Why Centum is a long-term buy

Centum’s chief executive officer James Mworia. PHOTO/FILE

What you need to know:

  • Additionally, according to Robert Ochieng’ a research analyst at Relic Capital Limited, in the 2015 financial year, Centum exited insurance brokerage firm AON in line with strategic focus on development and scale of investments.

Centum: Less than a fortnight ago, Centum Investments announced a net profit of Sh9.9 billion for the full year 2015. This was a 25.3 per cent growth from the Sh7.9 billion in the 2014 financial year.

This growth was reflected in a 12.4 per cent growth in core earnings per share (EPS) from Sh10.45 to Sh11.75. In the same vein, over the past eight years, Centum’s net asset value per share has grown to Sh59.08 from Sh8.86, representing a growth of over 560 per cent. During the 2015 financial year, Centum shareholders’ funds increased by 12.2 per cent to Sh43.3 billion from Sh38.6 billion.

Additionally, Centum recorded a 106 per cent growth in consolidated revenues of Sh24.2 billion compared to Sh11.8 billion. The financial results were released shortly after Centum raised its stake in fellow listed firm Longhorn Publishers to 60 per cent from 31.25 per cent.

This followed a Sh390 million investment in Longhorn’s rights issue. Centum now holds 164,014,078 ordinary Longhorn shares. Longhorn is currently expected to announce profits for its full year after recording a 70 per cent jump to Sh67.8 million for its six months ended December 2015.

Its other major acquisition in the financial sector is Sidian bank, formerly K-Rep Bank, in which centum holds a 67.54 per cent stake. The bank recorded a 25 per cent drop in its 2015 full year profit.

In its first quarter of 2016, Centum’s Sidian bank posted a net profit of Sh103.3 million.

Currently, Centum’s total assets stand at Sh78.1 billion following a growth of 8 per cent while investments made in its subsidiaries stand at Sh25.4 billion which is a jump of 77.3 per cent from Sh14.3 billion.

According to the Centum 3.0 investment strategy, the firm has invested Sh19.7 billion in real estate including Two Rivers and Vipingo Estate, Sh13.3 billion in financial services including Sidian bank and Platinum Credit, Sh3.1 billion in energy including Akiira Geothermal and Amu Power, Sh118 million in agribusiness, Sh3 billion in marketable securities, Sh9.2 billion in Fast Moving Consumer Goods (FMCG) including KWAL and Almasi, and Sh3.2 billion in general investments including Longhorn and General Motors.

According to a market report by Cytonn Investments, Centum currently holds an upward potential of up to 24.5 per cent and a dividend yield of 2.1 per cent. Cytonn recommends that investors should buy the stock with a target price of Sh57.2 per share.

Dynamic portfolio approach

“We expect Centum to register faster growth in income with the realization of gains across its real estate portfolio, tactical reallocation of portfolio to cash and fixed income securities as it exhibits a dynamic portfolio approach,” says the report.

Centum’s Two Rivers Development project is set to be completed within the company’s full year 2017. The reallocation of Centum’s portfolio to cash is evident in the 43 per cent growth in 2016 compared from 10 per cent in 2015.

Additionally, according to Robert Ochieng’ a research analyst at Relic Capital Limited, in the 2015 financial year, Centum exited insurance brokerage firm AON in line with strategic focus on development and scale of investments.

This saw Centum pocket Sh1 billion from the sale of a 21.5 per cent stake. Together with disposal of quoted and unquoted investments, this exit resulted in a Sh5.4 billion realized gain that drove the 12.4 per cent growth in EPS. Currently, Centum is setting up a leasing subsidiary dubbed Zohari.

While Centum is good buy for the long-term investors, Mr Ochieng’ observes that prospective investors will do well to pause before buying. “This stock is a buy. Nonetheless, investors should wait for the euphoria around the profit results and the dividend pay to cool down before jumping in,” he says.

Notably, this was the first time that Centum was paying dividend in eight years. On Friday, Centum opened at the securities market at Sh49 per share from Thursday’s closing price of Sh48.50 per share.

It quickly dipped to an average of Sh47.25 from a day’s low of Sh46.50 per share towards the end of the day’s trading session. Over the past one year, Centum has touched a high of Sh66.50 per share and nose-dived to a low of Sh38.75 per share.

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