Hold KenolKobil, avoid KQ, Rea Vipingo bought
A trader at the Nairobi stock Exchange. Europe's main stock markets rebounded at the open on Wednesday, with investors waiting to see if Greece will be granted an extension to its bailout. PHOTO | FILE
What you need to know:
- He sees the Kenol’s long-term position in the market gaining stronger growth that will be supported from regional subsidiaries, and thereby cushioning the diminishing market share.
- On Friday for instance, KQ chief executive officer, Mr Mbuvi Ngunze, revealed that the airline is relying on debts to pay its 4,000 workforce.
KenolKobil: According to Kevin Tuitoek, a research analyst at Genghis Capital, KenolKobil is a stock to hold.
Last week, the oil marketer announced a massive 95 per cent profit gain for the year ended December 2014. Kenol’s profits shot from Sh558.4 million to Sh1 billion.
The company saw a Sh600 million decline in operational costs from Sh2.5 billion posted in 2013. Similarly, it announced that it would pay out Sh0.20 per share dividend to investors. This was a 100 per cent improvement on the dividend the company paid in 2013.
The bumper results came despite low sales recorded by KenolKobil in the financial period. In 2013, sales stood at Sh109.6 billion.
The firm’s two-year management turnaround strategy has resulted in lower operating costs, which has bolstered the company’s profit base, says Mr Tuitoek.
He sees the Kenol’s long-term position in the market gaining stronger growth that will be supported from regional subsidiaries, and thereby cushioning the diminishing market share.
“Inland expansion plans are offsetting the declining market share measured by net sale volumes,” he says, adding that investors should assume a hold position with a medium to long-term approach as the restructuring goes on and Kenol maintains its revenue and profit upward trajectory.
On Thursday, the share had closed suppressed at Sh9.75 apiece, down 3.08 per cent from Wednesday’s closing price of Sh9.90 per share from a traded volume of 323,500.
On Friday, the counter opened at Sh9.70 per share, with an intra-day trading session that saw Kenol touch a low of Sh9.40 per share and a high of Sh9.90. The stock settled at an average of Sh9.45 per share, down by 3.07 per cent.
BAD NEWS
Kenya Airways: According to Mr Tuitoek, investors could reap the fruits of investing in KQ in five to seven years! Why? The national carrier has been hitting the headlines for all the wrong reasons.
On Friday, the counter opened the day at Sh8.70 per share from Sh8.90 apeice recorded in Thursday’s trading.
During trading, KQ succumbed to an average of Sh8.40 per share, down Sh0.50 per share which was a 5.62 per cent drop. On Thursday, the counter had reverted by Sh0.30 from a low of Sh8.60 to 8.90.
Mr Tuitoek sees KQ being at the risk of further instability due to its increasing debt levels. “With overdrafts being drawn to meet expenses, the company’s long-term debt management brings into question the ability for any stable growth of the carrier,” he observes.
On Friday for instance, KQ chief executive officer, Mr Mbuvi Ngunze, revealed that the airline is relying on debts to pay its 4,000 workforce.
Currently, its debt levels have hit Sh70 billion. Sh40.7 billion are its short-term loans, while long-term loans amount to Sh95 billion.
Unfortunately for shareholders, the bad news have been trickling in as better armed competitors such as Emirates flood markets previously conquered by KQ.
The counter closed at Sh8.40 per share from 110,100 traded volume on Friday with a low of Sh8.30 recorded in the day. “Value investors yet to buy the counter may opt to avoid until the company shows signs of recovery, which at this point lean on the expiry of the long-term expensive hedges that will reduce direct costs, and restructuring of overdrafts into long-term debts,” he says.
MULTIPLE GAINS
Rea Vipingo: Shareholders of Rea Vipingo can finally smile after waiting for the buy-out settlement for over a year.
The two disputing companies, Centum and REA Trading have entered into an agreement, putting to bed the tussle over the firm’s buyout.
Under the agreement, Centum will acquire 10,546 acres of land at the coastal Vipingo district and Rea Vipingo’s subsidiary Vipingo Estates Limited for Sh2.1 billion.
The subsidiary will cost Centum Sh340 million while the land will cost Sh180,000 per acre.
Subsequently, REA Trading will take over Rea Vipingo and pay the total amount of Sh85 per share.
Shareholders will reap multiple gains from the last traded price at NSE of Sh27.50 per share. This means that Sh100,000 worth of Rea Vipingo shares will multiply to around Sh300,000.
