The Nairobi Stock Exchange trading floor. Photo/FILE
By SCOLA KAMAU
These firms — which control a huge chunk of
investments at the Nairobi Securities Exchange (NSE) — are currently
carrying out an audit of their books to present their full year 2011
results starting next month.
And things are not looking good because the drop in share prices in 2011 at the NSE has left many of them with either a significant drop in profits compared with the previous year or they are in the red.
This means, pension funds are expected to report lower returns and investors to hold back in buying shares of investment companies and insurance companies on news of profit warnings or payment of fewer dividends.
For the fund managers, investment firms and insurance companies it is yet another trough in the cyclic performance of their portfolios at the stock market as share prices drop. In 2010, they benefited from a rally in share prices at the bourse.
It is now expected that this year investors will continue to put their eggs in other baskets such as real estate, fixed income and government securities to reduce the over-reliance on the stock market.
British American Investments Company (Kenya) Ltd last week issued a profit warning six months after its
Initial Public Offering was undersubscribed in August last year. Its profits for the financial year ended December 2011, are expected to drop by at least 25 per cent because stocks, which are part and parcel of its investment portfolio, fell for most of 2011 due to concerns over the high inflation, high interest rates and slowing global economy.
“The board is of the view that the financial results for the year ended December 31, 2011 will be adversely affected by the prevailing market condition compared to the same period in 2010 when the market conditions were favourable,” said Nancy Kariuki, the company secretary for British American Investments Company in a notice to the stock market.
The NSE20 and NASI indices for example declined by 27.6 per cent and 30.5 per cent to end the year at 3,205.00 and 68.03 points respectively.
On the next trading day after British American Investments Company released its profit warning, its shares dropped by four per cent to trade at US cents 5.
Standard Investment Bank analysts noted that the negative sentiment, among investors on the outlook of the insurance company results, dragged across the sector with Jubilee Insurance shedding 0.65 per cent to trade at $1.75 on thin volumes.
However, Pan Africa, edged higher after coming-off in the previous session and CFC Insurance remained unchanged.
The insurance firms have been diversifying their investment portfolios by going into real estate markets in the region to avoid relying on their investments at the stock market.
Pan Africa Insurance has put up and sold houses in Nairobi’s upmarket estate of Runda. Centum, the cross-listed firm at the NSE and Uganda Securities Exchange, has also moved into real estate putting up commercial and residential buildings in Kenya and Uganda.
Ms Kariuki said the management has taken steps to reduce the impact of stock volatility on the group’s performance by increasing focus on growth opportunities including investments in real estate and taking advantage of the good returns available in the fixed income markets segment.
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