Buy KPLC, Centum stocks this season
Brokers on the trading floor of the Nairobi Securities Exchange. For the week ended December 19, 2014, the NSE 20 share index recorded a slight drop, shedding 47.41 points to close the week at 4910.10 points. PHOTO | FILE
What you need to know:
- In the coming years, KPLC is expected to see higher revenues as a result of the Jubilee government’s pursuit of increased development of power. Most of the new power, such as, geo-thermal energy, natural gas and coal, is expected to come in at much lower costs.
- Uchumi also has some properties that it could either develop or enter into a Sell-lease-back arrangement that will allow it to raise more funds.
For the week ended December 19, 2014, the NSE 20 share index recorded a slight drop, shedding 47.41 points to close the week at 4910.10 points.
The All share index was down 1.37 points to close at 156.19.
Centum Investments Ltd
The equity company has been in the news lately as a result of Two Rivers project and the acquisition of K-Rep bank.
The Two Rivers project is taking shape well while Centum is just beginning to exert its influence on K-Rep Bank.
Other projects that are expected to drive value in the short- to medium-term for the bank include Pearl Marina project and the Geo-thermal project.
Other contingent projects include the Rea Vipingo takeover and the Lamu Coal-Power project.
In spite of the above, the share price seems to have dipped from a high of Sh84.50 to its current levels of Sh55.50 which happens to be a multiple of approximately 1.5 times its book value.
This makes the share looks attractive. Centum is a recommended buy.
KPLC
In the coming years, the company is expected to see higher revenues as a result of the Jubilee government’s pursuit of increased development of power. Most of the new power, such as, geo-thermal energy, natural gas and coal, is expected to come in at much lower costs.
This should see the company benefit from better margins and volumes.
The recently announced results seem to back this argument. Profits were improved with earnings per share coming in at Sh3.31 compared to Sh1.76 last year.
This suggests a price-earnings ratio of 4.38 times earnings... for a company that consistently delivers a double digit return on equity, this is a bargain. We recommend you buy.
Uchumi Supermarkets
The retail chain just managed a successful capital call. The rights issue managed to raise Sh1.6 billion against a target of Sh895 million. This was a strong vote of confidence against which the share price is expected to benefit from.
The performance of this rights issue was commendable as operationally, the company’s numbers weren’t solid.
However, this should be remedied by a change of strategy where the company will use less funds for its working capital. This will be achieved by adopting on new policies on procurement of inventory to bring it in line with industry standards.
It will also use less cash for expansion as it will opt for leasing of stores and equipment meaning less capital will be tied in long term assets. This should free some cash.
Uchumi also has some properties that it could either develop or enter into a Sell-lease-back arrangement that will allow it to raise more funds.
From a strategic perspective, Uchumi makes a very interesting opportunity to generate wealth like all company turn-arounds. However, this can only be established by a return to operational profitability. This is a speculative buy.
Email: [email protected] Thorough care has been taken in preparation of this document, we do not guarantee accuracy or completeness, nor will the company be held liable whatsoever for the information contained herein.
