The profitabilitv, also called return on equity (ROE), mainly features mature companies that normally give away most of the profit to shareholders having already invested heavily in plant and equipment.
The companies are normally big and consistent in dividend payments, made possible by regular cash flows. Some of the companies have been perceived as having so much cash that they lend to banks to extract high fixed or structured deposit rates.
According to data provided by Dyer and Blair Investment Bank, other top companies in high ROE are oil marketer Total Kenya, coffee plantation owner Eaagads and fast consumer goods manufacturer-cum-trader Flame Tree.
ROE represents the net profit as a factor of total equity or money that shareholders have put into a company. The higher the ROE the higher the profitability relative to equity.
“The big companies are making good profits and this is high relative to shareholders’ equity. Many are offering higher returns than they did the previous year,” said Faith Mwisywa, a research analyst with Dyer and Blair Investment Bank.
For EABL, the ROE stood at 79.5 per cent, making it the most profitable given the amount of the company’s net assets.
In the most recent financial year, the firm recorded an earnings per share of Sh15.22 and gave a payout of 52.6 per cent or Sh8 a share. Its payout has mostly been among the highest for the listed companies.
For years, BAT has given handsome dividend, partly as a result of limited re-investments and also because of consistent cash generation.
In the past financial year, the firm earned Sh51.24 a share and had a payout of 96.6 per cent or nearly the entire profit generated that year. The profit is also a good reflection of the company’s cash position.
“When you have companies that give so much value to investors, you also expect that this will show in terms of the multiples in the securities exchange, for example in the ROE given that it relates net profit to shareholders’ equity,” said Ms Mwisywa.
Apart from manufacturers, banks are dominant on the list of the top 10 companies in terms of ROE with KCB, Equity and Coop — which are also the largest in terms of assets and net profits — with 24.1, 26.2 and 23.3 per cent in ROE respectively.
Due to their cash outlay, they are seen as capable of acquiring others in the market. Renaissance Capital believes that the Kenyan market is ripe for consolidation, and noted that KCB and Equity Bank had shown interest in making such purchases.
Already, KCB has indicated its interest in Chase Bank although its final decision is awaiting due diligence while Equity has in the past expressed desire for acquisition.
Eaagads, though on the list, has however not been consistent in financial performance due to unpredictable weather and prices in the agricultural sector.
Apart from the mature firms, Flame Tree is still relatively small with high ROE due to an elevated profit relative to the shareholders’ funds.
Flame Tree benefited from a 17 per cent growth in net profits for the full year to Sh179 million, due to increased sales.
The company’s cash flows has enabled it to acquire several firms including Chirag Kenya, a snacks and spices maker.
The companies with the lowest ROEs were Home Africa, Mumias Sugar and East African Cables at -97.8, -72.7 and -30.1 per cent respectively. This was largely due to incurring substantial financial losses.
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Note: The results are not exact but very close to the actual.
