Dividend drought looms as 12 firms in profit warning
Brokers on the floor of Nairobi Securities Exchange. Earnings alert by listed firms stood at eight in the 2013 financial year, compared to 10 in 2012 and two in 2011. PHOTO | FILE
What you need to know:
The weaker performance has been linked to a mix of increased competition, mismanagement, travel advisories, lower capital gains at the bourse and falling prices of agricultural commodities like tea.
Profit warnings from companies listed at the Nairobi Securities Exchange for their 2014 performance have increased to a record 12, signalling a dividend drought and share price erosions.
Earnings alert from the listed companies stood at eight 2013 financial year, compared to 10 in 2012 and two in 2011.
The weaker performance has been linked to a mix of increased competition, mismanagement, travel advisories, lower capital gains at the bourse and falling prices of agricultural commodities like tea.
Investors in the companies that have issued profit warnings are set to get lower or no dividend this year, besides suffering share price erosion.
Pan Africa’s share price stood at Sh105 on Friday, representing a 11 per cent drop from Sh118 on Wednesday when it issued the profit guidance while Crown Berger shed Sh23 over the same period.
Mumias, East African Portland Cement Company (EAPCC) and Rea Vipingo have already published their results after issuing the profit warnings.
The announcements mean some of the firms will post losses or record significant declines in their profits, a move that could lead to a freeze or cut in dividends.
The earnings alert have come from firms listed at the commercial and industrial segment of the NSE with banks expected to announce double and triple digit profit growth next month.
Most companies retain most of their earnings to fund new investments and strengthen their financial position, with lower profits leaving even less cash to be distributed as dividends.
Only a few firms, including cigarette manufacturer British American Tobacco, pay out their entire profits as dividends.
Reduced earnings also have the effect of cooling off demand for a company’s stock unless investors see it as a temporary phenomenon.
The Capital Markets Authority (CMA) requires companies to make the disclosures to warn investors of the risks of capital losses and reduced dividend as a result of the profit fall.
Crown Paints cited challenges in its subsidiaries in Tanzania and Rwanda for the expected fall in earnings.
“The drop is as a result of very challenging market dynamics for subsidiaries in our expansion programme within the region,” Crown Paints said in a notice.
The company reported a net profit of Sh213.84 million for the year ended December 2013, meaning that this year’s earnings will be lower than Sh160 million.
TPS Eastern Africa, which operated hotels under the Serena brand, blamed insecurity, Ebola outbreak and VAT on tourism for eating into its earnings for 2014.
Pan Africa Insurance attributes its projected dip in profits to reduced gains from its portfolio at the NSE and slower sales of properties and plots.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
