Capital Markets

2014 leaves NSE billionaires with share sale windfall

Industrialisation and Enterprise secretary Adan Mohamed rings the bell to officially launch trading for the Nairobi Securities Exchange on September 9, 2014. PHOTO | SALATON NJAU |
Industrialisation and Enterprise secretary Adan Mohamed rings the bell to officially launch trading for the Nairobi Securities Exchange on September 9, 2014. PHOTO | SALATON NJAU |  NATION MEDIA GROUP

Billionaire investor Baloobhai Patel topped the list of the biggest beneficiaries of 2014’s stock market rally, earning more than Sh100 million from partial sale of his stock holdings.

Investment banker Jimnah Mbaru and TransCentury shareholders Zephania Mbugua, Peter Kanyago, Eddy Njoroge, Stephen Waruhiu, and Ephraim Njogu, who earned between Sh25.9 million and Sh78 million from trading shares, made the list of top winners of the stock market game.

Thousands of shareholders in investment firm Centum and the Nairobi Securities Exchange (NSE), including stockbrokers, also benefited indirectly from the sale of shares by the two companies.

The transactions reflected a mix of profit-taking in share rallies, capital-raising activities, and exits from depressed stocks to cut losses.

Mr Patel, for instance, sold five million Safaricom shares he had held for more than three years. The trades, coming at a time when the stock had rallied to new highs, are estimated to have earned him over Sh60 million.

Safaricom’s share price recently touched a record of Sh15, triple its 2008 listing price of Sh5 in what has been linked to increased investor confidence in the stock on the back of its rising profitability.

Mr Patel also disposed of his 17 million shares in sugar miller Mumias for an estimated Sh42 million, exiting the loss-making firm that has suffered from increased competition and alleged management fraud.

The businessman sold the stock before it plunged below Sh2, a record low for the miller that is crafting a strategy to lift it out of the loss-making hole in which it has been trapped for two years.

The recent share sales are unique for Mr Patel who hardly trades his stocks, preferring to hold or boost his equity position in a number of publicly traded firms.

The largest sell-offs by individual investors were concentrated in the stock of investment firm TransCentury, whose chairman Mr Mbugua sold three million units for about Sh78 million.

Mr Njoroge traded 2.6 million units for an estimated Sh67.3 million while Mr Kanyago sold 2.5 million units for Sh64.7 million. Mr Mbaru disposed of 2.4 million units for Sh64.5 million.

Mr Waruhiu traded 1.5 million units for Sh38 million as Mr Njogu kept his sale to a maximum of one million shares that earned him Sh25 million.

The trades came as the TransCentury stock traded at an average of Sh25 or half its listing price of Sh50 in 2011.

The stock has recently been hit by a profit warning based on the Sh1 billion loss that the company incurred during its divestiture from Rift Valley Railways early in the year.

TransCentury is expected to grapple with huge demand for cash as its Sh5.1 billion convertible bond comes due in 2016.

Standard Investment Bank said the bondholders are unlikely to convert at the current price of Sh19.3.

Scores of retail investors also booked significant combined earnings from share sales by the NSE and Centum where they are shareholders.

The recently listed Nairobi bourse sold 66 million units of its shares to the public as part of the self-listing exercise, earning a total of Sh627 million from the initial public offering (IPO).

Stockbrokers and the Treasury are among the NSE’s founder shareholders who were joined by the investing public through the IPO.

Five of the market intermediaries – AIB, Apex Africa, Genghis, Standard Investment Bank and Francis Drummond — further benefited by selling all or part of their NSE shares, earning more than Sh500 million.

Centum recently earned Sh21.6 million from the sale of 2.1 million units of Longhorn Publishers’ stock, indirectly benefiting thousands of the investment firm’s shareholders. The share sales come amid a slowdown in the three-year stock market boom.

The benchmark NSE 20 Share Index gained 3.8 per cent in 2014 compared to 19.2 per cent in 2013 and 29 per cent in 2012.

Several stocks, however, recorded strong rallies that translated into big unrealised gains for long-term investors. Manufacturing firm Kenya Orchards astounded the market with a 3,566 per cent gain to trade at Sh110.

The food processor recently announced plans to venture into the production of spices and seasonings and it remains unclear whether the diversification plan helped drive demand for the stock.

Flour miller Unga Group’s share price rose 121 per cent in the same period to close the year at Sh39.75, joining the ranks of the top gainers.

The company is set to invest Sh542 million in the acquisition of a 52 per cent stake in Ennsvalley Bakery, marking a re-entry into the bakery business it exited in the 1990s when it sold Elliots Bakeries.

The acquisition binge by financial services firm Britam continued to feed positive investor sentiment in the stock which doubled in the year to trade at Sh29.75.

Britam recently finished its 99 per cent buyout of Real Insurance and is also close to concluding its purchase of Equity Bank’s 24.7 per cent stake in Housing Finance.

Equity had hoped to seal the deal by Wednesday to avoid paying a capital gains tax on the transaction valued at over Sh2 billion and which will earn the bank a return of more than 500 per cent on the original investment.

READ: Equity misses gains tax deadline on Housing Finance share sale
The capital gains tax, which took effect Thursday, has caused jitters among a section of investors who have previously paid only brokerage fees and withholding taxes on their dividend income and share sales.

Safaricom, the largest firm by market capitalisation, gained 29 per cent to close the year at Sh14.05. This places the telco’s market value at Sh562 billion or a quarter of the entire stock market’s paper value of Sh2.3 trillion.

Overall, the market gained 20 per cent in 2014, adding Sh384 billion to investor wealth that stood at Sh1.9 trillion at the beginning of the year.