MWORIA: How Centum business model assures company of market-beating returns

Sunday December 1 2019

Centum Group CEO James Mworia.

Centum Group CEO James Mworia. PHOTO | COURTESY 

JULIANS AMBOKO
By JULIANS AMBOKO
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The EastAfrican’s special correspondent Julians Amboko spoke to Centum Group CEO James Mworia on the NSE-listed firm’s performance

Centum Investment Plc this week announced a more than three-fold net profit increase to Ksh6.79 billion ($67.9m) for the six months ended September 30. The profit growth was mainly driven by a Ksh12 billion ($120m) net gain from the sale of Centum’s shares in three beverage firms — Almasi Ltd, Nairobi Bottlers Ltd and King Beverages Ltd.

 

For many investors, one of Centum’s key value propositions has always been its diversified portfolio. Do the Almasi and King Beverages exits erode Centum’s diversification and raise the risk of concentration?

It is important that Centum’s business model be understood. Our value proposition is to identify assets where there is opportunity for us to create value, exceeds what the market growth is and have a very clear value creation strategy from the outset.

Validation of this strategy thus far has been Centum’s ability to make exits at values that give us an uplift desirable for investors. That is Centum’s business model and what we have done with companies like Carbacid and Almasi.

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The Almasi exit certainly stands out, having taken three and-a-half years to conclude. Why exit given the appetite we see from investors for deploying capital in the FMCG space?

Our investment in Almasi was informed after indications that there was opportunity for us to unlock value not just through market growth but also through improved efficiency and enhanced capital expenditure, which boosts production capacity.

We entered Almasi with a five-year plan starting 2012 and by 2017, we had maxed out all our opportunities for value creation and so we began this conversation of the exit with the eventual buyer in August 2016. Executing such deals can take some time, so this is not unusual.

 

The company is now on the Centum 4.0 strategy, which is anchored on strengthening the balance sheet and raising liquidity available. What sort of entities are you looking at acquiring given the focus on private equity?

Today we have a private equity portfolio with assets of about Ksh8 billion ($80m) and cash of Ksh8 billion ($80m), which has been ring-fenced for use in private equity. This should enable us go through another cycle of investments.

We are eyeing a number of opportunities and I am excited for our private equity business to have liquidity in an environment where a number of companies leveraged up their balance sheet and built up capacity for which they now do not have throughput and face working capital constraints. The kind of discussions we are having right now are about equity investment into such companies.

 

Private Equity funds in this market would argue that one challenge associated with amassing such capital is lack of a pipeline of investible businesses. Does this bother you?

Our strategy is unique. Many investors prefer to enter such transactions by taking a minority stake and back the major shareholder. At Centum, we tend to take majority positions. So today, we have a very strong pipeline and these are largely proprietary opportunities so we are not in competition with other parties. Centum looks for companies that have strong market potential, a competitive advantage and where it can secure a controlling stake.

 

Do you think the repeal of the cap on lending rates could play to your advantage or disadvantage as far as the search for capital by companies is concerned?

If you consider the removal of the cap for companies taking on new debt, once risk is totally priced in it might end up being more expensive (for them to borrow). This means that the pressure on businesses to re-examine their capital structure and potentially bring in equity is likely to increase.

 

The Centum share closed Wednesday, November 27, at Ksh29.75 ($0.29). Is the share undervalued?

I think the share is significantly undervalued and I do not know the reasons but I think for a long time the market has not been sure as to how Centum would go about monetising its real estate portfolio.

Probably when investors look at the market conditions as they are, they imagine that the pace of this monetisation will be a lot slower. What I hope that our half-year 2019/20 results demonstrate is the ability to monetise this portfolio. For example, out of 1,300 units under development, we have managed to sell 800.

Once this appreciation filters in, we might begin to see a convergence between the price and Net Asset Value.

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BIO

James Mwirigi Mworia, 41, is a Kenyan lawyer, accountant, and business executive. He is the managing director and the chief executive officer of Centum Investments. In September 2016, he was named highest-paid executive among the five largest corporations in Kenya, with an annual compensation package Ksh201.1 million ($2 million).

Education:

2016: Machakos University, Doctor of Business (Honoris Causa), Business.

1997 — 2001: LLB, University of Nairobi.

1996 — 1998: Strathmore University, CPA (K), Accounting and Finance

Work history:

October 2016: Chancellor, Machakos University

January 2016: Chairman, Almasi Beverages Limited

June 2015: Director, Nairobi Stock Exchange

Dec 2014: Chairman, Sidian Bank

2008: CEO and managing director at Centum.

2006: TransCentury Investments as head of investments.

2005-6: Chief investment officer at Centum Investments

2002-7: Lecturer at Strathmore University (CFA and ACCA lecturer)

2001: Filing clerk at Centum Investments.

Honours and Awards

Oct 2011: Africa Young Business Leader of the Year 2011, All Africa Business Leader Awards (AABLA)

Sept 2012: Tutu Fellow 2012, African Leadership Institute in conjunction with Said Business School University of Oxford

June 2015: East African Business Leader of the Year Award, AABLA

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