Kenya’s Champions Have Become Penny Stocks

(Bloomberg) -- At their peak, Kenya's Uchumi Supermarkets Plc, retailer Deacons East Africa Plc, Mumias Sugar Co. and Eveready East Africa Ltd. were market leaders in their industries and well-known brands in East Africa's largest economy.

Today, the companies are penny stocks.

Uchumi has lost 97 percent of its value in the past five years and slumped to a fresh record low in Nairobi Wednesday. Deacons and Mumias shares trade at less than one Kenyan shilling (1 U.S. cent) and Eveready barely above that. Their fortunes contrast with market giant Safaricom Plc, which has more than doubled in that period and accounts for half of the local benchmark index.

“The market is split such that you have one side, which has Safaricom and the banks, then there is the other side which has completely eroded,” said Aly-Khan Satchu, chief executive officer of Nairobi-based Rich Management, an adviser to companies and wealthy individuals. “The signal coming out of the penny stocks is that they are zombie stocks.”

Here are the views of Satchu and other analysts and investors on the outlook for some Kenyan companies that were once champions in their fields, but which now languish at a fraction of their historic market values:

Uchumi

• “An endless supply of Elastoplast is basically keeping a dead man walking and the market has lost faith in that kind of business model,” Satchu said. “There is no outlook; the question is about pronouncing the last rites and how you do it. The same applies to Mumias.”

Mumias

• “While management is still hopeful for an imminent turnaround of the firm's fortunes, we project delayed intervention which may see the company's woes deepen even further,” according to Apex Africa Capital Ltd.
• “The government is in the process of coming up with a plan to fix the entire sugar industry,” said Gerald Muriuki, an analyst at Nairobi-based Genghis Capital Ltd. “Although with government, you are never certain because talks can go on for years.”

Deacons

• “It is generally a struggle for the retail industry across all product segments,” Muriuki said. “Unless Deacons comes up with a very different market strategy, I don't see how they will survive by raising debt and continuing with the same business model.”

Eveready

• “Hopes of turning around the company's fortunes lie in stripping out its real-estate value; which is more than its market capitalization,” Satchu said. “They stayed way to long in the batteries business without much expertise in that market. It was too late by the time they tried to reinvent themselves.”
• “In terms of assets, they have sold almost everything,” said Genghis Capital's Muriuki

To contact the reporter on this story: Eric Ombok in Nairobi at eombok@bloomberg.net

To contact the editors responsible for this story: David Malingha at dmalingha@bloomberg.net, John Viljoen, Jon Menon

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