Kenya Airways share rises on Virgin Atlantic exit plan
Analysts say that the Virgin Atlantic’s exit was propping up the KQ share. Photos/File
The Kenya Airways share has gained by more than a tenth since last week’s announcement by Virgin Atlantic that it plans to exit the Nairobi-London route.
The stock touched a three-month high as investors saw the move as a potential gain for the national carrier.
The share was trading at Sh16.35 on Monday at 11.22 per cent more than Wednesday’s average price of Sh14.70 when the exit plan was announced.
Virgin Atlantic said that its decision to stop flying the route was due to a difficult operating environment as a result of increasing costs and a weakening European economy. The airline will stop flying the route in September, five years after it made its maiden flight.
The KQ share closed last week at Sh16.70, a 13.61 per cent increase over Wednesday’s price.
Johnson Nderi, a research analyst at Suntra Investment Bank, said the exit has left a gap for KQ to capitalise on. “What it is signalling is that KQ can sustain businesses where other competitors cannot,” he said.
Analysts from Sterling Capital also said that the Virgin Atlantic’s exit was propping up the KQ share.
“The announcement by Virgin Atlantic that it will be pulling out of the Nairobi-London flights helped drive positive sentiments on the counter,” said a market report by Sterling Capital.
Analysts said expectations of a successful rights issue and speculation on the end of year financial results were also share price drivers.
In March Kenya Airways floated a Sh20.7 billion rights issue, the biggest on the region.
At the time the share price temporarily dropped below the Sh14 rights issue price, which was an seen as an ominous sign for the offer.
However, confirmation of full participation in the cash call by the main shareholders, Dutch airline KLM and the government increased the chances of success.
The International Finance Corporation also said it was buying a significant portion of KQ shares in the rights offering.
George Bodo, a research analyst at Old Mutual Securities, said that the share price increase before the rights results announcement could signal the market thinking that KQ’s management had realised the Sh20.7 billion it was targeting.
“It is an indication of what investors think of the performance of KQ’s cash call,” said Mr Bodo.
The results of the rights issue are to be announced on May 30.
The Treasury has a 23 per cent of stake while Dutch airline, KLM, has a 26 per cent stake. IFC’s commitment to take up an equivalent of about seven per cent of KQ shares has guaranteed a 59 per cent uptake rate, slightly below the minimum target of 70 per cent which transaction arrangers have set for the offer to be declared a success.
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Note: The results are not exact but very close to the actual.
