TransCentury chairman Zephania Mbugua (right) with the CEO Gachao Kiuna after announcing the listing of the company at the NSE. File
TransCentury Limited shares start trading today with market analysts saying investors sentiment over the Sh50 introduction price will determine liquidity on the counter.
The private equity firm is entering the market at a price to earnings (PE) ratio of 38 compared to 6.1 for Centum Investments, the other private equity firm listed at the Nairobi Stock Exchange. This means that it will cost an investor Sh38 to earn Sh1 if one purchases TransCentury shares, but for the same Sh1 in earnings, it will cost one Sh6.1 to invest in Centum shares.
The Sh50 opening price has sparked mixed reactions from analysts with some saying the price is justified in view of the company’s key investments in promising sectors like the energy that generate Sh4 in every Sh5 of the company’s income. The company also has investments in high-yielding transport, infrastructure and specialised engineering sectors that are likely to attract investors with a long-term view.
“All the sectors they are in are very high -yielding,” said George Bodo, the equity strategist at Apex Africa.
The PE, Mr Bodo said, was at a premium, but investors would recoup their investment later.
“Drivers for growth in the power infrastructure unit remains abundant as the East African region continues to exhibit low electricity access amid growing populations and economies,” says a report by financial advisories firm Goodson Capital Partners.
Only 13 per cent of the population in East Africa has access to electricity compared to 70 per cent in South Africa and Ghana (61 per cent).
Growth is also expected to remain strong for the transport business where TransCentury has a 34 per cent share in Rift Valley Railways which is being revamped to ease the pressure on road transport.
Ferrying a 20-foot container from Mombasa to Kampala costs Sh100,000 while the same journey via train costs Sh40,000 and will take shorter, offering a ready market for a functioning rail system.
TransCentury expects the sectors to realise a return of 25 per cent annually, creating significant value for shareholders.
Other analysts, however, said the price-to-earnings ratio of 38 was high when benchmarked with companies in the power industry such as KenGen and Kenya Power which have ratios of 14.4 and 9.6 respectively.
Analysts, however, said returns from the power sector are very dependent on regulation and tariff negotiation.
TransCentury’s power division depends the firm’s ability to secure good tariffs with electricity distributor Kenya Power.
“The key assumption is they can secure a certain tariff from Kenya Power,” said Francis Mwangi, a research analyst at Standard Investment Bank. Even though the two firms can agree on a tariff, the final word depends on the Energy Regulatory Commission which has to be convinced that the 25 per cent is enough to recover investment costs and a earn return.
Mr Nderi added that the train business still faces competition from roads as they are very flexible, meaning trucks can access where trains cannot.
Renaldo DeSouza, a research analyst at Genghis Capital said some investors were looking at the Rift Valley Railways past performance without looking into its future prospects.
“RVR only needs to increase capacity to 50 per cent of its capabilities and it will be profitable,” said Renaldo DeSouza, a research analyst at Genghis Capital.
