Centum Group CEO James Mworia. PHOTO | COURTESY
The EastAfrican’s special correspondent Julians Amboko spoke to Centum Group CEO James Mworia on the NSE-listed firm’s performance
Centum
Investment Plc this week announced a more than three-fold net profit
increase to Ksh6.79 billion ($67.9m) for the six months ended September
30. The profit growth was mainly driven by a Ksh12 billion ($120m) net
gain from the sale of Centum’s shares in three beverage firms — Almasi
Ltd, Nairobi Bottlers Ltd and King Beverages Ltd.
For
many investors, one of Centum’s key value propositions has always been
its diversified portfolio. Do the Almasi and King Beverages exits erode
Centum’s diversification and raise the risk of concentration?
It
is important that Centum’s business model be understood. Our value
proposition is to identify assets where there is opportunity for us to
create value, exceeds what the market growth is and have a very clear
value creation strategy from the outset.
Validation
of this strategy thus far has been Centum’s ability to make exits at
values that give us an uplift desirable for investors. That is Centum’s
business model and what we have done with companies like Carbacid and
Almasi.
The
Almasi exit certainly stands out, having taken three and-a-half years
to conclude. Why exit given the appetite we see from investors for
deploying capital in the FMCG space?
Our
investment in Almasi was informed after indications that there was
opportunity for us to unlock value not just through market growth but
also through improved efficiency and enhanced capital expenditure, which
boosts production capacity.
We
entered Almasi with a five-year plan starting 2012 and by 2017, we had
maxed out all our opportunities for value creation and so we began this
conversation of the exit with the eventual buyer in August 2016.
Executing such deals can take some time, so this is not unusual.
The
company is now on the Centum 4.0 strategy, which is anchored on
strengthening the balance sheet and raising liquidity available. What
sort of entities are you looking at acquiring given the focus on private
equity?
Today we have a
private equity portfolio with assets of about Ksh8 billion ($80m) and
cash of Ksh8 billion ($80m), which has been ring-fenced for use in
private equity. This should enable us go through another cycle of
investments.
We are eyeing a number
of opportunities and I am excited for our private equity business to
have liquidity in an environment where a number of companies leveraged
up their balance sheet and built up capacity for which they now do not
have throughput and face working capital constraints. The kind of
discussions we are having right now are about equity investment into
such companies.
Private
Equity funds in this market would argue that one challenge associated
with amassing such capital is lack of a pipeline of investible
businesses. Does this bother you?
Our
strategy is unique. Many investors prefer to enter such transactions by
taking a minority stake and back the major shareholder. At Centum, we
tend to take majority positions. So today, we have a very strong
pipeline and these are largely proprietary opportunities so we are not
in competition with other parties. Centum looks for companies that have
strong market potential, a competitive advantage and where it can secure
a controlling stake.
Do
you think the repeal of the cap on lending rates could play to your
advantage or disadvantage as far as the search for capital by companies
is concerned?
If you
consider the removal of the cap for companies taking on new debt, once
risk is totally priced in it might end up being more expensive (for them
to borrow). This means that the pressure on businesses to re-examine
their capital structure and potentially bring in equity is likely to
increase.
The Centum share closed Wednesday, November 27, at Ksh29.75 ($0.29). Is the share undervalued?
I
think the share is significantly undervalued and I do not know the
reasons but I think for a long time the market has not been sure as to
how Centum would go about monetising its real estate portfolio.
Probably
when investors look at the market conditions as they are, they imagine
that the pace of this monetisation will be a lot slower. What I hope
that our half-year 2019/20 results demonstrate is the ability to
monetise this portfolio. For example, out of 1,300 units under
development, we have managed to sell 800.
Once this appreciation filters in, we might begin to see a convergence between the price and Net Asset Value.
***
BIOJames Mwirigi Mworia, 41, is a Kenyan lawyer, accountant, and business executive. He is the managing director and the chief executive officer of Centum Investments. In September 2016, he was named highest-paid executive among the five largest corporations in Kenya, with an annual compensation package Ksh201.1 million ($2 million).Education:2016: Machakos University, Doctor of Business (Honoris Causa), Business.1997 — 2001: LLB, University of Nairobi.1996 — 1998: Strathmore University, CPA (K), Accounting and FinanceWork history:October 2016: Chancellor, Machakos UniversityJanuary 2016: Chairman, Almasi Beverages LimitedJune 2015: Director, Nairobi Stock ExchangeDec 2014: Chairman, Sidian Bank2008: CEO and managing director at Centum.2006: TransCentury Investments as head of investments.2005-6: Chief investment officer at Centum Investments2002-7: Lecturer at Strathmore University (CFA and ACCA lecturer)2001: Filing clerk at Centum Investments.Honours and AwardsOct 2011: Africa Young Business Leader of the Year 2011, All Africa Business Leader Awards (AABLA)Sept 2012: Tutu Fellow 2012, African Leadership Institute in conjunction with Said Business School University of OxfordJune 2015: East African Business Leader of the Year Award, AABLA
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