Profit alerts hit a record high in 2015

A combination of high interest rates, poor performance at the Nairobi bourse, the weakening of the shilling and low activity in key sectors such as tourism have made 2015 the year of profit warnings. There 15 compared to 2014.

Pan Africa Insurance was the last to issue an alert on Tuesday saying the exposure to the Nairobi Securities Exchange (NSE), which is at a three-year low, would depress its earnings.

“This significant decline in profit is mainly attributable to adverse equity market conditions experienced during the year compared to the same period in 2014.

Should the equity market performance not improve towards the end of the financial year, it is expected to result in unrealised market-to-market losses on quoted securities in our life business, while our investment company PA Securities is also expected to experience unrealised market-to-market losses,” said Pan Africa in a statement.

“Our general insurance business acquired earlier this year is also expected to experience an underwriting loss.”

Britam and UAP/Old Mutual are the other companies that have recently issued profit warnings. UAP cited similar reasons, especially the weakening of the shilling.

“The main contributor to this performance is the challenging business environment within the East African region. This is largely attributable to an increase in interest rates and significant strengthening of the dollar against local currencies which resulted in significant foreign exchange losses.”

ARM Cement, Standard Chartered Bank, Uchumi Supermarkets, Mumias Sugar, Express Kenya, East African Cables, Standard Group, Atlas Development, Sameer Africa, Car & General, TPS Serena and Crown Paints are other companies that expect earnings for 2015 to drop by at least a quarter this year.

The profit warnings also signal that investors should expect a dividend drought next year.

The high interest rates which saw the rate on the 91-day Treasury bill rise to 22.1 per cent in October this year have seen investors opt for Treasury bills and bonds over NSE counters. The high return on government paper also made capital raising difficult for companies.

Family Bank managed to raise Sh2 billion through its maiden bond listed on the NSE against a target of Sh4 billion, which excluded a Sh2 billion green-shoe option.

Stanlib Investments was another victim of the high interest rates, partly to blame for the low subscription of its debut Income (I)-Real Estate Investment Trust. Its Fahari I-Reit was seeking to raise as much as Sh12.5 billion but ended up raising Sh3.6 billion or a 29 per cent subscription.

Investment managers however say that the low prices of stocks on the NSE still present an opportunity for buyers.

“We remain neutral with a bias to negative on equities given the lower earnings growth prospects for this year which has seen several firms issue profit warnings. The market is now purely a stock pickers’ market, with few pockets of value,” said Cytonn Investments in December.