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Car & General on song as investors rake in Sh1.69b

FINANCIAL STANDARD
By Patrick Alushula | Jan 25th 2022 | 5 min read
By Patrick Alushula | January 25th 2022
FINANCIAL STANDARD

Car & General Chief Executive Officer Vijay Gidoomal. [Courtesy]

Car & General’s shares have staged one of the biggest short-term rallies in the history of the Nairobi bourse, lifting the wealth of its shareholders by Sh1.69 billion in two weeks.

The rally, which started on January 6 - a day after the firm announced the highest ever profit in its 86-year history - has seen the share outperform the Nairobi Securities Exchange (NSE).

The company, which deals in a range of power generation, engineering and automotive products, has come a long way.

After moving no volume in the first two days of trading this year and shedding 9.87 per cent of its value before closing as the top loser on the NSE on January 5, many investors may have been tempted to cut their losses. 

But the climb in the share price from Sh30.60 on January 5 to Sh72.75 at the end of Thursday last week, has minted millions for investors in just two weeks.

“We expected that there was going to be a market reaction because at the end of the day, we have promised a bonus, good dividend, and we have generated Sh22 million a share,” said Chief Executive Vijay Gidoomal.

“If you are generating Sh22 million a share per annum and you feel that that is sustainable, the share price should be much higher than the Sh30.60 before the (profit) announcement.”

The rally means the wealth of the firm’s top individual shareholder, Paul Wanderi Ndung’u, who holds an eight per cent stake, has risen by Sh135.3 million in 12 days of trading to stand at Sh233.52 million.

Other top individual shareholders, including Rakesh Prakash Gadani (2.1 per cent) and Chandan Jethanand Gidoomal (1.35 per cent), have seen the value of their stakes hit Sh61.34 million and Sh32.17 million respectively.

Another 81 investors with between 10,001 shares and 100,000 shares have seen their wealth rise to ranges of between Sh727,500 and Sh7.28 million. Car & General has seen a 138 per cent rally in its share outperform the NSE, which has shed 1.14 per cent since the start of the year.

This is after the firm bucked the trend of cash preservation mode that has been adopted by many companies to navigate the prevailing tough business terrain on the back of Covid-19 disruptions that have reduced consumer spending.

“What gives us confidence is that we have diversified streams of income that we feel are in a relatively strong position right now and will hopefully help us sustain performance,” says Gidoomal.

Car & General’s net profits for the financial year ended September 2021 jumped three times to Sh887.24 million, prompting it to reward shareholders handsomely.

The board has proposed to quadruple dividends and offer bonus shares of one for one as a sweetener to the deal.

The announcement came in on January 5 after the NSE closed for the day, with the share trading at Sh30.60.

NSE investors have since then been in a rush to own the company’s share ahead of the book closure on February 25, taking the share to the high of Sh72.75 at the end of trading on January 20.

From trading a paltry 200 shares before the release of the financial results, the firm’s share has since enjoyed increased interest, closing trading as the top gainer for eight out of 10 trading days between January 6 and January 19.

Car & General started trading in thousands of shares on January 13, with volumes standing at 6,400. It then hit volumes of 12,300 last Tuesday, signalling investors’ appetite.  Investors who will get the share by February 25, are set to double their shares a month later through a one for one share bonus.

The share rally has taken the combined wealth of shareholders to Sh2.92 billion—being 138 per cent higher than the Sh1.23 billion on January 5. Car & General’s share closed last Thursday with a year-to-date (YTD) return of 106.92 per cent. The closest stocks on YTD are TransCentury (13.68 per cent), Longhorn (9.75 per cent) and Sasini with an 8.8 per cent return.

The share has room to rally up to February 25 when the share register will be closed ahead of the dividend payment and issuance of bonus shares on or around March 24.

Through the bonus share issue, Gidoomal says the firm can preserve cash for further expansion and create more shares to boost liquidity.  But one area of concern was highlighted in its books; a Sh677 million tax demand by Kenya Revenue Authority (KRA) that the firm has disputed. Car & General has already won the case at the tribunal level, but KRA has appealed the decision.

Other industry players have also disputed KRA’s tax demands, with one also getting the tribunal’s backing.

Car & General is confident that KRA’s appeal will fail, going by the previous ruling.

“We have won at the tribunal level. We have taken advice from our legal and tax advisors, and based on this, we feel we have a good case,” said Gidoomal.

Car & General generates about 65 per cent of its revenue from Kenya, while 35 per cent comes from regional markets such as Uganda and Tanzania. The firm has five lines of business — equipment and automotive distribution, real estate, financial services, agriculture and manufacturing of helmets.

“The idea now is how we can find more opportunities in those five lines, and we think the opportunities will be there for as long as we keep our eyes open,” said the CEO.

One of the opportunities that Car & General is exploring is electric vehicles, which the firm reckons could play a critical role in transitioning the country from reliance on internal combustion engines.

According to Gidoomal, a consignment of electric three-wheelers is due in the country in February, while two-wheelers are under development. “We are working with our principals to develop appropriate two-wheelers. This is not a play for this year, but what is important is to start the journey,” he said.

The firm plans to invest in a charging system as the electric vehicle business expands and as it looks to further diversify its revenue streams.

Car & General, which started in 1936 in Nakuru, is not new to reinventing and enriching its business lines.

The firm was for long deeply involved in the manufacture and sale of retread tyres, but a string of losses forced it into radical restructuring in 1996, with net loss increasing 100 times to Sh106.5 million.

In 1996, the company quit all its core businesses and sold some of its operations such as Car & General Industries and Car & General Automotive, which were involved in manufacturing and selling retread tyres, brake linings and gumboots. The new strategy helped it to return to a growth trajectory, which it wants to maintain going forward.

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