WATCHOUT: NSE Bull run to resume in 2007

The Nairobi Stock Exchange will close one of its most successful years on a slowed-down note, but analysts say that the bull run that saw the bourse break several records will return in the early months of 2007.
Activity next year is expected to centre on several initial public offers (IPOs) as well as the expected good returns of already listed companies piggyback-riding on an above 6 per cent economic growth rate.
Stockbrokers attribute the cyclic slowdown at the end of each year to the financial demands of the holiday season and the beginning of the school year in January.
“The NSE boom is expected to proceed in the foreseeable future,” Polycarp Ngoje, head of research at Suntra Investment Bank told The EastAfrican. “The only turbulence is likely to come from the increased political activity accompanying the 2007 general election, but serious investors will ride this out given Kenya’s traditional stability.”
According to Mr Ngoje, the effects of raised political temperatures in 2007 is also likely to be watered down by the stabilising effects of retirement benefit schemes and retail investors flush with liquidity. Foreign investors have routinely off-loaded their stakes ahead of general elections.
In 2006, the NSE notched several firsts, including commencement of the electronic trading system (ETS) in September.
A month later, in late October, the daily turnover at the market hit the Ksh1 billion ($14 million) mark, cementing the bourse’s position as sub-Saharan Africa’s third largest stockmarket after the Johannesburg Stock Exchange and the Nigerian bourse. The latter routinely records a turnover of around $20 million.
Over the year, the NSE Index also rose by nearly 2,000 points, from just under 4,000 points to nearly 6,000, while market capitalisation shot up from Ksh462 billion ($6.3 billion) in early January to Ksh770 billion ($10.8 billion) in mid-December.
The NSE’s fortunes this year are perhaps best illustrated by the dramatically successful listing of battery maker Eveready, which is expected to commence trading at the bourse this week.
Despite some concerns about the company’s business outlook, 63 million shares on offer representing 30 per cent of equity were oversubscribed by about 800 per cent, the highest ever oversubscription in the history of the stockmarket in Kenya.
On Thursday, the bourse also saw the close of the sale of 92 million Mumias Sugar Company shares by the government, which brokers say will be fully taken up despite an initially slow uptake by retail investors.
According to financial experts, the bullish trend at the NSE has much to do with Kenya’s resurgent economy, as well as increased public awareness of the opportunities there. Many Kenyans have traditionally invested in real estate and rural farms, but this is gradually changing, analysts say.
“The funds being invested on the stockmarket are a product of improved surplus incomes and prospects of further economic recovery,” NSE chairman Jimnah Mbaru said recently. “Investors have also been attracted by the substantial profit growth of the companies listed on the exchange.”
In 2007, the most eagerly awaited privatisation will be that of mobile phone provider Safaricom, which bagged the first position in the telecommunications and ICT sector in the recently concluded East Africa’s Most Respected Companies Survey.
With a client base in excess of 5 million and profits in excess of $166 million in 2005, the company is expected to attract greater attention than the KenGen IPO, which saw Kenyans fork out more than $360 million.
Last week, in an indication that the government is committed to the firm’s privatisation, a senior official said that Telkom would sell part of its 60 per cent stake on the NSE without consideration of Vodafone’s pre-emptive rights. The British phone company owns 35 per cent of Safaricom.
Analysts, however, say that even barring a legal suit by Vodafone, the Safaricom IPO is unlikely to reach the market before September 2007, given all the preparatory work that needs to be done.
Apart from Safaricom, pundits say the NSE is likely to witness an unprecedented number of IPOs in 2007 through 2008. Leading investment bank Dyer & Blair says it is already doing initial preparations for the possible listing of at least six companies.
Among the private companies that have independently expressed an intention to list within the next two years are hotel group Sarova, health management organisation AAR and supermarket chain Nakumatt.
Government-owned or dominated firms that are eyeing privatisation include Telkom Kenya, New Kenya Co-operative Creameries and Kenya Re, which is expected to be privatised in the first five months of next year.
In 2007, significant synergy is also likely to accrue to investors from new cross-border investments in the Ugandan and Tanzanian bourses, following greater integration of the regional markets, including the imminent merger of the Nairobi and Uganda stock exchanges.
Kenyan investors in the Stanbic Uganda IPO, for example, are expected to make at least a 25 per cent return on equity by the end of the first half of next year, money which many will probably plough back into one of the IPOs taking place at the NSE.
Like the NSE, both the Dar es Salaam and the Uganda stock exchanges have experienced dramatic growth over the past two years, with the Ugandan bourse recording an 81 per cent growth in its index last year alone, according to the African Securities Exchanges Association.
Other African exchanges also recorded phenomenal growth, with Zimbabwe’s bourse returning a 1,545 per cent growth, the Egyptian exchange 146 per cent, and Botswana 75 per cent.