Investors in Uchumi issue gain 45 per cent over two weeks

Money Markets

Uchumi Supermarkets CEO Jonathan Ciano. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• Uchumi’s share touched an eight-month high of Sh13 this week, having traded at a low of Sh8.05 only two months ago as the rights issue was opening.
• The gain year-to-date stands at 27 per cent, making it the second-highest gainer in the market after troubled Mumias Sugar’s stock which is up 50 per cent.

Investors in the Uchumi rights issue have enjoyed a 45 per cent gain just two weeks after the new shares started trading at the Nairobi Securities Exchange, with demand driven by retail investors.

Uchumi’s share touched an eight-month high of Sh13 this week, having traded at a low of Sh8.05 only two months ago as the rights issue was opening.

The gain year-to-date stands at 27 per cent, making it the second-highest gainer in the market after troubled Mumias Sugar’s stock which is up 50 per cent.

Last year Uchumi shed 48 per cent, partly linked to the delay in rolling out its rights issue, which saw investors cut demand for the stock in the market as they eyed lower-priced rights issue shares.

Analysts say investors are considering the future potential of the retailer which is on an expansion drive and sound financial ground after a bruising year in which it was seen to be falling behind the competition in the battle for retail revenues in Kenya.

READ: Uchumi set to open Limuru, Naivasha outlets

“The trading turnover for the counter has not been too high, meaning that it is being driven by local retail investors. Demand has been outstripping supply, which shows investors are not keen to sell off the shares even with the gains it has made this year,” said Old Mutual Securities analyst Geoffrey Maina.

“When they were selling the rights issue the retailer worked hard to sell itself as a local brand, which may be paying off now by attracting investor loyalty.”

Mr Maina said that with Uchumi having traded at between Sh15 and Sh21 per share just a year ago, investors who bought at those prices may be looking to add to their shares at a lower price in order to lock in a lower-weighted average price of their investment.

During the period when its market price was lower than Sh9 rights price in November, Uchumi management claimed the share’s low valuation ahead of the issue could be attributed to attempts by some foreign investors to forcibly take over the company.

Increased liquidity in the stock has also provided some boost, with Uchumi pushing listed shares up by 37 per cent following the issue.

The firm has been unveiling more details of its regional expansion plans, which it is financing using proceeds of the Sh896 million rights issue.

“We expect to have 50 branches from the current 37 by December. Most of these are in highly lucrative areas,” said Uchumi CEO Jonathan Ciano earlier this month. The supermarkets chain opened eight branches across the region last year.