Hold Total, sell Equity or hold it long-term

The Nairobi Securities Exchange. Over the past one year, Total has touched a low of Sh22 per share and climbed to a high of Sh32 per share during a bull run in the last quarter of 2014. The counter has 298.54 shares at the NSE with a par value of 5. PHOTO | FILE  NATION MEDIA GROUP

In Summary

• According to the financial report, the company’s earnings were injured by low global oil prices. However, Total is still ahead of its biggest rival KenolKobil, which has a market share of 11.3per cent.
• Equity Bank stock is not for the faint-hearted. On one hand, it is a hold or buy for long-term investors. On the other, it is a sell for investors who took position at a lower price compared to its current market price of Sh50 per share.
• According to Citibank, the stock’s current fundamentals do not justify its current price of around Sh50 per share. The return on equity that measures profitability will fall by 3.9 per cent from the current 29.7 per cent.

By SIMON MBURU
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Total: On Tuesday last week, Total announced a profit after tax increase of 8.4 per cent to Sh1.42 billion for the year ended December 2014.

Total attributed the growth to increased sales and slower growth in operating costs, which rose by 5.3 per cent to Sh4.55 billion.

The oil marketer’s turnover jumped by Sh13.38 billion to Sh155.10 billion. Subsequently, Total recommended a dividend payout of Sh0.70 per share. This was Sh0.10 increase from the payout done in its previous financial year.

However, Total has seen its market share drop to 17.5 per cent as of September 2014. Despite this growth, the market was not impressed. On Thursday, the counter closed the week 7.62 per cent lower at Sh24.25 per cent from a 5,900 traded volume. This was a Sh2 drop from Wednesday’s Sh26.25 per share closing price.

According to the financial report, the company’s earnings were injured by low global oil prices. However, Total is still ahead of its biggest rival KenolKobil, which has a market share of 11.3per cent.

FALLING CASH FLOWS

Further, says Eric Munywoki, an investment analyst at Old Mutual Securities, Total is also having problems with cash flow, working capital, creditors and debtors and stock management.

“This is not good for the company. It means that for the stock to fully pick up, the company will need to resuscitate the falling cash flows,” he says, adding that Total is solely a long-term buy or hold. “Nonetheless, the open tendering system holds immense potential for Total to grow, and if the management is able to tap into similar growth opportunities, the company’s increasing revenues will reflect in a rising share,” he says.

Over the past one year, Total has touched a low of Sh22 per share and climbed to a high of Sh32 per share during a bull run in the last quarter of 2014. The counter has 298.54 shares at the NSE with a par value of 5.

Equity Bank: This stock is not for the faint-hearted. On one hand, it is a hold or buy for long-term investors. On the other, it is a sell for investors who took position at a lower price compared to its current market price of Sh50 per share. Last week, a report by Citibank Global Markets recommended a sell for Equity Bank. The analysts further saw Equity Bank as a high risk counter.

“We rate Equity Bank as a ‘sell/high risk’ counter based on valuation. Although the story has many positive aspects, we believe the current stock price can be justified only with heroic and unrealistic assumptions,” said Citibank.

Apparently, according to Citibank, the stock’s current fundamentals do not justify its current price of around Sh50 per share.

According to Ndindi Nyoro, the head of Investax Capital, Equity Bank has the potential for a long-term investors who may be looking to invest their money for a couple of years.

“This is a stock solely for long-term investors who have the patience to withstand the time it will take to get value for their money,” he says.

FUTURE SUCCESS

Mr Munywoki concurs, adding that the future success of the stock is destined to rely greatly on the success of the new Pan-African growth format Equity Bank is seeking.

According to Citibank, the return on equity that measures profitability will fall by 3.9 per cent from the current 29.7 per cent. In the same vein, Equity Bank will be seeking to issue an additional 411 million shares in a bid to raise Sh20 billion capital for new acquisitions.

This, according to Mr Nyoro, will create a dilution effect, further punishing the share price. Currently, the counter has 3.7 billion shares.

Mr Nyoro adds that investors may wish to see all the strategies and diversification products Equity has announced coming of age.

“The market is yet to see the effect of the multiple products the bank has announced, which has been stagnating the share at the Sh49 to Sh52 range,” he notes.

The stock ended the week at Sh51 per share from a 1.55 million traded volume. This was a drop of 1.92 per cent from Wednesday’s closing price of Sh52 per share.