Investors lose Sh470 billion in six months as companies bleed

Investors have lost about Sh470 billion on the stock market since prices of shares started falling six months ago, bruised by a volatile Kenyan currency, inflation and high interest rate regime. The losses have seen companies listed on the Nairobi Securities Exchange (NSE) bleed billions of shillings in market value.

Data from the NSE shows that market capitalisation—the market value of all outstanding shares -- has shrunk by 20 per cent from Sh2.4 trillion in March to Sh1.9 trillion by the end of Friday. March was the peak of this year’s performance. Since then, it has been on a downward trend, leaving investors poorer.

This has seen some scramble to exit the market in net sales that have further put pressure on the stock market. An analysis of the losses shows that shareholders in the top 20 companies classified under the NSE 20 Share Index have borne the biggest brunt of the bear market, a condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment.

The dip has wiped off about Sh400 billion from the top 20 companies among them the blue chips like Safaricom, Equity Bank and Kenya Commercial Bank (KCB). The top three biggest losers are British American Investments Company (Britam), Athi River Mining (ARM) and Kenya Airways, which in the period recorded significant drops in profits or booked losses on exchange rates.

Britam, which announced a 77 per cent drop in profits on Friday, has suffered the biggest losses in the period in percentage terms. The financial services provider shed off 45 per cent of its value in four months from a high of about of Sh31 billion in March to Sh25 billion. The firm told investors that its exposure on the stock market made it book unrealised losses of Sh843 million in the first half of the year ending June 2015.

This compares to the Sh2.8 billion it earned in a similar period in 2014. “The decrease in our profits is a result of the downturn performance of the securities market, which impacted negatively on the fair value gains from the financial assets. This down turn also affected other blue chip companies listed in the Nairobi Securities Exchange,” the firm’s Managing Director Benson Wairegi told an investor briefing on Friday. Its exposure is mainly due to its stake in Equity Bank and Mortgage firm Housing Finance in which it is the single largest institutional investor.

The second biggest loser is Athi River Mining, which has lost 44 per cent of its value from Sh43 billion at the beginning of March to Sh24 billion billion by Friday.

The sinking of Kenya Airways into a Sh25.7 billion record loss also hurt the share price of the national carrier, coming in as the third biggest loser in market capitalisation. The airline has seen its market value wiped off by Sh6 billion, a 42 per cent drop. Value wise, Safaricom has lost Sh60 billion since March, the biggest amount to be wiped off by a single company. It was followed by Equity Bank, which has lost Sh55 billion in the period, while its financial rival Kenya Commercial Bank (KCB), came in third having lost Sh44 billion in the period.

These losses are likely to have a bearing on the economic growth of the country this year as well as reduce the number of jobs created. Analysts have described the situation as dire, attributing the losses to a stronger US economy that has seen investors take off from the Kenyan market. “We have never had anything like this. What is happening can be explained in two ways. One is the general performance of the economy, high interest rates and a collapsing economy,” Johnson Nderi, a manager corporate Finance and Advisory at ABC Capital Limited told Weekend Business.

“But this is the first time that the performance is linked to the profits of companies. Companies have not been doing so well in the period,” Mr Nderi added. Other factors are price correction and the capital gains tax.

Analysts at Standard Investment Bank (SIB) say that investors are now turning to T-Bills that are offering a more decent return as investors now shift to guaranteed return from debt instruments. The raising of interest rates in the US has also seen investors pulling out of emerging markets.

Only Sasini Limited, an agricultural firm has shrugged off the market turbulence to grow their value on the NSE among the top 20 companies. The firm’s market capitalisation has grown by 15 per cent to Sh4 billion, from the Sh3.5 billion.

The bear run at the stock market is estimated to have cost about 14 Kenyan billionaires Sh19.6 billion of their wealth on paper since the beginning of the year, with most of their stock holdings recording double-digit declines. Some of the big losers so far include Peter Munga, Pradeep Paunrana, Baloobhai Patel and Gideon Muriuki, have taken a hit from their large holdings in insurers, banks, manufacturers and other blue-chip companies.

The performance mirrors the difficult operating environment in the first half of the year in which half of the 32 listed firms have reported slowdown in profits or even sunk into losses. Transportation and warehousing firm, Express Kenya, warned of a significant drop in earnings, crowning a disastrous run for big Kenyan firms so far this year. Transcentury reported a Sh676 million loss that the management attributed partly to devaluation of the shilling, which led to increased finance costs.

Transcentury was also exposed to the plant upgrade of East African Cables’ copper factory in Nairobi, where it has a controlling stake.

EA Cables issued a profit warning on Tuesday citing the impact of the reduced production as a result of the plant upgrade that was compounded by foreign exchange losses.

Foreign currency

Executives of oil marketer, Total Kenya, have also reported a drop in profits but were quick to caution that the ‘continued volatility of petroleum prices and depreciation of the local currency against the US dollar’ is a risk they would be looking out for in the second half.

Crown Paints, the listed paint maker, has booked a huge slump in earnings to record Sh25 million profit the full year ended June, against Sh109 million posted last year.

However, there have been winners of the high interest regime among them cement maker Bamburi, advertising firm ScanGroup and Safaricom, all of whom have significant cash on their balance sheets. The weak currency has handed exporters such as the British American Tobacco (BAT), whose exports make up over half of sales, significant foreign exchange gains.

Also listed companies in the agricultural sector who grow crops for export are set to reap some gains from a weaker currency.

Kenya Airways, ARM, East African Portland Cement, Mumias Sugar Company and East African cables are however the main loser of the high interest rates given that the hold significant debt or are significantly expanding. Those in debts denominated in foreign currency are also likely to get hurt by the volatility of the Kenyan currency.