Kenya Airways share rises on Virgin Atlantic exit plan
Posted Monday, May 21 2012 at 19:45
The Kenya Airways share has gained by more than a tenth since last week’s announcement by Virgin Atlantic that it plans to exit the Nairobi-London route.
The stock touched a three-month high as investors saw the move as a potential gain for the national carrier.
The share was trading at Sh16.35 on Monday at 11.22 per cent more than Wednesday’s average price of Sh14.70 when the exit plan was announced.
Virgin Atlantic said that its decision to stop flying the route was due to a difficult operating environment as a result of increasing costs and a weakening European economy. The airline will stop flying the route in September, five years after it made its maiden flight.
The KQ share closed last week at Sh16.70, a 13.61 per cent increase over Wednesday’s price.
Johnson Nderi, a research analyst at Suntra Investment Bank, said the exit has left a gap for KQ to capitalise on.
“What it is signalling is that KQ can sustain businesses where other competitors cannot,” he said.
Analysts from Sterling Capital also said that the Virgin Atlantic’s exit was propping up the KQ share.
“The announcement by Virgin Atlantic that it will be pulling out of the Nairobi-London flights helped drive positive sentiments on the counter,” said a market report by Sterling Capital.
Analysts said expectations of a successful rights issue and speculation on the end of year financial results were also share price drivers.
In March Kenya Airways floated a Sh20.7 billion rights issue, the biggest on the region.
At the time the share price temporarily dropped below the Sh14 rights issue price, which was an seen as an ominous sign for the offer.
However, confirmation of full participation in the cash call by the main shareholders, Dutch airline KLM and the government increased the chances of success.
The International Finance Corporation also said it was buying a significant portion of KQ shares in the rights offering.