KenGen share trading drop despite high profit

Tuesday January 26 2016

Geothermal Development Company engineers monitor activities at a geothermal well at the Menengai geothermal field in Nakuru on November 10, 2014.  FILE PHOTO | SULEIMAN MBATIAH | NATION MEDIA GROUP

Geothermal Development Company engineers monitor activities at a geothermal well at the Menengai geothermal field in Nakuru on November 10, 2014. FILE PHOTO | SULEIMAN MBATIAH | NATION MEDIA GROUP 

KenGen’s share price is at a historic low despite a fourfold growth in net profits announced by the electricity producer in October last year.

Data from the Nairobi Securities Exchange (NSE) shows that the stock lost 16.79 per cent of its value at the bourse last week to close at Sh5.45, making it the second-biggest losing counter.

Analysts attribute the low share performance to the company’s planned rights issue whose delay of more than two years has seen investors exercise caution while trading in the share.

“The prevailing market conditions and the perception that the rights issue is too big for the company has caused an overreaction in the market hence the drop in the share price,” said Mr Eric Musau, an analyst at Standard Investment Bank.

TWO BILLION SHARES

In the planned cash call, KenGen is seeking to raise about Sh30 billion. The government, which owns a 70 per cent stake in the company, is said to have considered converting an outstanding debt with the power producer, into equity.

Last month, KenGen shareholders approved issuance of 7 billion shares in the rights issue, revoking an earlier resolution made at the 2013 annual general meeting that the company issues 2 billion shares.

Analysts say that the move could have caused panic among investors as it is feared that it could dilute their ownership.

During the year to date, KenGen share has shed 42.93 per cent of its value. The company realised Sh11.5 billion annual net profit for the period to June 30 up from Sh2.8 billion earned during the previous year helped by a tax credit of Sh2.8 billion.

In December, the company said would spend more than Sh160 billion to put up wind and geothermal power plants in the next two years with an estimated combined capacity of around 460 megawatts to boost electricity supply.

Much of the funds will be sourced from bilateral lenders in form of loans while a small portion of the financing will come from the company’s internal resources.