Cash machines: Star sectors to invest your money

A section of Nairobi Securities Exchange (NSE) trading during Charity Trading Day in Nairobi on November 10, 2017     (David Njaaga, Standard)

Investing should be like watching paint dry or watching grass grow, Paul Samuelson said. For those who want excitement, he advised them to take their money to Las Vegas.

For Kenya, a look at diverse sectors’ performance from as back as 2007 reveals that just a handful have been delivering a return for investors as profits for majority of firms rolled into decline.

The banking and telecommunication sectors have been consistent performers for investors, delivering returns both on the Nairobi Securities Exchange (NSE) and in dividend payments.

For instance, the 11 listed banks, together with Safaricom, commanded 86 per cent of all profits posted by 56 listed companies in 2016. This left 44 companies to share 14 per cent of the profits.

The listed banks are Barclays, Diamond Trust, Equity, Housing Finance, I&M, KCB, National, NIC, Stanbic, Standard Chartered and Co-operative.

GROWING PROFIT

From a combined profit of Sh19 million in 2007, the 11 banks have been growing their profits, the fastest jump being 2010 when profits increased by 67 per cent to Sh45.7 billion.

Profits for most banks jumped by 50 per cent, making it the fastest gain for the sector in the last 10 years.

Despite the fragile business environment in 2007, the listed banks rebounded almost immediately, creating additional Sh5.24 billion as profits surged by 27 per cent the following year.

Since then, combined profitability for the listed lenders jumped by double digits up to 2015. By close of 2016, the profit hit Sh90.2 billion. This was about five times higher than it was in 2007.

This means return on equity, a measure of how much profit a company generates with the money shareholders have invested, has been consistently rising.

Within this period, stocks prices for most of the counters have been increasing, creating additional value for shareholders.

For instance, Cooperative Bank, whose share was valued at Sh9.30 in January 2013, rose to a high of Sh17 by 2016, giving shareholders capital gains. After that, the bear run on the market as well as the rate cap law that saw many bank stocks take a beating, drove it down to Sh9.17.

However, it has rebound to Sh16.50.

Only National Bank (NBK) and Housing Finance (HF) shares are trading at prices lower than those of January 2013. While in 2013, NBK was trading at Sh16.36, it is now valued at Sh9.25. For HF, it has dropped from Sh15.10 to Sh10.5.

Co-operative Bank, alongside Standard Chartered, Stanbic, I&M, Barclays, Equity and Diamond Trust have consistently increased their dividends in the period between 2012 and 2015.

UNREALISED WEALTH

This means that investors who had stakes in the firms have enjoyed a return on their investment both through dividends as well as appreciation in their unrealised wealth on the bourse.

Currently, the banking sector is facing two new headaches - capped interest rates and a new standard of accounting - which have forced lenders back to the drawing board.

In 2015, the listed banks failed to post double digit percentage growth in profits for the first time, only managing 5.41 per cent.

In telecommunication, quarterly reports from Communications Authority of Kenya (CA) have consistently shown an upward trend in the sector’s services such as money transfer, voice calls, short messages and Internet usage.

This has been reflected in the performance of Safaricom. On the NSE, last Tuesday, the mobile phone services provider touched an all-time high of Sh29.50, sending its market capitalisation to Sh1.2 trillion. It was listed on the bourse at a price of Sh5.

At current level, if all its shareholders choose to relinquish their stakes at that price, the money realised will be 83 per cent of what Kenya Revenue Authority aims to collect from the entire economy in the current financial year.

FORTUNES BETTER

Since it started M-Pesa in 2007, Safaricom has seen its fortunes get better as its shares remain in the green at the NSE. From a profit of Sh12 billion in 2007, the company quadrupled this to Sh48.4 billion last year.

It has been increasing the dividends per share to investors, further giving them more value. From Sh0.31 per share in 2013, last year saw shareholders get Sh0.97, up three times after Sh38.8 billion was dedicated to dividends, up from Sh12.4 billion in 2013.

Away from banking and telecommunication, the energy sector has also been a good bet for investors. Since testing losses in 2013, the two listed oil companies, KenolKobil and Total Kenya, have been recording growth in profits consistently.

From a loss of Sh74 million in 2012, KenolKobil posted a profit of Sh558 million as Total moved from a loss of Sh202 million to a net profit of Sh1.3 billion. By close of 2016, they had jumped their earnings further to Sh2.4 billion and Sh2.2 billion respectively.

The two, operating in an environment of reduced global prices and increasing local demand for petroleum products, have had stable performance despite the introduction of controls on oil prices in 2014.

In 2016, KenolKobil was the best performing counter on the NSE, closing trade up 55.2 per cent, against a 21.1 per cent decline in the blue-chip NSE 20.

Other players in the sector, Kenya Power, Umeme and KenGen have also seen their profits grow over time thanks to the Government’s infrastructure drive.  

Selected companies in segments such as agriculture, insurance and manufacturing have also delivered value to shareholders.

However, shareholders of firms such as Marshalls East Africa, Atlas Afrika, Express Kenya, Home Afrika, Eaagads, Kenya Airways, Mumias Sugar, East African Portland Cement and Uchumi have seen their capital returns dim.

They have also gone for at least two years without getting dividends.