government will review its budget downwards (austerity),” said Mr Nderi, a research analyst at Suntra Investment Bank.

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