A majority of listed companies, which have announced profit warnings have seen their share prices fall by a deeper margin compared to peers in their respective market segments, reflecting deepening appreciation for company fundamentals among local investors.
Eleven firms have issued the alerts since March this year, attributed to a tough operating environment including higher cost of doing business due to taxation and inflation among other reasons.
Shares of seven of these companies —Crown Paints, WPP ScanGroup, Longhorn Publishers, Sasini, Car & General, Unga Group and Kenya Power– have fallen by between 4.8 percent and 50.1 percent in the year to date.
According to analysts, there has been some downside due to the negative implications of a profit warning on potential dividends, but investors have not fully priced this in due to local investors tending to disregard fundamentals and trading on speculative basis.
Foreign and institutional investors, who mainly trade on large blue chips, are likely to concentrate on a company’s fundamentals and dividend record before pumping in their money, and also tend to take a long-term view of stocks.
“On the small cap counters, the majority of the actively trading investors are not sophisticated and are unlikely to fully price in the price warnings,” said Wesley Manambo, an analyst at Standard Investment Bank.
“For the larger firms, however, you expect the price gradient to be on the downside due to investor sentiments being attuned towards a negative impact on the company’s performance from the macroeconomic environment.”
In the agriculture segment, Sasini, which issued its profit warning in November, has seen its share price fall by 9.5 percent this year, similar to Limuru Tea. The other four stocks in the segment are in the black.
For WPP ScanGroup and Longhorn, their share price declines of 29 percent and 22 percent respectively place them only behind Nairobi Business Ventures (-48.7 percent) in the segment, while Crown Paints has the biggest decline among construction firms at 5.3 percent.
Unga, meanwhile has seen the biggest year-to-date share price decline among manufacturing firms at 45.3 percent.
The capital losses seen in the market this year —including on some profitable firms— have pushed investors towards the fixed income market, where interest returns have gone up in recent months.
The latest infrastructure bond, sold last month, for instance, paid investors an interest free rate of 17.9 percent, a level that is well above any dividend yield currently on offer in the NSE.
The initial sale of the IFB, which targeted Sh50 billion closed on November 8, raising Sh67.06 billion against a target of Sh88.9 billion. Its tap sale has subsequently raised Sh47.8 billion.