Profit warnings at the Nairobi Securities Exchange on Friday rose to 10 in a performance that has investors who got only two such alerts last year lose billions of shillings through share price erosions.
Agricultural firm Kakuzi joined Longhorn, Eaagads, Express Kenya, KenolKobil, Sasini, East African Portland Cement Company (EAPCC), Kenya Airways (KQ), and Kapchorua Tea, which all said their profits would drop by more than 25 per cent this year.
Last year, only Total and CMC Holdings issued profit warnings. The increased warnings highlight the challenges corporate Kenya is facing in an economy that is feeling the weight of expensive credit, high inflation, and political jitters linked to next year’s General Election.
Most of these companies have seen their market value decline at the Nairobi bourse over the past six months in a period that has seen the stock market gain 23.3 per cent, aided by the performance of most blue chip firms and increased foreign investor interest. The high profit alerts this year has been driven by the weak local and global economy besides other unique factors that have eroded earnings of individual firms.
“Companies that have not issued profit warnings will record negative or lower profit growth this year compared to 2011 due to the tough business environment,” said Mr Vimal Parmar, the head of research at Kestrel Capital.
Investors in the companies that have issued profit warnings are set to get lower or no dividend this year, besides suffering share price erosion.
This comes at a time when the market has gained 23.3 per cent over the past six months to a capitalisation of Sh1.2 trillion from Sh1 trillion.
In the same period, EAPCC’s share price dipped 31.2 per cent to Sh42 as KQ’s share lost 18.5 per cent to Sh12.2. Other firms that recorded share price erosion in the same period include Eaagads and Kakuzi whose shares dropped 30.4 and 12.5 per cent respectively to Sh24.5 and Sh70 a piece. Investors in other companies that have posted strong profit growth have, however, seen their paper wealth rise by double digits, highlighting the negative impact of losses and slow earnings on investor wealth. Safaricom investors have benefitted the most, with the stock’s price rising 50.7 per cent over the past six months to Sh4.9, with the company reporting a 98.3 per cent growth in net profit to Sh7.7 billion in first half ended September.
City Trust, Pan Africa Insurance, and Standard Chartered Kenya are other top gainers that have seen their share rise by double digits. Eaagds made a net loss of Sh81.4m in the six months to September compared to a profit of Sh26.3 million the year before.