Centum Investment Announces 6 Month Results

Centum Investment (Centum) announced results for the 6 months ending September 2015, recording 55.0% y/y EPS growth to KES 2.87 (140.8% y/y Trailing EPS growth to KES 12.28). The company’s Net Asset Value (NAV) recorded 2.5% y/y growth to KES 59.39.

Key Highlights

Interest income noted impressive growth, growing 16.3x y/y to KES 1.4bn in 1H16, following the consolidation of K-REP Bank: Centum Investment acquired 65% of K-REP Bank, a tier IV commercial bank in 2H15 at a consideration of KES 2.3Bn. K-REP Bank’s performance metrics indicate strong performance, recording ROA of 3.0% and 20.0% in 1H16.

Fund management income however shed 20.8% y/y, courtesy of the performance slowdown in the equities market, which saw Centum’s asset allocation on marketable securities shift. As at FY15, Equities accounted for 70% of the marketable securities portfolio while the balance (Cash deposits, mutual funds, fixed income) accounted for 10% each. As at 1H16, this had shifted to see cash deposits account for 58%, while equities, fixed income and mutual funds accounted for 25%, 10% and 7% of the marketable securities portfolio respectively.

The FMCG segment recorded impressive performance, recording 1H16 top line of KES 3.8bn: Centum’s FMCG portfolio constitutes of Almasi Beverages Ltd. (merger of Rift Valley, Mt.Kenya and Kisii Bottlers) with 50.95% ownership, as well as stakes in KWAL and Carlsberg. The FMCG segment (Almasi) reported EBITDA margin of 26.1% in 1H16.

Finance costs increased 3.8x y/y to KES 1.3bn as a result of consolidation of new subsidiaries (Almasi Breweries, K-REP Bank), additional debt raising and y/y rise in interest rates: Centum Investment raised KES 6.1bn via debt (13.0% fixed rate debt, and 12.5% equity linked notes) in 1H16. Part of the KES 6.1bn was used to retire USD 35.0m Bridge Financing Facility. Centum’s gearing level however still remains low, with 1H16 Debt/Equity ratio at 21% (+900bps y/y).

Ongoing projects remain on track: Amu Power project remains on track, with land and debt capital secured while equity capital raising is on course. Construction is expected to commence in December 2015. The first well of the Akiira geothermal power project has been drilled and tests are underway, while plans to drill the second well are on schedule.

In the real estate space, The Two Rivers Mall is set to be completed in December 2015, with the tentative opening date to be in March 2016. The site development plans for the pearl marina in Kampala remain on an even keel, with management attaching low project and political risk to the real estate development plan with regards to the upcoming presidential elections in Uganda.

Going Forward

Going forward, we expect Centum Investment to continue recording impressive growth and overall returns from the financial, FMCG and real estate spaces in the short-medium term: Centum plans to grow K-REP bank from the current tier IV status to tier II, via capital augmentation to support onward lending, cost containment from restructuring and incorporating I.T to boost product innovation and efficiency in service delivery.

A KES 1.2bn Rights Issue has been approved in support of this. Almasi Beverage has a recently commissioned an RGB line with a bottling capacity of 38,000 units per hour, hence ultimately growing Almasi’s 29% soft drink market share in Kenya.

Pipeline projects include ventures in the education, agriculture, healthcare and ICT spaces: Centum is set to launch flagship projects in agribusiness (in 2H16), education through a signed partnership with SABIS Schools and Investbridge and prospective partnerships in the healthcare space.

This will ultimately increase Centum’s investment capabilities from the current 4 active sectors to 8, mitigating concentration risk through diversification. We note that Centum is currently trading below book value (P/B multiple of 0.7x) and therefore issue a Buy recommendation.