Capital Markets

Small caps stir the market with huge capital gains in 2014

Unga saw an increase in corporate activity in
Unga saw an increase in corporate activity in the past 12 months. PHOTO | FILE  

Previously quiet small and medium cap stocks stirred up the market in 2014 as investors widened their scope in pursuit of capital gains with the general market performance shrinking in comparison to 2013.

Counters such as Eaagads, Unga Group, Kenya Orchards, Kakuzi, Limuru Tea, Car & General, Express Kenya and Umeme returned annual price gains of above 50 per cent in 2014, overhauling the NSE All Share Index which grew 19.2 per cent.

In 2013, none of these stocks outperformed the NASI index, which was up 44 per cent. Manufacturing stocks Unga Ltd and Kenya Orchards broke from years of limited price movement to lead in market gains, closing last year 120 per cent and 3,566 per cent up at Sh39.75 and Sh110 respectively.

Unga saw an increase in corporate activity in the past 12 months, concluding its divesture of packaging manufacturer Bullpark Ltd and receiving shareholder approval for the acquisition of Ennsvalley Bakery.

The smaller counters also saw an increase in their annual trading activity in 2014, with some enjoying up to five times the level of turnover compared to the previous year.

“We saw these counters generate increased activity amongst their existing retail local shareholders, many who were keen to increase their holdings in these companies. Due to their largely illiquid nature however, they rarely attract institutional and foreign investor demand,” said Old Mutual Securities analyst Geoffrey Maina.

Car & General ended last year 80 per cent up at Sh54, with its turnover up from Sh10.9 million in 2013 to Sh124 million last year Express Ltd and Umeme were up 59 and 61 per cent respectively to Sh6.20 and Sh21.

Agriculture stocks Eaagads, Kakuzi and Limuru Tea were up 77, 89 and 54 per cent last year to end December at Sh42, Sh180 and Sh771 respectively. This helped boost the segment into one of the top-three performers during the year alongside banking and insurance.

Equity turnover for Eaagads rose from Sh90.5 million to Sh2.45 billion between 2013 and 2014, Kakuzi’s was up to Sh166 million from the previous Sh61 million while Limuru Tea which has only 1.2 million issued shares saw its turnover double to Sh43.3 million as its price rose above the Sh1,000 mark in the fourth quarter.

Investors may also be awakening to the potential value held by firms that have huge land holdings, especially after the unfolding of a high-stakes battle for listed plantations firm Rea Vipingo.

Redistribution activities by investors helped contribute to the upturn of small-counter fortunes, especially with profit taking activities on the larger counters such as Equity, Safaricom and KCB.

Analysts in the meantime expect the market will see a continuation of the vibrant trading activity which led to total turnover last year climbing to a record Sh215.7 billion from Sh155.9 billion in 2013.

“Foreign investor capital, though depressed in recent trading, will bounce back with inflows. When we consider funds allocated to investments in frontier markets, the NSE is still very attractive in risk to return,” said Genghis Capital analyst Silha Rasugu.

“As the largest East African economy, and despite some projections that regional bourses such as DSE will outperform the NSE in 2015, liquidity offered here is yet to be matched.”