It’s tough year as NSE stares at profit drop
It has been a tough year for the Nairobi Securities Exchange (NSE) culminating in the self-listed firm announcing that it expects its profit for the year ending December 31, to be at least 25 per cent lower than last year’s.
In 2018, the Nairobi bourse posted Sh190 million net profit, 12 per cent lower than the Sh216 million profit it announced the previous year.
The law requires a publicly listed company to issue a profit warning if it expects its profits to be 25 per cent lower than the previous year’s.
Announcing the profit warning on December 13, NSE attributed the poor performance to a difficult first nine months of 2019, which saw NSE 20-share index drop to a 10-year low.
The 20-share index shows the performance of top 20 selected companies at the bourse and is generally used to gauge the health of the stock market.
“The performance of the company in 2019 was adversely affected by a challenging economic environment and reduced inflow of capital from global frontier market investors” the statement read in part.
Credit crunch
It identified some of the factors that affected the exchange’s performance included local credit crunch, uncertainty brought about by Brexit and US-China trade wars which disrupted global investment patterns.
In August, the NSE announced a 81.9 per cent drop in its half-year profits, hitting Sh24 million down from Sh134 million posted same period in 2018. This saw investors at the bourse lose about Sh90 billion in paper wealth as market capitalisation dropped 3.4 per cent to hit Sh2.27 trillion compared to Sh2.36 billion the same period last year.
During the same period, the company announced that its revenues had reduced by 18.1 per cent occasioned by a 28 per cent drop in equity turnover from Sh108.5 billion to Sh78.1 billion.
During the first half of 2019, all the three indices at NSE; All share index, 20-share index and 25-share index (which looks at the top 25 performing firms), dropped, with the 20-share index trading at below 2,600 points, a 10-year low.
The situation at NSE was worsened by local investors being reluctant to participate in the equity market, instead transferring investments to the bond market in a bid to earn more.
A bear run experienced during the year, attributed to weak corporate governance, a tough economy and bad debt management, saw the share price of 17 firms listed at the exchange fall below Sh5 as of August while another five stocks traded below Sh1.
Profit warning
Several NSE-listed companies have issued profit warnings this year including Kenya Power, BOC Kenya, and UAP, signalling a tough business environment.
By the end of quarter three, five blue-chip-stocks (Safaricom Plc, Equity Bank, East Africa Breweries Ltd, KCB and Co-operative Bank) controlled 71.83 market capitalisation making the bourse vulnerable were anything to happen to one of these stocks.
Despite the challenges, NSE has continued to put on a brave face and exude optimism terming the slowdown witnessed in the recent past a normal occurrence.
“NSE is undergoing an occasional five-year slowdown synonymous with most stock exchanges. We expect it to rebound in coming days,” NSE CEO Geoffrey Odundo said in a past interview.
