NSE issues profit warning as it braces for uncertain election year

Geoffrey Odundo CEO Nairobi Securities Exchanges makes a press briefing on stock exchange where he expects the stock exchange to experience temporary impact during election period. on 23rd November 2016 PHOTO DAVID GICHURU

Nairobi Securities Exchange (NSE) Limited has warned investors that it expects profits to decline by at least Sh76.4 million, being a quarter of what it earned in December last year.

In a profit warning note published in the local dailies yesterday, NSE said that it sees the profit expected next month to be more than 25 per cent lower than Sh305.6 million that it posted the previous year.

“The board of directors of the company hereby informs its shareholders and the general public that based on the projections for the remainder of the year, the company is expecting a decline of more than 25 per cent in net profit,” explained the NSE management.

According to NSE Chief Executive Geoffrey Odundo, the decline in profit has been occasioned by a decline in equity market prices. The company is directly affected since 53 per cent of its revenue streams come from market trading.

The announcement may mirror yet another year where investors on the bourse may have burned their fingers after a bear run in the market. Last year, a record 19 companies had issued profit warning before the close of December.

With Kenyans headed to the polls in the next eight months, Odundo is tipping the market to be hit by the election fever before recovering.

“We are not overly anxious of the events. We have a feeling the pre and post-election events will have an impact on our market,” said Odundo adding that reforms in electoral body and citizen participation should mitigate the fever.

However, he sees the Kenyan shilling lose some ground against the major currencies during the election year. Addressing the Press at The Exchange, the bourse’s offices in Westlands, Nairobi, Odundo said that Donald Trump's win in the US elections, added to the uncertainty brought about by Brexit that sent shockwaves to the global markets.

“Trump is focused on trade protectionism, reducing aid and rolling out tax cuts...this and Brexit have led to increased uncertainty in global capital markets,” he said. For Kenya, where about 70 per cent of the activities on NSE are by foreign investors, the exposure to the global market shocks is also high.

This was witnessed the day the Government amended the banking Act to introduce capping of interest rates. Banks stocks lost Sh47 billion in just one day as foreign investors retreated. In the third quarter to June, foreign buys at the bourse reached an all-time high of 87.18 per cent. During this period, they purchased shares worth Sh14.7 billion and sold shares worth Sh13.3 billion.

But according to Odundo, it is good for the bourse to attract foreigners. He said that NSE will focus on ways of exciting local investors to participate more in trading to rebalance foreign investor dominance.