Buy Kenya Power, avoid Olympia Capital

NSE 20 Share Index: On Friday last week, the NSE 20 Share Index shed 61.75 points to close the day at 5,197.67 points.

Kenya Power: Last week, Kenya Power announced an 88 per cent jump in net earnings to Sh6.4 billion in the year ending June compared to Sh3.4 billion in the same period last year.

The profits were attributed to higher tariffs introduced in December 2013. Consequently, the firm’s share shot up to Sh18 from Sh12.

At close of business on Friday, the stock had dipped 4.06 per cent. But according to Investax Capital boss Ndindi Nyoro, Kenya Power should be trading at between Sh23 and Sh25.

Kestrel Capital agrees and gives the counter a value of Sh23.35 per share. However, with an earnings per share of 3.31, the Sh0.50 cents dividend issued is mean: “was it to be as generous as Safaricom’s, investors would reap a dividend of close to Sh3,” Mr Nyoro said.

Nonetheless, he adds that the current price of about Sh16.50 is a bargain for long-term investors.

The company has signed a deal to transmit power to Rwanda from July next year, and has been attracting large industrial power consumers such as Base Titanium.

Kengen: While Kenya Power surged forth, power generator KenGen took a nosedive. On Thursday last week, KenGen recorded a 3.3 per cent rise in its annual pretax profit.

However, its earnings after tax dropped by 46 per cent. Consequently, the stock dropped to Sh10 on Friday.

According to Mr Nyoro, the drop has been due to the firm’s poor results.

Olympia Capital: This is a stock to avoid. Recently, Olympia touched a one-year-low of Sh2.50.

This was after news of the return of Mr Michael Matu as the investment firm’s CEO. “This was a big loss and it compelled investors to hold onto their shares.

The Sh0.25 dividend with a 17/10/2014 book closure date was the only consolation,” says investment analyst Chambua Ogoti.

With little demand and a huge supply, the counter began to rise, but it was not until Tuesday last week when it shot up by 86.5 per cent to Sh7.50 per share.

But since then, Olympia bull has lost steam.

On Friday, it closed at Sh7.75 per share and opened at the same price on Monday.

“There was news of a real estate project in South Sudan; what happened? The management leaves too many questions. Investors should spare their money and buy elsewhere,” Mr Ogoti notes.