6 October 2010

Kenya: Centum's New Shares Begin Trading

New shares of listed equity investor Centum started trading on Tuesday, offering shareholders a chance to realise some value on their investments after the firm adopted a no dividends policy two years ago.

The listing of the 55 million shares follows the approval of a bonus of one share for every ten held as the company moves to build its capital base without being distracted by dividend pay-outs until 2014.

"We opted to pursue a no - dividend policy so that we would retain as much funds as possible to fuel growth by taking advantage of the numerous investment opportunities available locally and in the regional markets," said Centum chief executive James Mworia.

The commencement of trade on the additional shares would enable the shareholders define their own dividend policy by either selling the shares or choosing to hold them.

Centum embarked on a capital build up strategy by suspending dividend payout, at least till 2014, since retained earnings formed the cheapest source of capital at the company's disposal.

Bonus shares

Through the bonus shares, the company would sooth away investors' thirst for a tangible return if they elect to sell the additional shares without cutting back on the number of shares owned though this will reduce the eventual stake owned in the company.

The company has undertaken to spruce up its capital base in readiness for new investments in the real estate sector, and has since raised Sh2 billion from a syndicated loan that it is yet to use.

Already, the company has identified two mega-housing projects that it seeks to invest in as it eyes a Sh2.5 billion holding out of the almost Sh10 billion its assets are currently worth.

A rally in the stock market last year and a stellar performance on its investments in private equity more than doubled the company's net earnings for the period ending March 2010, to Sh1.1 billion from the Sh476 million reported last year.

Centum however prefers the net asset value per share approach as a measure for its performance, which rose to Sh16.50 up from Sh10.70 last year, in line with global benchmarks for investment companies.

Analysts point out the high profitability last year and the full dividend retention policy as the main drivers for the company's share performance at the Nairobi Stock Exchange making it among the top five stocks in capital gains since the beginning of the year.

"The stock's price rally is a factor of the investment strategy that the company has assumed which has enabled it to generate high returns," said Robert Munuku, an investment analyst at Drummond Investment Bank.

The stock opened trade at the beginning of the year at Sh11.30 rising to the Sh25 that it opened yesterday's trade at, analysts do not expect much price dilution because the information on the bonus issue has been factored in by the market.

Shareholders' approval for the stock to cross-list at the Uganda Stock Exchange is expected to offer a new impetus for price appreciation because of the exposure to a wider investor spectrum.

Mr Munuku says that the USE is thirsty for new listings looking at the limited number of listed companies and Centum's entry is likely to catapult its share price.

"The Uganda bourse is thirsty for new listings which should translate to high demand for its shares when they are cross-listed," said Mr Munuku.

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