Observe Uchumi’s pursuit for Sh5bn capital

NSE Indices: January saw the Nairobi securities market suffer from a ruthless bear run that saw the main index fall from 4,000 points to the about 3,700 points. PHOTO | FILE

What you need to know:

  • According to Robert Ochieng’, a research analyst at Relic Capital, the fall by Williamson Tea follows the allotment of a bonus share of 1 to 1 and the subsequent book closure.
  • “Williamson tea is expected to make a profit of about Sh800 million this year given the stable tea prices at the start of the year with the gains against the dollar made by the local currency,” he says.

NSE Indices: January saw the Nairobi securities market suffer from a ruthless bear run that saw the main index fall from 4,000 points to the about 3,700 points.

On the last trading day of the month, the NSE 20 Share Index closed at 3,773.17 points. The NSE 25 Share Index also fell below the 4,000 mark in January. It ended the month at 3,939.45 points on Friday last week while the NSE All Share Index closed at 136.81 points.

Uchumi: According to a market report by Cytonn Investments, the fortunes and/or misfortunes of the Uchumi stock on NSE is currently hinged on whether or not the supermarket will get a strategic investor to inject Sh5 billion capital.

Towards the end of last month, Uchumi received a boost of confidence from shareholders who gave the green light to the supermarket’s management to seek a strategic investor who will pump in the capital. Cytonn Investments says Uchumi will need to create an additional 1 billion shares to accommodate the new strategic investor.

“This will be more than double its current authorised shares of 900 million shares,” says the market report. “This will in effect dilute the current shareholders by at least 62.5 per cent whose value currently stands at Sh3 billion of the market capitalisation.”

According to Cytonn, of the Sh5 billion that Uchumi seeks to raise, Sh2 billion will settle expensive bank loans, Sh2 billion will pay outstanding supplier debts, and Sh1 billion will implement a turnaround plan that will include opening of 1,000 mini shops and 200 express shops under a franchise model.

As Uchumi’s pursuit kicks off, investors should hold and evaluate any progress Uchumi makes in this turnaround strategy. On Friday, Uchumi ended the month of January at Sh7.55 per share.

Williamson Tea: For the past three weeks now, agricultural stocks Williamson Tea and Kapchorua Tea have dominated the losing side on the NSE. Last week, for instance, Kapchorua was a top loser on two consecutive days.

On Wednesday Kapchorua lost Sh20 per share. On Thursday, the stock lost 9.9 per cent which was equal to a loss of Sh18 per share. On Friday, though, Kapchorua closed the market unchanged at Sh164 per share. On the other hand, market forces continued to whip Williamson Tea into position for the third week in a row.

Williamson Tea

On its first trading day after book closure, Williamson Tea crashed from a high of about Sh392 per share to around Sh320 per share. This was its first day when a counter is allowed to lose more than the minimum 10 per cent. In the following two weeks, the counter fell to a one year low of Sh162 per share before reverting to around Sh180 per share price range.

According to Robert Ochieng’, a research analyst at Relic Capital, the fall by Williamson Tea follows the allotment of a bonus share of 1 to 1 and the subsequent book closure. “This fall was expected in the market after the book closure which took place on January 8th,” he says. “Currently, Williamson Tea is experiencing a price correction.”

On Friday last week, the counter closed the market at Sh187 per share after opening at Sh190 per share. This was a drop of 3.74 per cent with 6,300 traded shares from Wednesday’s closing position of Sh194 per share. During the intra-day trading session, Williamson Tea swung to losses by a 7.22 per cent margin which equalled a dip of Sh14 per share. Nonetheless, despite the losses, Mr Ochieng’ is quick to note that once the price correction is over, investors may consider investing in the counter.

“Williamson tea is expected to make a profit of about Sh800 million this year given the stable tea prices at the start of the year with the gains against the dollar made by the local currency,” he says.

In November last year, Williamson Tea reported a 126.2 per cent increase in earnings in its half year ended September 2015 to Sh380.7 million.

Interestingly, the gain in value of tea plantations of Williamson Tea’s climbed by 127 per cent to Sh159.2 million. This profit gain was in sharp contrast to the full year net loss of Sh227.6 million recorded by the company the previous full year. Interestingly, according to Mr Ochieng’, Williamson Tea has proven to be among the rich stocks at the NSE. .