A worker arranges books at Longhorn Kenya warehouse in Nairobi’s Industrial Area. The firm is to list on the NSE by end of June. Photo/Diana Ngila
Longhorn Kenya’s shares have been priced at Sh14 each, valuing the book publisher at nearly Sh1 billion ahead of the company’s debut at the stock market.
An Information Memorandum for the planned listing shows Longhorn’s 58.5 million shares will be valued at Sh819 million on the first day of trading at the stock exchange.
NIC capital, the lead transaction advisor, and African Alliance Investment Bank, the offer’s sponsoring stockbrokers, set the valuation based on the publisher’s future market prospects, comparison with peer companies and past performance.
The transaction arrangers took into account “the two-year average over-the-counter (OTC) market price for Longhorn Kenya Limited’s shares; and the economic value added methodology to determine the true economic profit of the company and further assess the amount by which earnings exceed or fall short of the required minimum rate of return for shareholders.”
On Thursday the Capital Markets Authority (CMA) announced that it had approved Longhorn’s application for listing at the Nairobi Securities Exchange (NSE).
Longhorn’s shares were trading at between Sh100 and Sh66 on the OTC market, but have since been split into five for every one, effectively reducing the unit price.
On November 18, 2011, Longhorn’s shareholders resolved to split the firm’s 12 million shares into 60 million units of Sh1 per value each, resulting in 58,500,000 issued and fully paid up shares.
The valuation will make Longhorn the twelfth smallest NSE firm by market capitalisation on its debut at the market, though this position could change significantly since the share price is allowed to change within any margin on the first day of trading.
It will rank just below Unga Group (Sh901 million) and above Crown Berger (Sh593 million) in market capitalisation terms.
Longhorn will list on the Alternative Investment Market Segment of the NSE. It will be listing its by introduction, which does not involve sale of shares to the public.
The publisher is set to pay a Sh1.50 dividend per share for the year ended June 30, 2011. Its earnings per share stood at Sh2.50.
The publisher’s net profits rose to Sh146 million last year, about six times more than the Sh22 million it made in the 2010 financial year.
The government’s free primary education and subsidised secondary school policy has lifted book publishers’ prospects as they are assured of a ready market.
“This, coupled with increased sales volume, more product lines and increased book prices has helped the market size of the Kenyan book publishing industry to grow from approximately Sh3 billion in 1998 to about Sh12 to Sh20 billion in 2010-2011.”
Majority owners
Up to 80 per cent of Longhorn Kenya’s sales are generated from the sale of textbooks.
But a plan by the Treasury to impose a 16 per cent Value Added Tax (VAT) charge on books could raise their retail prices, reducing their sales volumes.
“The Kenya Publishers Association foresees school textbook prices rising by 50 per cent should the proposal be approved,” says the listing memorandum.
Longhorn’s majority shareholders have a two-year lock in period during which they must maintain at least 51 per cent of their holdings, a regulatory condition that is mostly imposed on newly listed firms.
The firms three majority owners are Centum Investment Company (20.47 million shares)—which is also listed at the NSE, Pacific Futures and Options Limited (14 million) and Francis Thombe Nyammo (6.4 million shares).
