Kestrel Capital tops stockbrokers’ earnings chart

What you need to know:

  • Kestrel Capital grew its market share to 20 per cent last year up from 14.6 per cent in 2012, as the total value of equities traded by the firm more than doubled to Sh62.3 billion.
  • Total equity turnover at the Nairobi Securities Exchange (NSE) rose by 79.5 per cent to Sh311.5 billion, mainly spurred by foreign investors’ trading.
  • The Nairobi bourse was the third best performing market in Africa with an average yield of 19 per cent as per the NSE 20-Share Index.

Kestrel Capital firmed its position as Kenya’s top stockbrokerage firm by earning the highest commission income in 2013, helped by its dominant share of foreign investors’ trading desk.

Annual trade data shows Kestrel Capital grew its market share to 20 per cent last year up from 14.6 per cent in 2012, as the total value of equities traded by the firm more than doubled to Sh62.3 billion.

Total equity turnover at the Nairobi Securities Exchange (NSE) rose by 79.5 per cent to Sh311.5 billion, mainly spurred by foreign investors’ trading.

“We have a strong sales team and have built good relationship with local and foreign institutional investors,” said the CEO of Kestrel Capital, Andre DeSimone, adding that about half of the brokerage firm’s clients are local institutional investors while the rest are foreign buyers.

Both groups are known for turning over huge volumes. Stockbrokers earn average trade commission of about 1.25 per cent, indicating that Kestrel Capital may have recorded revenue of about Sh780 million in 2013, but the brokers are known to give substantial discounts to their big and regular clients.

As at mid last year, Kestrel had grown its profit-after-tax by more than three and a half times to Sh54.81 million after it earned Sh221.85 million in brokerage commissions up from Sh94 million in the first half of 2012.

Foreign ownership of shares at the NSE shot to a seven-year high in 2013 to 22.4 per cent of market value which indicated increased international appetite for Kenyan stocks.

The Nairobi bourse was the third best performing market in Africa with an average yield of 19 per cent as per the NSE 20-Share Index.

“The corporate visits that they (foreign investors) make have become important but you have to steer them around and back it with other services such as research,” said James Wangunyu chairman of Standard Investment Bank which controlled 9.7 per cent of the equities market.

Other top performers in the equities market included Russian owned Renaissance Capital, SBG Securities, formerly CFC Stanbic Financial Services, African Alliance and Dyer and Blair.

The gap in the industry continued to widen with the top five players growing their control to 65.5 per cent, from 63.4 per cent a year earlier.

In the bonds markets Dyer and Blair held on the top spot even after its turnover dropped by 42.7 per cent. Dyer and Blair traded bonds worth Sh239 billion compared to Sh417.6 billion in 2012, leading to a 10 percentage point drop in market share to 26 per cent.

Bond dealers pocket trade commissions of up to 0.024 per cent of the transaction, though they are also know to give substantial discounts to clients.

Kestrel leapfrogged Standard and Faida investment banks in bond trading to rank second after doubling its market share to 22.8 per cent.

“There is stiff competition with the others doing aggressive marketing which I think we did not,” said Mr Wangunyu.

Bonds turnover fell by over Sh230 billion which was attributed to drop in sell buy-back transactions (SBB) and investor confidence.

A row between the Central Bank of Kenya and the Capital Markets Authority on how the SBB transactions should be handled saw the bond turnover slump. Banks had been accused of using the sell-buy backs deals to reclassify their government securities enabling them to manipulate their profits.

The blacklisting of influential bond trader Fred Mweni and an ongoing court case in which CBK has sued two of its former staff for issuing fake bonds also impacted the secondary bonds market negatively.

“Because of some concerns (reputational risks) investors thought it more comfortable dealing with brokers that they know,” said Mr DeSimone on Kestrel’s growth in bond trading.

Stockbrokers relied heavily on brokerage commissions last year as advisory and consultancy fees dropped due to a fall in the number of corporate finance deals.