Exit Mumias, CIC, be cautious with Eveready

Mumias: This stock is recommended as a sell. According to Kevin Tuitoek, a research analyst at Genghis Capital, Mumias deficiencies continue to hamper the miller’s growth.

“The planned rights issue has become the central focus in shoring up funds. This remains a thin line for the company to walk on,” he says. His sentiments are echoed by Chambua Ogoti, a securities and financial analyst who adds that currently, the survival of Mumias is hedged on political more than business reasons.

“Despite the extension of the Comesa safeguard, Uganda sugar sector wants to cut into the Kenya’s market and its playing hardball using East African free trade protocol. Where market forces operate, Mumias stands at the end of an enterprises’ tether,” he says.

Strikingly, despite the pledge by the government to bail out Mumias with a Sh1 billion, and a further Sh4 through a cash call, the stock has remained subdued.

After rising to a high of Sh3.85 per share following speculative trading based on the bailout announcement, the stock began retreating to below Sh2 zone.

On Thursday last week, Mumias closed at Sh1.95 per share from a traded volume of 865,800 shares. On Friday, the stock opened at Sh2 before reverting to Sh1.95.

Nevertheless, according to Mr Tuitoek, enhanced production of ethanol would generally increase revenues for the company, as long-term prospects of increased diversification through electricity production could offer reprieve from the traditional sugar production cycle.

“Long-term management restructuring and operational efficiencies are sorely needed in a company remaining dim on enhancing shareholders’ return on investment at the NSE,” he adds. 

NINE LIVES OF EVEREADY

CIC: This counter is recommended as a sell according to Genghis Capital. According to Mr Tuitoek, though the company has maintained robust premium growth, enhanced exposure has shifted towards the claims risk that has ultimately diminished shareholders returns.

“Increased operating expenses have eaten into total income generated by up to 90.5 per cent during last year’s earnings update,” he says.

Nonetheless, he is quick to note that CIC has potential for long-term growth if it can withstand competition from new rivals such as KCB’s venture into insurance.

“The company still has additional funds to use form last year’s Sh4.9 billion corporate bond, which should be used in the expansion of the company and grow investment income.” On Friday, the stock opened at Sh9. 

Eveready: Last week, Eveready announced that it would be selling its idle assets at its closed down Nakuru battery plant.

This followed an approval by the company’s shareholders. The investors also gave the company the go-ahead to partner with Orbit Chemicals and create a joint venture.

“This will give us an opportunity to diversify into new products,” said company managing director Jackson Mutua.

The assets that are set to be sold have been written off in Eveready’s books. The company land will be used to set up a shopping mall or a hospitality facility.

In response, the market turned favourably for the stock. On Friday, the stock climbed by 3.70 per cent to Sh4.20 per share with an intra-day high of Sh4.30 apiece. It had opened at Sh4.30 per share from Thursday’s closing price of Sh4.05.

Over the past one year, the stock has traded at a low of Sh2.65 and a high of Sh5.35.

However, according to Mr Ogoti, investors should approach this stock with caution.

“It’s a penny stock that investors should be cautious with. Investors may want to be very cautious until a clear strategy that has the right fundamentals is defined and put on the table.”