Capital Markets

Unga Group tops industry segment with 111pc surge year

unga

Unga Group silos in Eldoret. FILE PHOTO

Local investors’ demand has helped more than double Unga Group share value this year even as other manufacturing stocks made modest gains.

The rise has been driven mostly by domestic buyers who in June accounted for 98.3 per cent of the Unga monthly turnover of Sh17.8 million, with foreign investor trading only turning over Sh303,500.

The stock is considered undervalued by analysts, based on its low price to earnings (P/E) ratio—a measure that compares market price to company earnings—in contrast to the sector P/E, giving it an upside in price movement.

“A look at simple trading multiples for Unga reveals an opportunity for investors to profit from mispricing. Trading at a P/E multiple of 9.29, based on 2013 earnings per share of Sh4.09, it is way below the manufacturing sector P/E multiple of 17.89 and below the market P/E of 14.9,” said Genghis Capital research analyst Silha Rasugu.

The miller’s share price has increased by 111 per cent this year to Sh38, outpacing the next best performing manufacturing stock, Eveready, that had a price increase of 31 per cent to Sh3.55.

Other gainers in the sector include BOC Gases, which is up 15 per cent to Sh144, BAT with gains of 13 per cent to Sh679 and EABL which is up 5.2 per cent to Sh304.

READ: Unga share hits one-year high on expected growth

Amongst the losing counters in the segment this year so far are Carbacid, down 46 per cent to Sh28, and Mumias Sugar which has shed 12 per cent to Sh2.75.

The sector as a whole saw growth of 4.8 per cent in the first six months. On the demand and supply side, Unga’s relatively low liquidity has also helped elevate the share price, with high demand outweighing limited supply.

“For such an illiquid share, even trades consisting of small stakes can considerably drive up the share price,” said Kestrel Capital analyst Kuria Kamau.

The miller has 75.7 million issued shares, with a market capitalisation of Sh2.9 billion at current market price.

Low liquidity is, however, seen as a disadvantage to a counter, in that it prevents the shareholders from realising the full value of their shares in the market due to limited trading opportunities.

Another stock in the manufacturing segment that sees big price movements on low volumes is BAT which has 90 million issued shares, and whose price has varied between Sh549 and Sh680 over the past month alone.

Investors have also had an eye on Unga’s financial performance, in which the company posted a 52.7 per cent growth in 2013/14 half-year net profit after reversing heavy currency-related losses over the same period a year earlier.

After-tax profit stood at Sh210.6 million in the six months to December last year compared to Sh137.9 million for a similar period in 2012.