Kenya Power and East African Portland Cement Plc (EAPC) stock prices have more than doubled since the start of the year, driven in part by speculation.
The share price of Kenya Power has gained 146.4 percent over the period when the cement manufacturer's stock rallied 173.1 percent.
The electricity distributor's stock closed at Sh3.45 on Tuesday while that of EAPC traded at Sh21.85. The shares had closed at Sh1.4 and Sh8 respectively on December 29, 2023.
Analysts say the rally is largely speculative as there are no significant fundamental drivers for the price spike that has outperformed blue chips such as Equity Group, Safaricom and East African Breweries Plc (EABL).
The cement firm, which has negative working capital, recently announced that it could pay a dividend from the sale of part of its land holdings. The company has gone for years without paying dividends amid a liquidity crisis.
Nearly all of Portland's share price gains have occurred in the wake of the September 10 announcement, with retail investors driving the speculation on small volumes.
Meanwhile, investors in Kenya Power expect the company to realise a substantial foreign exchange gain from the strengthening of the shilling. The utility's stock has seen relatively higher volumes of millions of shares traded on some days, indicating that institutions and high-net-worth individuals are also buying.
“On Kenya Power, we have no significant fundamental change to warrant the performance. The rally is likely based on speculation with regards to the impact of foreign exchange in upcoming results,” said Wesley Manambo, a Senior Research Associate at Standard Investment Bank (SIB).
Kenya Power and Portland Cement are both expected to disclose their full year earnings to June 2024 by the end of this month.
The strengthening of the Kenyan shilling in the second half of its financial year (January to June 2024) is expected to boost the utility’s performance, including trimming unrealised foreign exchange losses on loans and power purchases.
The utility’s finance costs are also expected to decline due to the revaluation of foreign currency denominated debt over the same period.
Kenya Power recorded a Sh9.7 billion increase in non-fuel power purchase costs in the six months to December 2023 due to the depreciation of the Kenya shilling against major global currencies in which the power purchase agreements are denominated.
The utility’s finance costs doubled to Sh15 billion from Sh7.3 billion on the rise of unrealised foreign exchange losses.
Kenya Power, nevertheless, booked a profit of Sh319 million in the six months period, reversing a Sh1.1 billion loss on higher revenues.
For its part, EAPC narrowed its net loss in the same period to Sh720.7 million from a loss of Sh801.9 million on higher turnover.
The cement maker is expected to unlock more value from its land holdings through both revaluations and potential sales, thereby improving its profitability.
Both Kenya Power and EAPC have not been regular dividend payers in recent years, with the former, for instance, declaring its last dividend in January 2018.
Retail investors have a bias towards speculative trading, unlike their institutional and foreign counterparts.
“Speculation is largely retail. You don’t see institutions in speculation as they largely invest in value while foreigners are mostly in for the dividend play,” added Mr Manambo.
Kenya Power and Portland Cement are the largest gainers at the Nairobi Securities Exchange (NSE) since the start of the year, beating Bamburi Cement to third place after its share price fell following material disclosures about a potential sale of the company and the closing of books for payment of a special dividend of Sh18.25. Other top gainers so far in 2024 include KenGen, KCB Group, Liberty Kenya Holdings, Carbacid, EABL, I&M Holdings and HF Group.
