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Bear market forces Centum to trim its NSE investments

By | November 12th 2011

By James Anyanzwa

Centum Investment Group is scaling down its stakes in listed companies to avoid further exposure on the volatile equity market.

The volatile market is also attributed to drop by one per cent in the firm’s profitability for the six months period under review.

The Group’s half-year profit before tax (PBT) fell to Sh828 million, up from Sh836 million, as the investment firm suffered the harsh reality of a bear run at the Nairobi Stock Exchange (NSE) that have severely battered investor earnings and lowered activities at the bourse.

The returns on the firm’s shares listed at the NSE also fell by 22 per cent, with the overall market losing 16 per cent of its value during the six months period ended September 30.

Mr James Mworia, Centum International Chief Executive.

Consequently, the investment firm reduced its share of quoted private equity portfolio from 26 per cent to nine per cent of its total assets and beefed up investments in private equity, real estate and infrastructure.

The company has also made strategic decision to hold cash and its equivalent amounting to Sh2 billion with a view of reducing further losses on the unpredictable stock market.

Centum’s lukewarm performance was helped by slight increment in portfolio income and growth in the share of profits from associate companies, which grew by three per cent and 10 per cent respectively.

Nonetheless, at the company level, which excludes the share of profits from associate companies, Centum posted a massive 54 per cent drop in pre-tax profit from Sh760 million to Sh350 million.

"We are pleased with our performance, but we are not satisfied with it and we believe there is room to do better," James Mworia, the firm’s chief executive told an investor briefing in Nairobi. He said the prevailing market instability characterised by rising inflation, high interest rates, and volatility in the shilling has affected the firm’s operations.

"The operating environment affects our performance. The current high interest rate environment is going to be damaging to the economic growth of the country," explained Mworia adding that: "As soon as interest rates start going down, we will start seeing an upward movement in the stock market."

Mworia reckons that the last six months had seen significant decline in asset prices and a major increase in the cost of money.

He said during the review period, the focus of the company was to protect the shareholder capital, reduce exposure to the stock market, reduce borrowings, enhance cash holdings and develop new growth opportunities.

"We have significantly scaled down our quoted equity portfolio on the NSE to reduce exposure. What is happening in the capital markets impacts on valuations of our equity portfolio," said Mworia.

Meanwhile the Capital Markets Authority (CMA) has approved Centum’s proposal to issue bonus shares in the ratio of one (1) new ordinary share for every ten (10) ordinary shares held, as at close of business on July 22.

This will result in the issue of an additional 60,494,701 ordinary shares of a par value of 50 cents each to the shareholders of Centum Investment Company Ltd.

"In approving the bonus issue and listing of the additional shares, the authority has considered the application by Centum Investment Company Ltd and is satisfied that it meets the requirements of the Capital Markets Act 485(A) and Regulations issued there under," said Stella Kilonzo, CMA Chief Executive.

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