HF price doubles as investors bet on a turnaround

HF Group chief executive Robert Kibaara during the launch of a new product in September. PHOTO | SALATON NJAU 

By VICTOR JUMA
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Summary

• The stock has gained rapidly from lows of Sh3.5 recorded on August 16, partly reversing a steady fall from highs of Sh40 in 2014.
• Investors bidding up the stock are betting on some future positive change, which includes an aggressive bid to cut down on bad loans through a massive houses auction.

The share price of mortgage financier HF Group has doubled in six weeks to close at Sh7.04 Monday, marking one of the sharpest short-term rallies on the Nairobi Securities Exchange (NSE) this year.

The stock has gained rapidly from lows of Sh3.5 recorded on August 16, partly reversing a steady fall from highs of Sh40 in 2014.

The price gains came despite the company remaining in losses and its balance sheet shrinking, indicating that investors bidding up the stock are betting on some future positive change, which includes an aggressive bid to cut down on bad loans through a massive houses auction.

"The rally is not too surprising given that the stock has been trading at significant discount to book value. the lender's new management and change of strategy to focus on retail banking is also a positive move," said Standard Investment Bank analyst Martin Kirimi.

The company made a net loss of Sh97 million in the six months ended June, reversing a net profit of Sh6.8 million the year before. Lower interest income contributed to the loss in the review period.

HF has continued to restructure its debt and made management changes recently. It also stepped up its property sales to unlock capital.

The company earlier this year appointed Robert Kibaara as its new chief executive to replace Frank Ireri who stepped down after holding the position for years.

HF will this month retire its outstanding Sh2.9 billion bond on which it has been incurring interest expense at the rate of 13 percent. It was not immediately clear whether it will fund the bond redemption from a new debt facility.

The mortgage financier has also made aggressive efforts to sell its properties which in previous years helped to boost its earnings from capital gains.

HF has offered discounts of up to 30 percent on hundreds of houses to attract buyers in a market that has slowed down amid reduced lending to the private sector by banks. HF’s recent move to create new 500 million authorised shares has also raised the prospect of raising new capital from a rights issue or a strategic investor.