Companies

Foreign investors cut stake in Britam by 90pc as local buyers spark price rally

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Britam Group managing director Benson Wairegi with Real Insurance chairman Sam Kamau (right) when they signed a buyout deal. Photo/FILE

Foreign investors have cut their stake in Britam by 90 per cent, selling shares currently worth Sh12.8 billion to local institutional and individual buyers seeking a bigger piece of the firm’s future earnings.

Market data shows that local investors are behind Britam’s recent share price rally, attracted by the investment firm’s increased acquisitions that are seen boosting its growth.

This has seen them buyout foreigners who exited at large profits as the investment firm’s share price gained 38 per cent to Sh18.2 from Sh13.2 on November 22 when it announced its acquisition of a 99 per cent stake in Real Insurance.

The Real buyout followed an acquisition of a 25 per cent interest in property development firm Acorn Group, with Britam said to be seeking new deals including a minority stake in Nairobi-based Continental Re.

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It is the Real acquisition, however, that has been credited with increased trading in Britam’s stock that led to the changes in the company’s shareholding structure.

Foreign investors’ stake in Britam stood at 4.32 per cent in February compared to 41.51 per cent in July last year, with the equity of local institutions rising to 62.68 per cent from 28.49 per cent in the same period.

Local investors also increased their stake to 33 per cent from 29.99 per cent, helping to push up the investment firm’s share price beyond fundamentals.

“It is clear Britam’s meteoric rise has not been fully supported by earnings performance,” said Standard Investment Bank in a research note, citing the company’s inflated market capitalisation.

The company is now valued at Sh34.5 billion at the Nairobi Securities Exchange (NSE) compared to Sh24.9 billion on November 22, representing a Sh9.5 billion gain.

The current share price of Sh18.2 is more than double the initial public offer price of Sh9 in July 2011.

SIB said that the market has already priced in synergies and higher earnings from the Britam-Real tie-up, adding that these may have been overplayed.

“In our view, the market is pricing in both strong realisation of synergies and a fairly short, smooth integration process. In our view, these are two heavy expectations on the management team,” SIB said in a statement.

The investment bank said it expects combination of the two firms to contribute 21.3 per cent of total group value, noting that integration costs remain uncertain with management estimating the process to take between three to 18 months.

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Britam’s net profit rose 5.3 per cent to Sh2.6 billion in the year ended December compared to Sh2.5 billion the year before, helped by higher premiums and investment income.

The company did not incorporate earnings from Real in the review period but is expected to do so in the current financial year.

Owners of Real have booked nearly Sh400 million in capital gains from the deal, with their maximum allotted stake in Britam of 2.67 per cent (51.9 million shares) having gained 65 per cent from the buyout target price of Sh11.1.

Britam said it would pay Real’s owners through Sh825.3 million in cash and shares amounting to Sh550.2 million, with the investment firm set to issue the new stocks from its pool of 258.5 million authorised but unissued shares.

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