Capital Markets

Home Afrika’s share price drops to all-time low

morningside

Morning Side Office Park on Ngong Road, Nairobi. The property is managed by Home Afrika. Photo/FILE

Real estate firm Home Afrika’s share price slumped to an all-time low last week, slipping 60 per cent below its listing price of Sh12 and dropping the firm’s value below Sh2 billion.

Market analysts point to speculators as a factor in driving the share price below Sh5, leaving the company with a market value of Sh1.95 billion. Its valuation on listing last July was Sh4.9 billion.

Home Afrika touched a peak of Sh25 immediately after listing on July 14, 2013, meaning investors who bought at that price are looking at a sharper drop of 80 per cent.

The share’s lowest closing price of Sh4.80 was seen on Thursday before recovering slightly on Friday to close the week at Sh4.90, with increased demand that shows 2.07 million shares were traded.

Eric Munywoki, a research analyst at Old Mutual Securities, said the price correction seen over the past seven months may be coming to a close.

The price at the time of listing the company had been deemed expensive on the basis of the high price-to-earnings and price-to-book ratios, hence the fall in the share price is a reflection of the market correcting this.

READ: Home Afrika founders sell 6p.c stake after listing

The longer maturity period for real estate investments is also a factor, Mr Munywoki said, which makes such stocks ideal for longer term investors rather than short term speculative trading.

“As some of the projects the company is undertaking near completion and we start seeing occupancy grow, it will enable the company to give bigger returns to shareholders boosting the stock,” said Mr Munywoki.

Home Afrika is the only listed fully-fledged real estate developer, hence it is difficult to find a peer-to-peer comparison for its valuation.

However, other proxies for the real estate sector mortgage lender Housing Finance and investment firm Centum have registered share price growth of 34 per cent and 62 per cent respectively since mid July 2013.

Home Afrika reported a net profit of Sh156.3 million in the six months to June 2013, according to the last reported financial results which were released at the end of August 2013.

The company’s cash from operations stood at Sh794,000 as at June 2013, compared to Sh642 million for the full year ended December 2012.

Revenue stood at Sh420.7 million for the six months to June 2013, compared to the Sh839 million in the 12 months to December 2012.

The company expects to raise up to Sh2 billion through a real estate investment trust (REIT) to fund infrastructure construction at its Migaa Project in Kiambu County, which would make it among the first to utilise the capital raising vehicle that was introduced last year.

READ: Home Afrika gives REITs notice

REITs are meant to give the property developer access to long term funds at cheaper rates as opposed to short term loans from commercial banks that are more expensive.