Abacus Wealth Management

KQ Performance After the Rights Issue

The highly publicised Kenya Airways rights issue closed a week and a half ago. For keen investors it would be worthwhile to note the trend the share has been following over this duration.

If we consider the performance of the counter before, during and after the rights issue we observe the following trend:

Image sourced from www.bloomberg.com

Before the rights issue the share was struggling to trade at the rights issue price of KES 14 per share, during the issue the share traded above KES 14 and attained a high of KES 14.95 just before the issue closed. After the issue the share has traded above KES 14 but at a constant decline. As at the close of business yesterday the share registered a 1.02% loss in value to close at KES 14.65, 15 cents lower than its opening price.

If we look more specifically at the performance of the share over the last one week we observe the following:

Image sourced from www.bloomberg.com

The steady decline in the value of the share is clearly visible. On the 2nd of May the share was trading at KES 14.80 per share and in 3 trading days it has fallen to KES 14.65 per share.

We can hypothesize that this may be due to the following:

This may mean that investors expect KQ to announce that the rights issue was undersubscribed and in anticipation of this demand for the share has declined putting downward pressure on the share price since the market may be flooded with shares that are listed but not bought.

To understand this, consider a milk glut. This is a situation whereby the supply of milk is much more than the demand. To ensure that the extra milk is sold the price will decline to a level where consumers are willing to buy more milk than they would otherwise buy. This may what be happening  to the KQ share.

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