Smoking out profits from BAT shares

Where there is smoke, the cliché goes, there is fire.

For BAT-Kenya shareholders, however, smoke has meant one of the highest returns at the Nairobi Stock Exchange in the past one year, making a mockery of the bourse’s one-year bearish run.

The returns have been two-fold, in price appreciation and dividend pay-out. On January 21, for example, BAT shares were selling at Ksh137 ($1.75), but by June 24, the price had risen to Ksh170 ($2.2), an appreciation of Ksh43 (US 55 cents).

A shareholder who bought into the company on January 21 would, however, have made a bigger killing, given that BAT-Kenya paid a final dividend of Ksh12.50 (US 16 cents) on April 30.

Taken together, the price appreciation and dividend payout mean that the total gain per share for the investor would have been Ksh55.50 (US 71 cents) by last week, equivalent to a 41 per cent gain in investment in just four-and-a-half months. Globally, annual gains of around 10 per cent on capital are considered good.

The gains registered by the BAT stock far outstrip those made by the NSE over the last four weeks, when the bourse registered some recovery pressure.

“The performance of BAT-Kenya over the past few months shows the kind of immense opportunities that exist in a market that has more or less hit the bottom,” said Johnson Nderi, a research and financial analyst at Suntra Investment Bank.

“The trick however is to identify similar investments in a bearish environment.”

Analysts attribute BAT’s bullish nature in a generally bearish environment to several factors, including its generous dividend pay-out and refusal to follow a recent NSE trend to split shares.

The reluctance to share-split however means that at last week’s prices of around $2.2, BAT shares are the most “expensive” at the NSE, followed by East African Business Ltd’s and the Nation Media Group’s, at around $1.8.

“BAT is what is called an income stock, because it pays high dividends and it is easy to dispose off, in the unlikely event an investor wanted to,” said Mr Nderi.

“These kinds of stocks are extremely attractive to fund managers, who ensure constant demand.”

The company’s decision to maintain the number of its issued shares at just 100 million has meant that there is always a healthy demand for the stocks at the bourse. The fact that 60 per cent of the shares are essentially “locked” out of the mart because they are held by Molensteegh Invest BV of the Netherlands for the UK-based parent company has enhanced this situation.

This, analysts say, is in stark contrast to the situation faced by Safaricom, which has 10 billion shares trading at the bourse.

Some critics have said that the “glut” occasioned by a huge number of the mobile phone company’s shares has contributed to their low prices, which by last week stood at around Ksh3.
This is in contrast to their April 2008 initial public offering price of Ksh5.