Centum Investment Announces Half Year Results

Centum Investment Limited (NSE: ICDC), announced results for the half year ended period ended 30th September 2015, with the following highlights:

Total income rose an impressive 342% y/y to KES 8.39Bn driven by higher interest income and other income gains. Interest income propped up 1527% y/y to KES 1.35Bn, resulting from the consolidation of K-Rep Bank, a tier IV bank (controlling stake of 65%).

The Group however posted a decline in dividend income and fund management income. The former declined by 33% to KES 327 Mn and the latter waned by 21% from KES 337Mn to KES 267Mn. Fund management income declined partly attributable to the depressed performance in the equities market.

As at March 2015, equities accounted for 70% of the marketable securities whilst cash, mutual funds and fixed income accounted for 10% each. In 1H16, the company re-allocated its portfolio to see cash accounting for 58% while equities, fixed income and mutual funds accounted for 25%, 10% and 7% of the marketable securities (respectively). This deciphered to a 55% increase in net income to KES 1.907.

Finance costs jumped 381% y/y to KES 1.26Bn, driven by recent consolidation of subsidiaries Krep Bank and Almasi Beverage. The debt to equity ratio surged up by 75%, owing to the increase in borrowings after the company successfully raised KES 6.0Bn through issuance of fixed rate & equity linked notes in June 2015.

The bond raised a total of 10.35Bn of debt as at 30th September 2015. Centum retired KES 3.32Bn of short term dollar denominated borrowings using proceeds from the bond.

Stable cost efficiency upheld: The ratio of operating expenses to the company’s assets dropped 74% h/h to 0.5%, driven by a decline in AUMs by 1.5% h/h to KES 195 Bn. Operating expenses increased by 649% attributable to a 100% increase in Cost of sales arising from the beverage and a 233% increase in Portfolio costs.  Under the 3.0 strategy, Centum aims to maintain costs below 2.0% of total assets.

Centum trades at a 15% discount to its NAV: With a NAV of KES 52.10 and current market price of KES 44.75, the market appears not to have factored in the company’s future growth. The increase in Net asset value from KES 31.9Mn in FY 2015 to KES 34.7Mn in HY 2016 is mainly attributable to dividend income and increase in fair value.

Outlook

We anticipate strong growth in the real estate portfolio in the medium term, attributable to investments in two rivers property in Kenya, as the first phase is due for completion by end of 2015 and Pearl Marina property in Uganda (pre sales expected to commence in January 2016).

The acquisition and consolidation of K-Rep Bank (controlling stake of 65.0 percent) and Almasi Beverage (controlling stake of 50.95 percent) will continue accelerating growth in private equity segment. Almasi Beverage has commissioned an RGB line with the capacity of 38,000 bottle per hour.

In addition to this, it also has plans to commission a new PET line at Mount Kenya bottles in 2016. Developments in the energy sector will also bolster the top line growth with the Amu Power and Akiira Geothermal development in the pipeline. We issue a BUY recommendation based on the above positive outlook; most notably is also the company’s price-to-book ratio of 0.8x and the return on equity at 18%.