How investment gurus make billions from the stock market

CHRIS KIRUBI

Billionaire investor and prominent entrepreneur Chris Kirubi has positioned himself as a key mover at the Nairobi Securities Exchange. His moves at the NSE can at times be as astounding as the money his portfolios hold.

In January this year, for instance, Mr Kirubi and Centum Investments sold their shares in insurance group UAP Holdings to Old Mutual in a deal that earned them over Sh7 billion.

With Mr Kirubi owning a 9.58 per cent stake in UAP, his stake saw him pocket over Sh2.8 billion while Centum Investments, which owned 13.75 per cent stake, raked in more than Sh4 billion.

Interestingly, by that time, Mr Kirubi owned a 25.2 per cent stake in Centum Investments, which would further earn him more proceeds from the sale. 

In September this year, Mr Kirubi was reported to have added another 4.9 per cent stake in Centum, making him the biggest shareholder with a controlling stake of 29.9 per cent. This stake was acquired in two years and amounted to 32.6 million shares that were estimated to have cost him at least Sh1 billion.

Aly Khan Satchu, a financial markets expert and CEO of Rich Management, says Mr Kirubi has proven to be a very astute investor at the NSE.

“Mr Kirubi has embraced the concept of shareholder value, and subsequently, Centum Investments has proven to be an excellent model for value creation,” he says.

He adds that the key move that Mr Kirubi made with Centum was to source out for first-class human capital and then put them in the cockpit.

This is illustrated by Centum’s recent recruitment of Ivy League graduate Brian Kiai as the firm’s deputy director.

Paul Maina, the head of research at Relic Capital, says Mr Kirubi and Centum garner a good exit price, which he utilised to divert his resources towards more acquisition at Centum.

“His strategy is to get into companies in which he can create value, and Centum is increasingly proving to be a paragon of value. It meets the threshold of a great company: big audacious goals, a clear vision, and home grown management,” says Maina.

KENYA AIRWAYS SHARES

In a shocking move in August, Mr Kirubi also acquired 2.1 million Kenya Airways shares, valued at Sh11.55 million. This was surprising as the investment came hot on the heels of a record-breaking loss by the national carrier in August.

In its full year results, KQ shocked the country by announcing a net loss of Sh25.7 billion. This meant that KQ was in a negative capital position of Sh5.9 billion.

Although this caused a stir among novice investors leading to speculative trading, some analysts have noted that it was not as significant as his well-articulated decision in buying Centum shares.

Mr Maina says Mr Kirubi might have been seeking to calm the markets.

“He most likely wanted to create a positive outlook to the company and show Kenyans that KQ can turn around if proper management is put in place,” says Maina.

“However, novice investors should wait until the mess at KQ is adequately sorted out.”

JAMES MWORIA, CENTUM CEO

In August, Centum Investment CEO James Mworia climbed the ladder to the top ten shareholders club.

This followed his acquisition of 4 million shares worth Sh207.4 million.

Mr Satchu says insider buying such as Mr Mworia’s is usually a very positive thing while “the positive is always a worry”.

He notes that by purchasing the stake, the Centum CEO was basically putting his money where his mouth is. 

His sentiments are echoed by Mr Maina, who notes that even though Mworia’s stake stands at a minimal 0.62 per cent, nothing is better for a novice investor than the CEO having a significant stake at the company he manages.

“It boosts investor confidence and gives investors a sense of security that the CEO will act in his or her best interest since they have mutual interests in growth in shareholder value,” he says.

Other CEOs who currently own stakes in the firms they manage include Equity Bank’s CEO James Mwangi, ARM’s billionaire investor Pradeep Paunrana, Co-op Bank’s Gideon Muriuki,  Scangroup's Bharat Thakar, and Housing Finance’s Frank Ireri.

JAMES MWANGI, THE MUGUKUS, AND PETER MUNGA

After narrowing down on their Equity Bank stake, The Muguku family is investing Sh3 billion in a real estate project.

In the same vein, Equity Bank CEO James Mwangi narrowed down on his Equity stake to 4.88 per cent, which now stands within the regulator’s limits.

By October last year, Mr Mwangi had a 6.5 per cent stake co-owned with his wife, which was estimated at Sh12.15 billion. This gave him an annual compounded rate of 50.4 per cent over an eight–year period from 2006.

Mr Satchu says the share sales by the Muguku family were part of an optimal portfolio strategy which required them to diverse their risks. This may very well be the strategy the Equity Bank’s chairman Peter Munga has been employing.

Mr Maina says Mr Munga has been reducing his shareholding and investing in private firms that he believes will yield superior returns. He further notes that how these three top Equity investors conduct their trading illustrates that novice investors should go for value investing.

“This means that you should invest only in companies with high growth prospects that will unlock the value you seek,” he says.

In the same vein, Mr Maina notes that James Mwangi’s Equity Bank stake is an example of the fruits investors can reap from long-term investment in sound companies.

“Investors who followed Mr Mwangi’s long term investment strategy in 2006 have reaped very handsomely over this period with Equity having hit a high of Sh60 per share last year,” he says.

HOME AFRIKA'S INSIDERS

Three months after listing on the NSE’s Growth Enterprise Market Segment (GEMS), founders of Home Afrika began a strategic exit from the firm.

By January 2014, they had cut their stake by 6.1 per cent which amounted to 24.8 million shares worth over Sh200 million.

Notably, the Capital markets Authority (CMA) did not lock in Home Afrika’s founder shareholders upon the listing of the firm.

Among those who sold off their stakes were Mr Patrick Ng’ang’a who sold 5.8 million shares, Paul Munyua and Dale Farm who sold 2 million shares each.

Others are Hansan Investment who sold 534,900 shares, Home Afrika Continental who sold 2 million shares, Stimela Co-op who let go 2.4 million shares and Seyani Brothers &Co who gave up a 2.47 per cent stake.

Mr Maina notes that the biggest lesson investors can learn from Home Afrika is the essence of looking at a company’s fundamentals and its potential for growth before buying its shares.

“The fundamentals of Home Afrika were off from the word go. They used aggressive accounting techniques and when best practices were applied, it became clear that they had very minimal sales.”

Mr Satchu concurs, adding that while most investors look to the stock market to unlock value, Home Afrika’s insiders brought their equity to the market in order to dump it. Currently, the Home Afrika stock has plummeted to an all-time low of Sh1.50 per share at the NSE, with the firm recording losses.