Kenyan Stock Exchange
Seven years after small and medium investors lost money in the Safaricom Initial Public Offer (IPO), stocks buying appear to have largely been left to the big-time investors, banks, and fund managers, who have been smiling all the way to the bank. Last year alone the latter reaped over 85 percent of total dividend wealth at the Nairobi Securities Exchange (NSE).
Yet it is still possible for small investors to make money in the stock market. But you will need enough information in order to make the choice of stocks you should invest in. Experts say those who have lost money in investment schemes have done so because they may not have enough information on the investment opportunity they are getting into. Below we pick five top stocks at the NSE and explain why it might be prudent for small and medium investors to put their bets on them. So, which are the top five stocks to watch at he bourse, and why?
Nairobi Securities Exchange Ltd
Buying shares in the NSE, which is itself a company, could be a worthwhile investment for a number of reasons. First, it has just opened an Initial Public Offer (IPO). Irrespective of what transpired in Safaricom, IPOs are an opportunity for investors whose goal is to use stocks for trading.
In the case of NSE, the opportunity is even bigger given the fact that the shares on offer are just 66 million. Coupled with the fact that institutions such as banks, fund managers and insurers will be seeking to have a good portion of the shares, NSE share is likely to be scarce in the market, a factor that could rapidly push its value upwards from the IPO price of Sh9.50.
NSE is also ranked as one of the top performing bourses in the world. That alone could see a lot of interest from foreign investors, another factor that could hugely add worth to NSE shares. Already, foreign investors are the biggest movers of the business at the NSE controlling accounting for between 51 and 66 per cent of activity at the Nairobi bourse.
Centum is the only listed company whose policy is not to dish out dividends to shareholders. The firm’s philosophy is to reinvest all the profits. Shareholders derive profits by harvesting capital gains in their shares.
This means that it is the only company where an investor is assured of regular bonus shares which add to his wealth in the company. Like other stocks analysed here, Centum share price has grown by more than 100 per cent in the last 12 months. The company has a diversified investment portfolio in high-growth sectors, ranging from listed and unlisted firm as well as property investments.
Many retail investors would not touch Safaricom with a 10 foot pole. Yet the only technology firm listed in NSE is likely to surprise market analysts for a number of reasons. First, Safaricom has continued to be the biggest attraction for foreign investors who buy the stock for long-term keeping. It is these foreign investors who have pushed the stock’s price from the post IPO low of Sh2.50 to Sh12.00 as at close of business on Thursday. The stock’s current price has almost doubled from last year.
That Safaricom has secured a lucrative contract from the government on installation of security facilities could push the company share value further upwards.
Pan Africa Life, Jubilee, Britam
After the banking stocks, insurance shares have also proved to be rewarding to investors. In fact, in the last 12 months, the share prices of these three insurers have more than doubled. In other words, had you invested Sh100,000 in either of the three firms firms last year, your investment could have increased by another Sh100,000 today.
Experts predict that Kenya’s insurance industry is going to experience phenomenal expansion in the next five years. Besides the expected growth in business, the three firms also have diversified investments in banking, property, and fund management which ensure their revenues do not just come from insurance underwriting. The three have also been the destination of the foreign investors targeting insurance stocks in Kenya.
Small-time investors lost money twice in the Safaricom Initial Public Offer (IPO) in 2006. They lost money when banks and stockbrokers messed up refunds for oversubscription of shares for which investors are yet to recover Sh120 million in refunds.
They lost again when, in a hurry to pay loans advanced by banks for the acquisition of shares, they dumped their shares in the market, sending the price of the stock tumbling from Sh5.00 to the Sh2.50. But the biggest losses have been in the informal investment schemes such as ponzi and pyramid schemes. To date, official records show that 148,784 Kenyan investors have lost Sh10 billion in pyramid schemes.
Diamond Trust Bank, CFC Stanbic Bank, HFCK, and Equity Bank
Bank stocks have offered better returns for investors on a consistent basis for the last five years. However, among the 10 listed banks, these five stocks have been the star performers in terms of growing investors wealth.
The stock prices have grown by between 30 and 100 percent in just one year. In other words, these stocks have increased in value by at least a third of its price last year.
Given its past performance in the last two years, Diamond Trust Bank (DTB) is likely to continue ranking as the highest performer in the category this year, more so given the response its issue of additional shares through a right issue has received. Traditionally, because of their discounted prices rights issues depress the price of a stock.
However, in the case of DTB, the stock has continued on an upward trend surpassing the right issue discounted price of Sh165 to Sh243 by close of business of on Thursday. Yesterday was the closing day for the rights issue.