Capital Markets

NSE value rises to Sh3 billion on first day of trading

Industrialisation and Enterprise secretary Adan Mohammed rings the bell to officially commence trading for the Nairobi Securities Exchange (NSE) during the listing of its Initial Public Offering at the Exchange Sep 9, 2014. PHOTO | SALATON  NJAU
Industrialisation and Enterprise secretary Adan Mohammed rings the bell to officially commence trading for the Nairobi Securities Exchange (NSE) during the listing of its Initial Public Offering at the Exchange Sep 9, 2014. PHOTO | SALATON NJAU 

The valuation of the Nairobi Securities Exchange nearly doubled to Sh3.2 billion on its first day of trading, after its share price jumped to Sh16.30 per unit from the listing price of Sh9.50.

The share touched a high of Sh18 during Tuesday’s trading and a low of Sh15, with more than three million shares changing hands.

The jump was attributed to high demand for the stock by institutional investors who did not get their targeted allocations due to the huge oversubscription of the initial public offering.

“The offer was well discounted which left an upside for investors,” said Standard Investment Bank’s Eric Musau. Investors had applied for 504,189,700 new shares worth Sh4.8 billion against a target of Sh627 million, which resulted in buyers being guaranteed of getting only 500 shares with the remainder allocated on a pro-rata basis.

Following the offer the NSE, previously exclusively owned by licensed stockbrokers and the government, now has 17,859 new shareholders.

The exchange listed 194 million shares which at Sh16.30 each valued it at Sh3.2 billion from Sh2 billion at the time of listing.

The NSE’s valuation immediately exceeded companies such as retailer Uchumi Supermarkets, Standard Media Group and Unga Millers.

Analysts were, however, cautious on whether the price will hold at the levels with stockbrokers expected to start offloading their shares as per conditions of the listing.

They are required to cut their ownership to 40 per cent from the current 59 per cent in three years.

“There was a lot of demand and supply was limited but as trading continues we will see where the price will lie,” said Eric Munywoki of Old Mutual Securities.

The exchange posted after-tax profit of Sh107 million in the six months ending June, which was a 30 per cent drop compared to a similar period last year.

Mr Musau, however, points out that the bourse had a one-off gain last year attributed to recovery of a Sh114 million doubtful debt.

“It will probably hold because first-half earnings were decent. Even if they went down, the absolute pricing was reasonable,” he said.

Investors are also banking on expected growth of the Exchange’s profitability through new products such as real estate investment trusts, derivatives and fresh listings.

“From a strategic point, inclusion of products such as futures and derivatives are likely to further cement top line earnings going forward,” said Stratlink researchers in a note to investors.

Some share prices have in the past impressed on their first day of trading only to leave investors in the red later.

Home Afrika’s share price, offered at Sh12, more than doubled on the first day of trading but is currently trading at Sh4.80 a unit.

Safaricom shot up 63 per cent on its first day of trading before it fell to below the IPO price of Sh5 where it stayed for over three years before rallying last year to the current levels of Sh13.25.

Some market watchers, however, hold that institutional investors are attracted to the counter due to the power that it wields and not as a return generating venture.

NSE had said it would use cash raised from the offer to settle its mortgage with KCB a move that it is likely to reduce its financing costs. 

It acquired the building in Nairobi’s Westlands area last year for Sh360 million using a Sh300 million loan from KCB repayable at an interest of 15 per cent per annum.

The market will also be looking to see who takes over from Peter Mwangi as the chief executive of the bourse.

Mr Mwangi will be leaving the bourse after completion of his tenure in November and has already been earmarked to head South Africa-based Old Mutual group.

Investors are also jittery about the expected re-introduction of capital gains tax even after Treasury secretary, Henry Rotich moved to assure them that it would be "a soft one".

The tax will be pegged at five per cent of the net gain, a move that may make the Kenyan market less attractive, especially to foreign investors whose participation has been growing.

NSE earns a commission from each trade conducted at the market.

“I think the proposed capital gains tax for equities is ahead of its time. We need to deepen our East African capital markets first,” said Jimnah Mbaru, the chairman of Kenya Association of Stockbrokers and Investment Bankers on social media.