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Kenyan investment firm rakes in huge profit

NAIROBI, Kenya, Jun 8 – High returns on strategic investments in several blue chip firms and the recovery of the stock market last year have bolstered Centum Investment’s profitability which went up by nearly 1,000 percent to Sh888 million for the year ended March 2010.

Managing Director James Mworia told an investor briefing that investment income went up by 121.5 percent to Sh1.12 billion boosted by among other projects the firm’s acquisition of a 21.4 percent stake in Carbacid Investment at Sh53 per share which appreciated to Sh125 as at March this year.

“We had investment income of close to Sh500 million that is largely dividend income and we had realised gains of Sh88 million. For our listed equity business, we had new investments and there was earnings recovery of the underlying companies,” he said in reference to the performance of their investments in East African Breweries, Kenya Airways, Safaricom and the KCB Group.

The company’s Profit after tax in 2009 stood at Sh88 million due to the bearish stock market environment that had reduced their selling activities.

In the period under review, Centum segmented its business into three lines; private equity, quoted private equity and real estate.

The Private Equity and quoted Private Equity arms posted higher returns, pushing up the value of the company’s investment portfolio to Sh9.3 billion.

Of this amount, 59 percent of the assets were allocated to the private equity while 38 percent went to the quoted private equity. Real Estate was less than one percent which resulted in its dismal performance which Mr Mworia explained as inactively traded assets which did not yield any returns during the year.

In 2010, the group’s results which focused on the performance of the holding company registered a 250 percent increase from Sh313 million to Sh1.094 billion.

The investment firm also closed the year with no debts in its balance sheet which the MD said was due to a conservative and prudent debt management strategy.

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“I expect that this year we will close the year with some debt in our balance sheet, probably Sh2billion but this will mean that assets will have grown.

Despite this impressive performance, the board only recommended a bonus issue of one share for every 10 held, but will not pay out any dividend in line with Centum’s objective of giving returns to their shareholders through capital appreciation.

This profit retention strategy has helped them to deploy capital and generate rates of returns that outperform the market in the last six years.

“Last year, we closed the year with our share price at Sh10, this year, it is at Sh19, that is a 90 percent appreciation that’s a greater return than what we could have given our shareholders by giving then a dividend,” he said.

During year, Centum exited from Rift Valley Railways Investment where they gave up their 10 percent shareholding for $4.5million.

Going forward, the MD hinted that Centum was planning more exits in this financial year in private equity investments that he declined to divulge saying this was informed by the need to ensure maximum returns for their shareholders.

“We have had a rigorous evaluation of every investment in our portfolio and our intention is to retain only those investments that are able to offer a return that meets our threshold going forward,” he explained.

The proceeds from these ‘mature’ investments would be re-deployed in other areas such as the West Africa’s banking sector that the company believe it would fetch better returns.

Further, he said they would invest between Sh160 million and Sh800 million in the private equity asset class to acquire controlling or minority equity positions in firms that he did not name. Acquisition of influential stakes was also in the cards in order to enable them achieve a 20 to 45 percent asset allocation in the quoted private equity.

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“We will be seeking to raise third party funds in the next 18 to 24 months, because we want to leverage the expertise that we can scale up our business and raise funds to make investments in specific private equity opportunities,” he added saying this move would also not dilute the shareholder base.

In real estate line, Mr Mworia revealed that Centum was in the process of completing a Sh1.2 billion transaction for the acquisition of two 100-acre pieces of prime land in Nairobi’s Runda Estate and another in Entebbe, Uganda.

Construction of office blocks in Nairobi’s Central Business District and another in Southern Sudan were also in the works, he added.

To complete their plans, Mr Mworia said they were also looking at investing in the energy sector through funding power projects.

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