Ogilvy takeover drives demand for Scangroup shares

Safaricom media spent stood at Sh2.66 billion in the year to March, 2010.

In 2006, it acquired a majority stake in FCB Tanzania, the agency that handles Vodacom Tanzania and the biggest media spender in Tanzania.

“This deal (Ogilvy buyouts) assures Scangroup advertising across Africa,” says David Mataen, Faida Investment Bank’s head of corporate finance.

Ogilvy Africa has 19 affiliate operations across Africa, boasting a client base that includes multinationals SABMiller, Unilever and BAT.

Optimism over the recovery of the Kenyan economy has spurred a rally in media spend, offering firms such as Scangroup healthy returns.

Companies are spending more to capture fresh demand that is being created by economic recovery.

Corporate Kenya spent Sh20 billion in the six months to June, close to the 2008 spend.

Second half

This pushed Scangroup’s profits to Sh200.2 million in the six months to June, compared to Sh146.7 million in a similar period last year, and the firm expects a better second half.

“Consumer goods sector is performing well and since the performance is highly correlated to economic growth, their ad spend should increase,” says Mr Alex Muiruri, an independent research analyst.

But the Genghis Capital analysts reckon that the firm’s high price to earnings ratio points to an overpriced counter, warning that the share was likely to fall as investors factor in its realised financial numbers.

Scangroup’s price-to-earnings ratio is 29.8 against the 13.55 commercial segment’s average ratio.

“The price to earnings ratio is way above its level,” says Mr Bodo. He added that a significant portion of demand on Scangroup share is being driven by speculation, adding that the share could fall as investors exit after profiting from the capital gains.