By Macharia Kamau

Kenya: The price of Eveready shares has been the butt of many jokes over the years — there has been the one about how a Sh1 coin could only buy you a patco sweet or a share in Eveready.

But it has been no laughing matter for shareholders who rushed to buy the battery maker’s shares eight years ago during its initial public offering. Then, the share was sold at Sh9.50 — and the IPO was oversubscribed by 800 per cent.

Last Friday, the shares traded at Sh3.05 per share, from a record low of Sh1.30 in 2010.

The fluctuations in Eveready’s share price have mirrored the vagaries of the company’s performance.

A huge loss one year is followed by a return to profitability the next, and just when the recovery seems to be on course, profits drop significantly. Most investors thrive on stability.

In the financial year ended September 2012, the Nakuru-based firm announced a net profit of Sh70.1 million, compared to a loss of Sh123.9 million over the same period in 2011.

Last week, it announced that its profits fell by more than half to Sh45.4 million for the financial year ended September 2013.

In addition to the dip in profits, Eveready’s plans to go into property development have brought about more uncertainty. What will Eveready look like five years from now? Most investors do not appreciate not being able to look into a crystal ball and see a company’s future.

So will branching away from the ultra-competitive dry cell market bring back Eveready’s mojo?

In addition to getting into real estate, the firm hopes to import more fast-moving consumer goods. It is also planning to aggressively go regional and recently set up a unit in Uganda that will look after its interests in the country as well as in Burundi, South Sudan and the Democratic Republic of Congo.

But will merchandising bring back the power the paka had?

Growth hopes

Mr Jackson Mutua, Eveready’s managing director, is confident that a five-year plan the firm adopted last year will boost its performance.

“We are now on a growth trajectory and the focus is on getting numbers that give value to shareholders. With the five-year plan we have embarked on, we see accelerated growth to double digits each financial year for the next five years,” he said.

Already, the firm’s revenues grew by 3.89 per cent to Sh1.43 billion in 2013, up from Sh1.37 billion in September 2012.

Eveready has also upped marketing for its other product lines — Energizer and Schick — which Mr Mutua said have seen a significant growth in sales.

“The company was largely dependent on products from Nakuru [Eveready batteries] that accounted for 80 per cent of revenue, but are now accounting for about 60 per cent. The other product lines are growing, with revenues from Schick growing by about 300 per cent over the last two years and from a market share of one per cent to 20 per cent today.”

The firm will from March unveil the first of three new products it plans to sell in Kenya.

“We have an elaborate and reliable distribution system, which is one of the reasons we have survived despite the challenges that we have experienced. We want to use this system to get the new product lines to the market.”

Eveready has had success with retail chains in Kenya and sees a huge opportunity for growth as these firms expand into the East African region.

However, in Tanzania, the company plans to form partnerships rather than set up shop. Using this approach, it already has a presence in Mwanza and Arusha.

And with property development?

“Eveready will go into partnerships with people that have expertise in the industry,” Mutua said. “We have a significant chunk of land in Nakuru that is not occupied by the factory, as well property in the Milimani area of Nakuru, and we are evaluating the opportunities in these assets.”

But shareholders do not seem too confident about the direction the company has taken over the years. Eveready’s share price performance since it listed on the Nairobi Securities Exchange in 2006 has been termed among the worst. It also remains the only counter at the stock market currently not trading above its IPO price.

All other offers — such as KenGen, Safaricom, Kenya Re and Britam — have seen their shares go beyond their listing prices during the last two bull runs at the NSE.

That Eveready has not traded above its IPO price raises the question: was the company overpriced and overmarketed during the IPO?

Analysts say the decline in Eveready’s share price is due to investors almost giving up on the firm after it took hit after hit in its dry cell battery business.

“Investors had a feeling that the company would not grow … due to challenges like cheap imports, the dumping of sub-standard batteries in the country and competition from new entrants,” said Mr Eric Musau, a research analyst at Standard Investment Bank.

The big switch

There were also concerns over the company’s declining market as more Kenyans switched to electricity-powered gadgets.

“Two to three years ago, the firm started talking about diversifying, which has contributed to the growth in share price. There is nothing concrete so far in their diversification plans, but once a company starts addressing the problems it faces, investors will start to reward it,” said Mr Musau.

“Getting to the IPO price would be a bit of a stretch … the company is diversifying into product categories that it might not be familiar with, but that also depends on what strategy they employ.”

But Mutua chooses to see the glass as half full.

“The share price has gone up by close to 200 per cent over the last two years, and we expect it will generate further interest. We should also able to pay dividends in the next one or two years.”

Indeed, he seems to have a point. Had an investor bought the shares at the Sh1.80 they traded at in September 2012 and sold them now at Sh3.05, they would be in the money.

Mutua also feels that negative publicity contributed significantly to the decline in share price. He said many companies face an even more challenging environment than Eveready does, yet their shares have not performed as badly.

“We had been asking the Government to enforce standards and this was misconstrued to mean we were short of solutions to our challenges, and this was a turn off for major investors. We also talked about the problems but not solutions that we had then or that were in the pipeline.”

emacharia@standardmedia.co.ke