Kenyan investment firm Centum (ICDC.NR) posted a 40 percent drop in full year profit on Tuesday without issuing a profit warning beforehand as required by market rules, sending its shares tumbling.
Companies are required by market regulator Capital Markets Authority to publicly issue a profit warning if they expect their full year profit to fall by at least 25 percent.
Investors, caught flat-footed by the lack of warning, sold off Centum shares after the results, sending them to an intra-day low of 12.25 shillings per share, 16.95 percent down.
The shares later pared the losses to trade down 13 percent.
"The company had not issued a profit warning so the results come as a surprise to the market," Standard Investment Bank said in a note to clients.
"Whereas the profitability results are disappointing, we think there is significant value yet to be unlocked from the business, embedded in a potentially understated net asset value."
Chief Executive James Mworia blamed the nature of the business on the lack of a profit warning, saying the management believed they were on track to achieve a less than 25 percent profit fall, right up to the end of the financial year.
"Our business is very lumpy," he told Reuters by phone, adding some transactions were not completed in time to be factored into the financial results.
Centum has a portfolio of over $190 million invested across asset classes, from blue chips at the Kenyan bourse to prime residential land in the capital Nairobi to unlisted firms.
Its pretax profit fell to 1.37 billion shillings ($14 million) in the year to March, from 2.29 billion shillings last year, while the net asset value per share increased by 9.1 percent to 20.57 shillings.
INVESTMENTS OUTSIDE KENYA
Mworia earlier told an investor briefing 2012/13 year would be "equally challenging" mainly due to high borrowing costs.
"The year to March was a very challenging year ... the cost of credit increased sharply to more than 20 percent, the foreign currency market experienced wild gyrations and liquidity was very tight throughout most of the year," he said.
Centum, whose shares are cross-listed on the Ugandan bourse, said it wanted to diversify its geographical reach and expected at least 24 percent of its assets to be invested outside Kenya by the end of this financial year.
It was also looking for a larger share of the fast-growing small and medium enterprise segment, to avoid the vagaries of stock markets, with their sometimes wild swings up and down.
"We continue to enhance our exposure to private equity and real estate while reducing exposure to market securities," Mworia said.
It did not pay a dividend for the period, further fuelling the investor apathy towards the shares.
"The biggest problem with Centum is that it does not pay a dividend, but it's also their biggest asset. That is (it has) the money working behind the scenes," said John Nderi, head of research at Suntra Investment Bank.
This article is copyrighted by Reuters
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