- Investor wealth from the five stocks on the Nairobi Stock Exchange has surpassed the remaining 50 companies.
- The CMA now says it needs new lists of high-value firms to correct the market imbalance.
- NSE appears to be in a bull run and fully recovered from the effects of Covid-19.
BAT Kenya #ticker: BAT, East Africa Breweries Limited (EABL) #ticker: EABL and Safaricom #ticker: SCOM led five stocks whose increase in investor wealth on the Nairobi Stock Exchange (NSE) since the beginning of the year outperformed the remaining 50 companies.
The five stocks posted a combined gain of Sh334 billion since January 1, accounting for 107.7 percent of the Sh310 billion appreciation of all shares on the NSE.
This is exposing the distortion of course performance by top-tier stocks, making it difficult for investors to gauge the performance of the NSE.
The NSE appears to be in a bull run and fully recovered from the effects of Covid-19, as investors are betting on a coronavirus vaccine launch to keep the global economic recovery on track.
But a closer review of the market reveals that some stocks have dominated the rally, with 12 stocks including Equity Bank, #ticker: EQTY, KCB Group #ticker: KCB and Nation Media Group #ticker: NMG posting double-digit growth since start year.
Analysts estimate that investors have focused on companies that appear prepared to deal with economic downturns and with a tradition of paying dividends.
NSE #ticker: NSE Chief Executive Geoffrey Odundo said earnings are supported by strong fundamentals from firms such as Safaricom and banks, as well as the higher weighting of Kenya in Morgan Stanley Capital International’s Emerging Markets Index (MSCI ).
The MSCI has become one of the guides on how foreign investors allocate their resources in emerging countries like Kenya.
Kenya’s weight in the index increased to 9.49 percent from about 8.2 percent, meaning that foreign investors can allocate more money for NSE investments.
“Our weighting improved, so they are happy to improve their participation in key stocks such as banks and telcos. Overall, it is an appreciation of the resilient performance of our companies and the regional expansion of companies like Equity and now Safaricom, ”said Mr. Odundo.
“Safaricom and some of the bank stocks are part of the composite index and that becomes a natural option for the portfolio of foreigners. This explains why they continue to do better. “
But the Nairobi Stock Exchange is tempered by the growing dominance of the top five stocks that now account for 80.2 percent of the total market value of 2.42 trillion shillings, up from 65 percent three years ago.
The Capital Markets Authority (CMA) has flagged the dominance of five companies as a big risk, and the performance of their shares determines whether the market goes up or down on any given day.
Odundo says foreigners are slowly expanding their investments to include mid-tier stocks, arguing that their appetite for Safaricom and major banks is based on high liquidity, good dividend yield and appreciation in prices.
“We see that they are starting to look for mid-level stocks. We have seen accountants like I&M, DTB, Sanlam and Jubilee start to show a good level of activity. This could partly address the risk of concentration, ”said Odundo.
Cigarette maker BAT Kenya is this year’s biggest winner in the Nairobi countryside, posting a 29.6 percent return after its stock closed trading at 437 shillings a piece yesterday, adding 10.7 billion shillings to wealth. of investors.
EABL’s share rose 20.1 percent to Sh185.2 in the period under review, while Safaricom gained 19.3 percent to Sh40.85.
The telecommunications company, due to its much larger number of issued shares, posted the largest absolute gain in market capitalization at 264.4 billion shillings, accounting for 85.6 percent of the increase in investor wealth in the NSE. this year.
The rally in Safaricom shares has been linked to the recent announcement of its entry into Ethiopia’s underserved telecommunications market and the payment of dividends.
The company declared a final dividend of 0.92 shillings per share on May 13, bringing its total payment for the period to 1.37 shillings per share.
The brewery posted a three percent drop in net sales during the first half ending in December, as sales were affected by the closing of bars in campaigns to verify the Covid-19 spread. After-tax earnings fell by a third.
Dividends are a factor in BAT’s earnings. The cigarette firm has maintained generous dividend policies for decades that have seen it pay almost all of its net profits to shareholders.
The firm defied the effects of Covid-19 to increase total dividend payment by more than a third after earnings for the year through December rose 42 percent.
The cigarette maker announced Thursday that its after-tax profit rose to Sh5.52 billion, recovering from a 4.9 percent drop to Sh3.89 billion in 2019.
Equity and KCB earnings rebounds have increased investor interest in lenders, gaining 15.5% and 11% respectively.
Equity has added Sh21.32 billion to its investors’ wealth since the beginning of the year, while KCB has risen Sh13.49 billion.
Safaricom alone is worth more than all the other publicly traded companies put together, with its valuation of 1,636 trillion shillings representing 61.8 percent of the NSE’s market capitalization.
One of the factors behind the dominance of the five firms is the drought in high-price quotes in recent years.
The companies are also liquid stocks, offering investors the opportunity to move in and out of the counters with ease, analysts say.
The delisting of companies like KenolKobil and the erosion of the value of first-class shares like Kenya Airways and Kenya Power #ticker: KPLC has seen the five companies consolidate freehold dominance.
Three of the dominant companies (Safaricom, Equity, and Co-operative Bank #ticker: COOP) entered the market during the boom years of IPOs from 2005 to 2009.
The CMA now says it needs new lists of high-value firms to correct the market imbalance.