East Africa’s First
Debut share buyback program by NMG kicked off at the NSE
Welcome to the Baobab Weekly by Mwango Capital, a capital markets newsletter that brings you a succinct summary of key business news items from East Africa.
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This week, we cover activity at the NSE as Nation Media Group’s share buyback program kicks off, the strange happenings around Nairobi Business Venture’s share price and volume, and NSE companies keep issuing rights issues.
Nation Media Group
What happened? Nation Media Group’s share buyback program kicked off on Monday, a first in East Africa. East Africa’s largest media house is looking to buy back 10% of it’s issued shares from the open market at a maximum buyback price of Kshs. 25. The transaction will close on Friday, 24th September 2021 or the earliest of the company acquiring the 20.7 m shares ahead of the deadline.
Boost: The share has gained 44% since the announcement of the buyback program on 29th May 2021. The share was at an all-time low of less than Kshs. 9 last year in August. The share price closed this week at Kshs. 25. It will be pretty interesting to see what happens going forward as the buyback price is capped at this price.
Source: Reuters
In their own words:
“In the past, dividends were the most common form of wealth distribution, however as we become more progressive and flexible, a fundamental shift has occurred in the way companies deploy capital’’
Kiprono Kittony, Nairobi Securities Exchange Chairman
“Through this buyback we believe shareholders will realise value and cash in at a reasonable price”
Wilfred Kiboro, Nation Media Group Chairman
Mwango Capital Explainer:
Share buybacks: A share buyback means that a company intends to buy back some of the outstanding shares originally issued to raise capital. Companies typically perform buybacks when its shares are undervalued. In exchange for giving up ownership in the company and periodic dividends, shareholders are paid the fair market value (buyback price) of the stock at the time of the buyback. Promises to do buybacks are not a commitment and can be withdrawn.
First of many? Jubilee Insurance shareholders during the company’s AGM this week approved amendments to the company’s Articles of Association to enable the insurer buy back its shares. Investment company Centum also amended its clauses to allow share repurchases. It however faced delays owing to finalization of regulations governing share buybacks in Kenya.
Do note: Kenya suspended the law on implementation of share buybacks for listed companies in 2019 after concerns were raised by the Nairobi Securities Exchange and Capital Markets Authority. Share buybacks came back into the fold in 2020 after CMA published guidelines on share repurchases.
More Rights Issues
Shareholders of TPS Eastern Africa (Serena) at their AGM held on Monday, 28th June 2021 approved a resolution to allow the company to issue 200m new ordinary shares through a rights issue. The resolution garnered 120,714,813 votes (97% in favour).
Mwango Capital Explainer:
Rights issue: A rights issue is when a company offers existing shareholders an option to buy additional shares for a reduced price. A company would typically offer a rights issue to raise capital which it could use to clear debt obligations, acquire assets, or facilitate expansion without having to take debt.
Other Players: Crown Paints has disclosed terms for a Kshs. 711 m rights issue with the trading of new shares set to commence on 15th July 2021. The rights issue is aimed at bringing the Group’s indebtedness to a more sustainable level and position the company to gain market share in the East African region. TransCentury shareholders at their AGM have also approved a resolution to issue 2B new ordinary shares.
What this means: NSE is witnessing more activity from rights issues than from IPOs.
Strange NBV Share Price and Volumes
This week, Nairobi Business Ventures announced 4 proposed investments with a combined value of Kshs. 3B (Mwango Capital). The acquisitions are:
100% ownership in Delta Automobile, a leading heavy commercial vehicle maintenance company.
100% ownership in Air Direct, an aviation company set to begin operating soon.
100% ownership in Aviation Management Solution Limited, a company that owns a hangar and a building close to JKIA.
11.33 hectares parcel of land in Machakos County to be used to set up a cement manufacturing facility that will cost Kshs. 15B.
Strangely, the day before and on the day of the announcement, the share price was up ~10% making it the highest mover at the NSE. To compound our unease, a week before this announcement, the counter had an unusual volume of 10 million shares traded (The Trading Room). See the spike in trading volume below:
Source: Reuters
We can only but hope that the regulator took note of this. The latest rise has capped an incredible run of the share in the past few months which has seen it rise 181.54% year to date. We remain unconvinced that this rally is driven by fundamentals.
Source: Reuters
FY 2021 Results Keep Rolling in
FY ended 2021 results continued to stream in this week as agricultural firms Williamson Tea and Kapchorua Tea reported their earnings. Here are highlights of how the two performed:
Williamson Tea:
Revenue up 22.96% to Kshs. 3.7B
Loss of Kshs. 146m [2020: Profit Kshs. 137m]
EPS Kshs. -8.31 [2020: Kshs 7.59]
Dividend of Kshs. 10
Kapchorua Tea:
Revenue up 27.45% to Kshs. 1.4B
Profit down 64% to Kshs. 7m
EPS Kshs. 0.90 [2020: Kshs 2.48]
Dividend of Kshs. 10
Find a link to the results here and here. Another company that reported this week is Centum Real Estate, a 100% owned subsidiary of Centum that has a bond listed at the NSE:
AGM watch: Kapchorua and Williamson Tea join Safaricom as the only three listed companies so far with planned AGMs in July. The two agricultural firms will hold their AGMs on 23rd July 2021.
Further delays: East African Cables and Home Afrika announced further delays in publication of FY 2020 results. The companies’ boards announced that the publication of financial results will take place on 31st July 2021 for Home Afrika and on 31st August for East African Cables. Is this the new norm with firms? A worrying trend for sure.
Fun fact: Safaricom, Williamson Tea, Kapchorua Tea & Centum have their financial years ending March 31st. We expect Centum to report its earnings later this month.
The EAC Budget
What happened? The East African Community this week tabled its FY 2021/2022 budget estimates. The budget totalling $91.8m was tabled before the East African Legislative Assembly (EALA) by Chairperson of the Council of Ministers and Kenya’s Minister for EAC, Hon. Adan Mohamed. The budget was $5.9m less the $97.7m approved by EALA for the financial year.
Of the budget amount, $54.2m (59%) will be contributed equally by partner states or raised as other internal revenues and $37.6 (41%) is expected to be sourced from development partners including the African Development Bank (AfDB), the World Bank, the United States Agency for International Development (USAID), and the European Union (EU).
Hon. Adan said that during the year 2020, exports of goods shrank in all EAC Partner States due to the COVID-19 pandemic. He noted that exports from Kenya and Uganda, contracted by 7.6% and 1.7% respectively, between March to June 2020. During the same period, imports of intermediate goods contracted by 25%, 11.3%, and 22.9% in Kenya, Uganda, and Tanzania respectively.
In their own words:
“The reality is that COVID-19 will be with us for a much longer time than earlier anticipated. The impact of the pandemic on EAC Partner States’ economies has been devastating, to say the least.”
Adan Mohamed, Chairperson of the Council of Ministers
Theme: The budget, themed Economic Recovery through Industrialization and Inclusive Growth, is to allocated to the EAC Organs and Institutions as below:
The EAC Secretariat ($43.9m), EALA ($15.5m), East African Court of Justice ($3.87m), Lake Victoria Basin Commission ($8.2m), East African Science & Technology Commission ($1.6m), East Africa Kiswahili Commission ($1.3m), East Africa Health Research Commission ($1.9m), East African Competition Authority ($1m), Inter University Council for East Africa ($11.2m), and Lake Victoria Fisheries Organization ($3.6m).
President Assents Finance Act 2021
Presidential assent: President Uhuru Kenyatta on Tuesday this week assented to the Finance Act 2021 that introduced various amendments to tax-related acts.
What it means: Some of the notable tax changes include:
Increase in the excise duty charged on internet data services from 15% to 20%.
Excise duty on betting shall be 7.5% of the amount wagered/staked.
Loan related fees and commissions will be subject to excise duty at the rate of 20%.
Products containing nicotine or nicotine substitutes intended for inhalation without combustion or oral application will attract excise duty at the rate of Kshs 1,200 per kg.
16% VAT on LPG was reinstated.
Want to Learn More? Find the Finance Act 2021 here and an exposition by KPMG.
What else happened this week?
Safaricom to retain dividends despite its entry in Ethiopia. The company confirmed that it will maintain a dividend policy of paying out 80% of its net profit (Business Daily).
KRA collected Kshs 1.67T in revenues in FY 2020/21, a 3.9% growth from the Kshs 1.61T collected in FY 2019/20. This was the first time in 8 years that KRA surpassed its revenue target, set at Kshs 1.65T for FY 2020/21. More than 5.5m taxpayers filed their tax returns for the year 2020 (KRA).
Overall inflation edged up in June increasing to 6.3% up from 5.9% in May. This was mainly on account of higher food and fuel prices (CBK).
Tanzania resumes talks on a planned $10B Bagamoyo port project backed by China. The project was suspended in 2016 following a disagreement over terms (The Citizen).
UAP Holdings' shareholders ratified the acquisition of ~217m shares of Old Mutual at Kshs 10 at the AGM last week (Mwango Capital).
The National Treasury is set to introduce a Kshs 50B issuance threshold for local bonds as part of a package tied to the Development Policy Operations financing program backed by The World Bank (Business Daily).
CMA issued the first set of licenses to five coffee brokers to allow them to carry out coffee brokerage services at the Nairobi Coffee Exchange (NCE) with effect from 1 July 2021 (CMA).
Glovo plans to make Kenya its regional hub for Sub-Saharan Africa countries as a customer service center (The Star).
The World Bank to wire Kshs 14B ($130m), under the Kenya COVID-19 Health Emergency Response Project, to Kenya to support the procurement of COVID-19 vaccines (World Bank).
Kenyan supermarkets continue to expand with Kisumu city getting two more outlets soon from Carrefour at United Mall and Mega Plaza. Carrefour is taking over the spaces formerly owned by Tuskys (Mwango Capital).
Ethio Telecom has signed up 4 million Ethiopians for Telebirr, a mobile money service that it launched in May. It targets 21m by the end of year 1 (Mwango Capital).
Family Bank to expand its branch network from the current 92 outlets using proceeds of its recent successful bond issuance. The bank targets to have a presence in every county (Business Daily).
China freezes disbursements of active loans to Kenyan projects. Chinese lenders, especially Exim Bank, are uncomfortable with the terms of the request for extension of the debt service suspension beyond June (Kenyan Wall Street).
