The trouble with Homeboyz NSE listing

A few days ago, Homeboyz Entertainment made its debut on the Nairobi Securities Exchange (NSE) coming through the Growth Enterprise Market Segment (Gems) and is now known as Homeboyz Entertainment PLC.

This is a company I have been watching for years now because I have often used it to have a pulse of Kenya’s entertainment industry and the listing will in fact provide a more reflective pulse.

The Rabar brothers, no doubt, have a good story to tell about their journey pioneering the entertainment business. At the time of its listing Homeboyz is a public relations and advertising agency boasting six audio recording studios, two TV production facilities, an events management division, a full audio-visual rental and maintenance department, the Music Technology academy and roadshow gigs.

One has to give it to the Rabars for taking the risk of going public; it is a bold move, the public scrutiny, shareholder expectation and all listing turbulence that comes with it is not for the faint-hearted.

But was going public the right choice for their company to unlock capital and value?

First, the company is not corporatised enough, it is family-owned and family-run. The three Rabar family members are the shareholders, at the same time board directors, and the three also lead the management.

In a board where three out of five directors are Rabars, they have the majority voting power, giving them tight control of the company. The NSE consultants should have advised them to diversify their board with names that bring corporate governance experience.

That would give the company public confidence that the board will make independent decisions pursuing the interest of the general shareholding and not family interest.

Second, with the family in tight control of the business, the three directors in management take home Sh30 million a year in salaries, which is 15 percent of company’s generated gross profit.

From an investor’s perspective, I would need to be heavily persuaded why I should invest in a company where management takes 15 percent of generated gross profit in salaries, bearing in mind the management has three family members.

Apart from that, something the NSE consultants missed is the political risk exposure of the company. The company lists Kenya Revenue Authority and State House as their top two clients, this means that if the company finds itself politically incorrect, it loses its top two revenue source, bringing to question the company’s sustainability.

Third, listing of the company left the transaction advisers with a bloodied nose in the price discovery. One share was priced at Sh4 but when the company went into the market, asking price was much far away from the Sh4; it was almost 90 percent less.

Statistically, if one has a deviation of 90 percent away from the target, that is simply guesswork. The value Homeboyz Entertainment was keen to unlock through listing ended up beginning with a false start.

It is safe to conclude that listing Homeboyz Entertainment was ill-timed. But the issue is not only about timing, but the crux of the matter is also the question whether listing was the best option for every company that wants to unlock capital? Looking at the regulatory requirements for publicly listed companies, from the auditing to holding AGMs, is a company that generates a gross profit of 189.4 million and a turnover of 311 million worth the listing hustle?

The fact that high-value family-owned businesses like Bidco and Comcraft owned by Manu Chandaria have not found the value of listing says a lot about our securities exchange.

I remain unconvinced that NSE’s strategy of recruiting SMEs like Homeboyz Entertainment is the way forward when companies like Bidco and Comcraft have chosen to stay away from the NSE.