Kenya Airways chief executive officer Titus Naikuni (right) with the board chairman Evanson Mwaniki when they appeared before the PSC Committee at Continental House in Nairobi, October 11th, 2012. There was an exchange of words after the Kenya Airways team declined to answer any question, arguing that the matter was before court. PHOTO/STEPHEN MUDIARI
What you need to know:
This has led to a Sh4.9 billion loss in shareholders’ wealth on the counter between June and October 2012 as measured by market capitalisation which is the total number of shares multiplied by the share price.
The average price of the share on Wednesday stood at Sh11.75, 17.5 per cent lower compared to three months ago and 9.6 per cent below what it was just a month ago.
Kenya Airways’ share price has lost 17.5 per cent of its value in the last three months and more than half of its value in the last 12 months due to increased selling by investors, lower profits, and the publicity around its retrenchment plan.
This has led to a Sh4.9 billion loss in shareholders’ wealth on the counter between June and October 2012 as measured by market capitalisation which is the total number of shares multiplied by the share price.
Analysts at the Standard Investment Bank (SIB) said the counter is also suffering from the impact of dilution of the rights issue since the share price was also discounted.
In June, the airline offered 16 new shares for every five shares held and managed to raise Sh14.5 billion out of the planned Sh20.6 billion. However, Diamond Trust Bank whose performance has been rising by the year, did not experience any reduction in price despite a recent rights issue.
In any case, the bank offered only one new share for every eight held against a much higher figure of 16 new for every five shares by KQ. “The performance of the Kenya Airways counter is also being affected by the rights issue which was also discounted negatively affecting its price,” said Francis Mwangi, a research analyst at SIB.
The average price of the share on Wednesday stood at Sh11.75, 17.5 per cent lower compared to three months ago and 9.6 per cent below what it was just a month ago.
In terms of financial performance, the company announced a 50-per cent decline in net earnings for the financial year 2011/12 to Sh1.66 billion from Sh3.54 billion in the previous year.
High costs
The company suffered from high costs with overheads rising by Sh2.6 billion or 14.3 per cent while direct costs rose by more than Sh23.8 billion or 44.5 per cent.
A key observation in the performance of the airline was its turnover grew 25.7 per cent during the year, but its profit was rather small. This led to the profit margin being only 1.5 per cent compared to 4.1 per cent in the previous year. This is a clear indicator the problem lies in the costs rather than the ability to grow the business of the airline.
When presenting the 2011/12 results, the KQ management noted the industry’s profitability faced a fragile outlook and profits for airlines globally this year had been downgraded to $3.0 billion from an earlier projection of $3.5 billion. Even before releasing its results, the KQ counter had also been under pressure from a new profit warning the firm had announced in January.
The company’s management is currently engaged in a tussle with Parliament over the manner in which it laid off hundreds of workers helping to create uncertainty around the counter.
Analysts say the volatile fuel costs will act to maintain uncertainty in KQ earnings and for the industry at large.
