What KQ’s big loss means for NSE

Stockbrokers at the NSE trading floor. PHOTO | FILE

What you need to know:

  • It remains a stock investors shouldn’t speculate on currently before the turnaround has been effected.
  • Britam: A market report by Cytonn Investments has recommended this stock as a ‘lighten’. According to the report, this is because Britam has attracted an upside potential of 4.5 per cent following a price decline of about 5.2 per cent over the last two weeks.

NSE Indices: The NSE 20 Share Index dipped by 72.39 points to settle at 3,524.59 points from 3,596.98 points posted at the end of the previous week.

This meant that the main blue-chip index continued to be ravaged by a bear run that has been on-going for nearly the past two years now. The NSE 25 Share Index ended the week at 3,839.95 points. This was a fall of 46.99 points from 3,886.94 points posted the preceding week. The NSE All Share Index edged upwards by a marginal 0.22 to close at 138.52 points.

KQ: Kenya Airways dominated business news for the third week in a row after releasing its full year financial results for the period ended March 2016.

Although the national carrier’s shareholders were hoping for improving results with at least the mega loss of Sh25.7 billion posted in the 2014 financial year cut into half, they were shocked as KQ pumped in an extra Sh500 million loss to record a net loss of over Sh26.2 billion.

However, it was not just gloom in the carrier’s full year results. The airline’s revenue increased from Sh110.1 billion to Sh116.1 billion. The loss came hot on the heels of Sh10 billion soft loan that was extended to KQ by the National Treasury to fund its recovery strategy. The loan was borrowed from Afrexim Bank.

According to Aly Khan Satchu, the CEO of Rich Management, KQ’s balance sheet is now fully loaded with debt. The huge loss saw KQ’s net worth fall by Sh29.7 billion from Sh5.9 billion to Sh35.6 billion.

In fact, according to KQ chairman, Denis Awori it will be difficult for KQ to get a strategic investor due to its current negative worth position. Following the results, KQ’s stock took a beating on the NSE, falling by about 13 per cent in two days.

On Friday last week, KQ closed on the NSE at Sh4.05 per share with an intra-day low of Sh4 per share. This was a 6.90 per cent fall from the Sh4.35 per share average closing price recorded on Thursday. Some 342,500 Kenya Airways shares were traded on Friday.

According to Mr Satchu, this fall was in contrast to the 11.76 per cent gain KQ had attained in the two days preceding the release of the net loss results.

Shouldn’t speculate on

Mr James Kanyua, a Nairobi-based financial consultant and financial markets analyst, said while KQ may have shown small signs that things might improve in the future, it remains a stock investors shouldn’t speculate on currently before the turnaround has been effected.

These sentiments are echoed by a market report by Cytonn Investments. “It is not clear that the long-term, deep-seated strategic, financial and managerial challenges that culminated into the current financial dire straits facing KQ have been dealt with or are being dealt with appropriately,” says the report.

Additionally, Mr Satchu notes that KQ should remove all its fuel hedges. “The airlines job is to run an airline and not to trade oil which they have been doing quite poorly,” he says, noting that the national carrier has no room to make mistakes anymore.

Britam: A market report by Cytonn Investments has recommended this stock as a ‘lighten’. According to the report, this is because Britam has attracted an upside potential of 4.5 per cent following a price decline of about 5.2 per cent over the last two weeks.

According to the report, Britam has a downside of 0.8 per cent. The report notes that investors should place a target price of about Sh14.1 per share. On Friday, Britam closed the market at Sh13.10 per share after opening the market at Sh13.55 per share.

In June a report by Cytonn Investments on NSE-listed underwriters positioned Britam as the worst performing insurance firm in return on equity. Britam scored a negative 5 per cent following a Sh1 billion loss for the year ended December 2015.