Capital Markets

SBG’s slide into loss signals hard times for brokerages at bourse

sgb

SBG Securities executive director Bethuel Karanja during the release of its 2016 financials for the year ended 31st December 2016. The firm recorded a Sh7 million after-tax loss, compared to a profit of Sh 216 million in 2015. PHOTO | DIANA NGILA

Kenya’s third largest stockbroker by market share SBG Securities slipped into loss making territory for the 2016 financial year, pointing to thin times for the industry in the prevailing bear run at the Nairobi bourse.

SBG, a subsidiary of Stanbic Bank, announced on Friday that it made a net loss of Sh7.36 million last year, a steep drop from its Sh216.6 million net profit in 2015, which was the highest in the market.

SBG saw its brokerage commissions fall by Sh175.5 million to Sh223.54 million for the year, while advisory fee income fell to Sh1.2 million from Sh25.7 million in 2015.

This saw total revenue decline by Sh300 million to Sh294.5 million, from Sh599.3 million in 2015. “The decline is largely attributable to the subdued Nairobi Securities Exchange (NSE) equities market activity for the year due to the persistent bear run which has led to a shift by investors from equities to fixed income and cash deposits with high yields. We were also without the one off Sh99 million gain on sale of NSE shares in 2015,” said SBG securities executive director Bethwel Karanja.

“The weak trading conditions at the equities market still persist and market activity is likely to remain subdued in the near term given the existing macroeconomic conditions. We tend to have a slow down towards the election time.”

The intermediary did cut costs last year, reporting a fall in total expenses of Sh30.7 million to Sh291.2 million.Employee costs fell by Sh41 million to Sh142.3 million.

SBG had a market share of 13.8 per cent, third behind Kestrel Capital’s 20.9 per cent and Renaissance Capital’s 16.7 per cent.

The Stanbic subsidiary traded a total of Sh40.52 billion, comprising of Sh21.9 billion in purchases and Sh18.65 billion in sales.

Stockbrokers were expected to report reduced earnings for 2016 due to lower trading volumes in the market, raising the spectre of job losses in the sector.

They derive the bulk of their income from brokerage commissions charged on trades. Last year, the market saw Sh294.4 billion worth of trades –reported as a turnover of Sh147.2 billion in actual cash changing hands.

“With trading volumes much lower than prior years, many brokers have reduced their marketing activities…overall net revenue and profits have declined,” said Kestrel Capital chief executive officer Andre DeSimone last month.

“Whether by attrition or otherwise, there has already been and will continue to be downsizing in the industry.”

Brokers earn a commission of between 1.5 and 2.1 per cent per equity trade, although many of the larger deals are discounted lower in order to retain clients in a competitive market.