Don’t buy Flame Tree yet, Uchumi, Kenya Orchards drop

What you need to know:

  • In a bearish week, the 20 Share Index closed at 5,074.93 points on Friday.
  • This was 0.02 points down from Thursday’s closing stand of 5,075.93 points.

NSE 20 Share Index: In a bearish week, the 20 Share Index closed at 5,074.93 points on Friday.

This was 0.02 points down from Thursday’s closing stand of 5,075.93 points.

Flame Tree: On its debut at the bourse, Flame Tree shot to Sh14 per share from the listing price of Sh8 a piece.

The climb was attributed to strong demand from institutional investors.

By the end of trading, the counter had moved 497,500 shares.

The following day, though, Flame Tree began to drop, at some point becoming the biggest loser shedding 9.75 per cent to trade at Sh12.50.

Backed by five deals representing a volume of 200,700, the counter closed the day at Sh13.10 on average.

On Monday, Flame Tree opened at Sh12.05 before declining to Sh11.80 per share.

According to Silha Rasugu, a research analyst at Genghis Capital, Flame Tree is going through price discovery rather than a price correction.

“It is a new listing and the market is trying to give it its fair value. In addition, investors who had the stock before listing could also be trying to exit, further derailing any price surge,” he says.

Mr Rasugu advises prospective buyers to wait.

Uchumi: The supermarket was on Monday expected to launch its rights issue to raise at least Sh850 million.

However, in the past one-and-a-half weeks, Uchumi has seen its price swing between Sh9 and Sh8.

Among factors contributing to the wobble has been massive exits by foreign investors.

Says Mr Rasugu: “The price drop to below the Sh9 rights issue price has turned the cash call into premium. Uchumi’s is going to be a hard sell.”

However, that Uchumi has cross listed in other markets could be its silver lining in getting the rights issue rolling successfully.

Mr Rasugu advises investors eyeing Uchumi to be very cautious.

Kenya Orchards: A few weeks ago, analysts in this column advised you to stay away from Kenya Orchards.

This followed the stock’s rise from Sh3 to over Sh190 per share. Very low volumes changed hands during the over 4,000 per cent rise.

According to Eric Munywoki a research analyst at Old Mutual, the volumes and the price surge may have been facilitated by an investor who was trying to move shares from one account to another.

Mr Chambua Ogoti, a securities analyst says the stock had been overvalued that a correction was inevitable.

Well, we hope you heeded. Last week, the stock plummeted from Sh192 to a low of Sh138 per share.

On Monday, it opened at Sh140 per share.