Longhorn eighth firm to issue profit warning this year

What you need to know:

Longhorn joins KenolKobil, East African Portland Cement Company (EAPCC), Kenya Airways, Express Kenya, Sasini and Kapchorua Tea, which all said their profits would drop by more than 25 per cent this year.
Last year, only Total and CMC Holdings issued profit warnings—highlighting the challenges corporate Kenya is facing in an economy feeling the weight of expensive credit, high inflation and political jitters linked to next year’s General Election.
The shares of Longhorn—which listed at the NSE in May—were trading at Sh16.50 yesterday compared to Wednesday’s close of Sh16.80, but has shed 6.9 per cent over the past month. It listed via introduction and priced its share at Sh14 on first day of trading.
Now, the book publisher says that it expects its profit to fall by more than 25 per cent in the year to June due to Kenya’s soft economy and reduced spend by the government—which is the largest buyer of books in Kenya. Longhorn’s net profit stood at Sh136.3 million in the year to June 2011—which means the firm is expecting a maximum earnings of Sh102 million.

Book publisher Longhorn has become the eighth company listed on the Nairobi Securities Exchange to issue a profit warning this year, a drop that is set to hit investors who got only two earning alerts last year.

Longhorn joins KenolKobil, East African Portland Cement Company (EAPCC), Kenya Airways, Express Kenya, Sasini and Kapchorua Tea, which all said their profits would drop by more than 25 per cent this year.

Last year, only Total and CMC Holdings issued profit warnings—highlighting the challenges corporate Kenya is facing in an economy feeling the weight of expensive credit, high inflation and political jitters linked to next year’s General Election.

“The elections, high interest and inflation rates are the major challenges for businesses in the short-term,” said Nikhil Hira, a partner at Deloitte.

Though commercial banks have in the two months cut their lending rates in line with CBK’s monetary easing stance, the average base rate of the top banks at 19 per cent is still high compared to last year’s 14 per cent.

This has reduced the appetite for credit and cut consumers’ purchasing power—which was behind the slower pace of economic growth in the three months to March at 3.5 per cent compared to 5.1 per cent in a similar period a year earlier.

Analysts at Kestrel Capital reckon that firms that have not issued profit alerts are set to record lower earnings growth or drops in performance.

The drop in profit means investors will be paid lower dividends and miss out on the share appreciation as investors focus on blue chip firms like BAT, Equity Bank and Standard Chartered Bank.

So far, Kenya Airways, Centum Investment and EAPCC have trailed the Nairobi bourse index that has gained 15.9 per cent in the past six months. Kenya Airways stock is down 27.4 per cent and Centum 14.7 per cent while BAT and Equity are up 33.5 per cent and 27 per cent respectively.

The shares of Longhorn—which listed at the NSE in May—were trading at Sh16.50 Thursday compared to Wednesday’s close of Sh16.80, but has shed 6.9 per cent over the past month. It listed via introduction and priced its share at Sh14 on first day of trading.

Now, the book publisher says that it expects its profit to fall by more than 25 per cent in the year to June due to Kenya’s soft economy and reduced spend by the government—which is the largest buyer of books in Kenya. Longhorn’s net profit stood at Sh136.3 million in the year to June 2011—which means the firm is expecting a maximum earnings of Sh102 million.

Express, which lost the lucrative East African Breweries Ltd (EABL) transport contract in July last year, reported a loss of Sh229 million for the year ending December from a net loss of Sh28 in 2010.

Kenol was hit by high operating expenses and foreign exchange losses to post a half year net loss of Sh3.8 billion compared to a profit of Sh2.2 billion last year.

rotini @ke.nationmedia.com