KQ stock hits new low despite bailout bid

Investors have largely shrugged off the government’s announcement of a Sh4.2 billion Kenya Airways bailout two weeks ago, pushing down the stock to new lows.

The counter was Thursday trading at Sh6.15 (down from Sh6.90 when bailout news broke) or a 12-year low, having taken a hit from negative corporate announcements that affected earnings over the past two years.

Analysts say the share has not been helped by the market being on a bear run, with services counters particularly faring badly over the past six months due to the downturn in tourism.

“The general consensus is that the entire market is on a bear run, meaning an upward re-rating on the share is highly unlikely.

‘‘The company still suffers from inherent weak fundamentals that will continue to plague it if left unaddressed,” said Genghis Capital analyst Florence Kimaiyo.

“Investors sometimes also tend to perceive government bailouts adversely as these are not organic turnaround initiatives employed by management to maximise value often addressed through debt or cost re-engineering.”

The airline has, in addition to the government loan, received a window to resume its flights to Monrovia in Liberia and Freetown in Sierra Leon where it stopped operations due to the Ebola virus, following the lifting of a government ban on travel to West Africa.

The bailout should also spare KQ the pain of taking more expensive commercial loans that would put a strain on its cash flow. KQ liabilities already stand at Sh70 billion.

READ: Kenya Airways gets Sh4.2 billion Treasury bailout

The airline recently cut the cost of the last three of nine new Boeing 787 Dreamliner planes it had ordered and opted to lease them from an Irish firm.

It has also hired American consultancy Seabury to advise it on the restructuring of its operations in sales, ticketing and network planning functions and benchmark them with best practices in the airline industry as it looks to turnaround its fortunes.

Old Mutual Securities analyst Halima Saadia, however, said that of importance is the timeframe by the government for disbursing the funds to the airline, especially considering that a bailout offered to Mumias Sugar earlier this year is yet to be disbursed.

“The likelihood is that the money may take some time before being released. It could also take time for the company to effect a turnaround and return to profitability, with airlines across the world not faring particularly well at the moment. This means that the injection will translate into a positive factor on the books much later,” said Ms Saadia.

KQ made a net loss of Sh10.5 billion in the half year ended September, reversing a net a profit of Sh384 million a year earlier.

The national carrier’s earnings were affected by slow growth in passenger numbers in the wake of heavy investment in new aircraft. It handled 2.1 million passengers over the period, an 8.2 per cent increase from 1.94 million last year.