Capital Markets

C&G’s share price falls 17 percent on profit taking

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Car and General Sales Executive Tom Mburu (second right), shows the TVS Wego motorcycle to riders during the Boda Boda Safety Awareness Day. PHOTO | POOL

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Summary

  • The share closed at Sh60.25 on Tuesday, having shed 9.7 percent in the day’s trading.
  • The enhanced dividend payout—from Sh0.80 in the previous financial year—followed the firm tripling its net income to Sh887.2 million in the year ended September 2021.
  • The bonus shares are however not eligible for the dividend, given the earlier closing date for the payout.

Car & General’s #ticker:CGEN stock price has retreated by 17 percent since hitting an all-time high of Sh72.75 a week ago, attributed to profit-taking after the dividend and bonus share-inspired price rally.

The share closed at Sh60.25 on Tuesday, having shed 9.7 percent in the day’s trading.

It had rallied from Sh30.60 on January 5 following the company’s announcement of a Sh3.20 per share dividend and bonus issuance of one share for each held, to shareholders who will be on its books on February 25 and March 24 respectively.

The enhanced dividend payout—from Sh0.80 in the previous financial year—followed the firm tripling its net income to Sh887.2 million in the year ended September 2021.

The bonus shares are however not eligible for the dividend, given the earlier closing date for the payout.

“The retreat indicates that people are taking profit following the sharp price increase. It also shows that the market has now priced in the news on the dividend and bonus,” said Genghis Capital analyst Melodie Ndanu.

The gains were largely recorded on thinly traded volumes, indicating that investors were keen to hold onto their stock for the dividend and bonus, but volumes picked up once the stock crossed the Sh50 per share level.

Investors normally consider the dividend yield on offer on a stock, based on their entry price, and weigh that against the capital gains in deciding whether to take their profit ahead of book closure.

Since financial results announcement, however, the company has disclosed that the Kenya Revenue Authority (KRA) is demanding Sh677 million in accrued tax dues, with the parties conflicting over the legal basis on which the taxman computed the sum.

The tax demand is equivalent to 76.3 percent of its net profit in the year ended September 2021.

KRA said the unpaid tax accrued over six years ended 2020 and arises from the company’s three-wheeler or tuk-tuk business, but Car & General raised an objection through the Tax Appeals Tribunal (TAT) and judgement was issued in the company’s favour on October 15, 2021.

KRA, however, has appealed the ruling.

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