Bullish bourse pushes brokers back to profit

A Nairobi Securities Exchange (NSE) staff monitors electronic trade. FILE PHOTO | NMG  

By GEOFFREY IRUNGU

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Summary

• Just published annual results show that half the market intermediaries made profits riding on the wave of recovery
• Share prices rose by an average of 28 per cent in the year to December 2017, leaving the market intermediaries with a combined net profit of Sh36.14 million compared to a total net loss of Sh30.32 million the previous year.
• Actual performance at company level was, however, modest at between net profits of Sh236.27 million and a loss of Sh145.72 million.

A general rise in stock prices at the Nairobi Securities Exchange (NSE)

helped move stock brokers and investment banks back to profitability in 2017, according to newly released results.

Share prices rose by an average of 28 per cent in the year to December 2017, leaving the market intermediaries with a combined net profit of Sh36.14 million compared to a total net loss of Sh30.32 million the previous year.

Actual performance at company level was, however, modest at between net profits of Sh236.27 million and a loss of Sh145.72 million.

Eleven out of the 18 companies had made a loss in 2016, a number that fell to nine or half of the firms in 2017, underlining the extent to which the rising tide in the bull market helped lift their earnings.

Kenya’s intermediaries market has 23 operating brokers and investment banks but five have yet to release 2017 results. Industry insiders attribute the improvement in the market’s performance to foreign investor activity that accounted for more than half the turnover.

READ: Bank stocks biggest NSE gainers in March

Panic selling

“There was depressed activity in the first quarter of the year but the second and third quarters saw panic selling and buying which increased turnover. In between the elections in the fourth quarter, there was panic as well as speculative buying and selling,” said Willie Njoroge, the chief executive of the Kenya Association of Stockbrokers and Investment Banks (KASIB), the industry lobby.

The brokers and investment banks also shed staff and reduced office space to cut costs in the wake of heavy loss-making in 2016.

Mr Njoroge said the fall of interest rates in 2017 after the rate capping also pushed investors into the equities market thereby increasing brokers’ commissions and fees that are higher than what they get in the fixed-income market.

Depreciation of the Kenyan shilling also contributed to increased income for the intermediaries as it bought the foreigners more shares for every dollar invested.

Most counters do make capital gains as the foreigners exit.

READ: Safaricom rally lifts NSE to Sh2.83trn all-time high

Other market insiders, while acknowledging that the brokers’ and investment banks’ fortunes had improved, said the market is still operating below potential, mainly because the majority of local investors are holding on to their shares rather than trade, leaving foreigners to dominate.

“The market is driven by foreign investors who trade more often. They buy and then sell when the opportunity arises, but local investors are still holding on to their shares and bonds,” said Job Kihumba, the executive director at Standard Investment Bank, adding that return on investment remains low in the industry despite the return to profitability.

Minimum expenses

Newly published financial reports showed that the 18 institutions who have reported for 2017 grew their total income even as they kept expenses at a minimum.

Total expenses stood at Sh2.64 billion in 2017 against Sh2.36 billion the previous year or an 11.95 per cent growth. Total income grew by 14.73 per cent to Sh2.81 billion — an indication that income rose by a bigger margin than the expenses, lifting the intermediaries back to profitability.

The NSE all-share index, representing the entire equities market, rose by 28.4 per cent in the year while the blue chips 20-share index was up by 16.3 per cent, pointing to a general improvement of activity at the bourse.

Turnover increased 14.65 per cent in dollar terms in a year when the rise in stock prices in Kenya stood above those of competing frontier markets such as Egypt, Nigeria and Zambia.

READ: NSE reports 17.6pc rise in after tax profit to Sh216m

Renaissance Capital made the biggest jump in net profit to close at Sh236.27 million last year compared to Sh121 million the year before — representing a 95 per cent growth.

Brokerage commissions, at Sh386.4 million, was the major driver of the company’s profitability compared to Sh274.6 million the year before — a 40.7 per cent increase.
ApexAfrica cut its loss by nearly three-quarters to Sh11.75 million following a 20.3 per cent growth in its income for the year and a major fall in its expenses.

Genghis Capital made the biggest loss out of the 13 companies. Its net loss widened to Sh145.7 million compared to Sh136.47 million made the previous year.