NSE tumble eats 98pc of investment firm’s profits

PHOTO: COURTESY

CfC Stanbic Holdings’ investment arm, SBG Securities, has reported net profits of just Sh2.3 million, down from Sh132 million.

The company, which was known as CfC Stanbic Financial Services up until August 2013, saw a sharp downturn in its earnings in the first half of the year ended June 30,.

Running through a presentation of slides containing the performance of the subsidiary, SBG Securities CEO Nkoregamba Mwebesa said the bear run at the Nairobi Securities Exchange (NSE), coupled with Britain’s decision to exit the European Union had complicated the business.

“I will be preaching to the choir if I try to tell you how bad the market is. You should all be aware,” Mr Mwebesa told investors at Nairobi’s Serena Hotel on the day CfC Stanbic Holdings was releasing its half-year performance.

One-off gain

“Equities turnover was down by about 33 per cent as at the end of June, compared to a similar period last year. If we could extend that to July, the market has actually shrunk by 47 per cent,” added Mwebesa.

As a result, in the six-month period, the subsidiary’s operating profit was cut by 92 per cent to Sh12.7 million from Sh163 million posted over a similar period last year.

Brokerage income fell by about 45 per cent to Sh114 million, while total revenue was halved to Sh161 million and total assets fell by 42 per cent to Sh721.5 million.

Last year, the firm sold its holdings in NSE, helping it book a one-off gain of Sh64 million.

Between January and June this year, SBG’s office cash and bank balances fell by almost half, while shareholders’ funds dropped by 49 per cent to Sh263 million. This leaves the firm with headroom of Sh12.5 million above the Sh250 million that stockbrokers are required to hold.

According to Mwebesa, the poor run at the NSE saw investors shift their money from equities to fixed income and cash deposits, which provided more attractive yields.

An investment survey by Alexander Forbes shows that in the year to June 2016, returns on equity dropped by an average of 1.7 per cent to 5.2 per cent, causing investors to reduce their investments in shares.

SBG’s market share further fell to 12 per cent from 15 per cent, but it remained within the top four brokers at NSE who jointly command 60 per cent of the market.

Mwebesa added that tough times may persist at the market: “For the remainder of 2016, we expect that the market will continue to be subdued into next year. The market is mainly driven by foreign institutions as is case in most emerging market equities.”

But with some green shoots occasionally punctuating the gloomy bourse, Mwebesa said SBG will continue to re-invest in the business, and cross its fingers that frontier markets remain neutral or see an upside towards the end of the year.

“We continue with efforts to maintain market share in Kenya, Uganda and Rwanda, and the fixed-income market,” he said.