British American listing today ends three-year IPO drought

President Kibaki is Thursday expected to preside over the bell ringing ceremony marking the start of trading of British American shares and conclusion of the first IPO at the stock exchange in almost three years.

The event was postponed last week after the planned launch reportedly clashed with the chief guest’s diary. (Read: British-American postpones listing of share to next week)

Co-operative Bank was the last company to list on the NSE through an initial public offering (IPO) in late 2008.

British American is the holding company of British American Insurance Company (Kenya), British American Asset Managers Ltd (BAAM) and Britam Insurance Company (Uganda). The company raised Sh3.5 billion through the sale of 391 million shares to 28,054 new investors.

It had targeted to raise Sh5.58 billion through sale of 650 million shares at Sh9 per share in the offer that closed on August 5. The bearish run at the stock exchange could affect performance of the stock, market analysts predicted.

“We are in the middle of a bear run and this may put pressure on the price of the stock,” said Mr Judd Murigi, an analyst with African Alliance Investment Bank.

Low penetration of insurance services in the country and in East Africa portends good prospects for the industry, Mr Murigi added.

British American Insurance, which is the holding company’s largest subsidiary, generates the bulk of the holding company’s income.

“We are expecting a subdued performance at least until it (the stock) finds its price in the market but we do not expect it to settle far from its initial price,” said Mr Johnson Nderi, an analyst with Suntra Investment Bank.

Stock prices at the NSE have been on the downward trend through the first half of the year as the rising cost of living has put pressure on the disposable income of retail investors, increasing interest rates have made the money markets more attractive than equities and a depreciating Kenyan Shilling has made foreign investors jittery of the Nairobi bourse.

Mr Nderi said British America’s valuation, as measured by its price to book ratio, was “good” compared to other listed insurance firms.
Its price-to-book ratio was 1.28 times as at December 2010 and was projected to be 1.2 times after the share issue, according to the company’s prospectus.

CfC Insurance, which listed its shares at the NSE in April this year, has a trailing price-to-book ratio of 1 at an average price of Sh10.40 as at the close of trading Wednesday. Jubilee and Pan Africa’s price-to-book trailing ratios are at 2.3 and 1.8 times at average prices of Sh160 and Sh26.25 respectively.

British American’s initial public offering achieved a 60.09 per cent subscription rate supported by East African retail investors and staff, agents and individual policy holders.

Retail investors were allocated 195 million shares but applied for 276.8 million shares while staff, agents and individual policy holders had 19.5 million shares reserved for them but applied for 20.15 million shares.

The institutional investors managed a 23.7 per cent subscription rate while foreign investors shied away from the initial public offer, managing only a 0.3 per cent subscription rate in what analysts attributed to the Kenyan Shilling’s depreciation and turbulence in international markets.

British American’s management said it would scale down some of the projects that had been planned due to the under subscription. (Read: British American to review projects after IPO shortfall)

CfC Insurance Holdings shares which came into the market by way of introduction at an initial price of Sh6.157 hit a high of Sh20 in the initial days of trading but have since then dropped to Sh10.40 as at the close of business Wednesday.

Other insurance companies that have indicated their interest in selling their shares at the Nairobi bourse include CIC, UAP and Resolution Health.

Analysts at NIC Capital said in a research note that the current insurance industry needs further consolidation as there are currently too many players in both the life insurance and general insurance sectors.

“This over-concentration will definitely affect profitability as market players compete on premium pricing affecting their underwriting profitability,” said NIC Capital.