Does Kenya Airways need new management to save its dying share performance at the market?

By / March 3, 2015




Sector: Commercial and Services

Market: Nairobi Stock Exchange (NSE)
Par value: 5.00
Market value: 13.35
Shares issued: 461,615,483
Market cap (Mn): 19,618.66
EPS: 7.65
DPS: 1.50
Dividend yield: 3.53%
P/E ratio: 1.75
Trading status: cum dividend
Website: http://www.kenya-airways.com
Last analyzed on 19 Jun 2012
Average price: 13.35
High: 13.50
Low: 13.20
Shares traded: 88,700
Previous trading price: 13.10
Gain: +0.25
Brief on KQ and Its core fundamentals.
Kenya Airways Limited provides international, regional, and domestic carriage of passengers and cargo through air. The company also offers ground handling services to other airlines; and involves in handling import and export cargo. It operates domestic flights and flies to 53 destinations in Africa, the Middle East, Asia, and Europe. As of March 31, 2011, the company had 31 aircrafts, including 4 Boeing 777 wide body jets, 6 Boeing 767 wide body jets, 15 Boeing 737 narrow body jets, and 6 Embraer regional jets.
Kenya Airways Limited was founded in 1977 and is headquartered in Nairobi, Kenya. It has 4,442 Employees as of today.
Kenya Airways Ltd. will spend $3.6 billion over the next five years on new planes and routes, mainly to connect travellers between Africa and Asia. The company said trade between Africa and China and India had soared in recent years, growing at an annual rate of about 200%, creating huge opportunities in the travel market. The company added that extra aircraft would enable the airline to start six new routes to China, six new routes to India, a service to Madrid as well as increase frequencies on its numerous African routes.
The airline is expecting 10 E-190 Embraer jets due for delivery between July next year through to 2013.
After Kenya Airways announced a 51% increase in its operations and an additional 48% increase in fuel costs, the CEO has announced measures to cut costs. Kenya Airways will cut costs this year to protect its bottom line, its chief executive said on Thursday, after a sharp rise in its fuel bill hit annual profits.
Key Issues
Kenya Airways has been in the media in the last couple of days for all the wrong reasons, starting from the bungled rights issue and how investors and shareholders were handled to the issue of the rights issue transaction advisor and the ultimate fear of under subscription in a market many had said it was the wrong time to have one. Its share is now on a decline trading at 13.5 per share.
Despite impressive fundamentals, few issues have completely derailed its rise to the pinnacle of air business in Africa and these are;
1. Poor customer service that has spiraled out of control with a management that is insensitive to the clients issues
2. Derailing from its core business which is air transportation to the hospitality industry, which has its own keepers like Serena.
3. A poor fuel-hedging strategy that has seen the firm hemorrhage its profits in a time when many airlines are finding ways to survive.
4. It has a disgruntled work force whose lethargy is getting out of control.
5.     Problems in the Eurozone will impact negatively on its client demand as they start to cancel certain routes to Rome and Muscat.
6.     An unstable KES hence increasing fuel costs whose hedging strategy seems to reek more than a slum sewage.
7.     Spending a lot of money to build a hotel, whilst they have no expertise in the industry, instead of making a sustainable deal with a hotel near the airport.
Recommendation.
The firm is bleeding its bottom and operational costs are spiraling out of control. Management seems to have hit a snag on creativity to move it forward. Our research shows that if you have it, sell it now while the sun shines and they still flying. An investor from USA said one more mishap will cripple the airline. Well, we pray it does not happen.




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