In 2006, Eveready East Africa was listed on the Nairobi Securities Exchange (then the Nairobi Stock Exchange).
63 million shares with a par value of KES 1 each were sold to the public at a price of KES 9.50 per ordinary share, 598.5 million being raised in total. The sale was of 30% of Eveready’s 210 million issued and fully paid-up ordinary shares. In the letter from the chairman in the IPO prospectus, the then chairman of the firm Mr. Naushad Merali listed the company’s financial performance as illustrated by “over 30 years of consistent profitability” and “the company’s continuous enhancement of shareholder value through its dividend payment policy” as attractive features of the company.
In the Future Outlook section of the IPO prospectus, the company highlighted cost-cutting measures, growth in terms of volume of production and working capital efficiency among other reasons as factors that would guide the company into success in future. One of the risk factors the company mentioned was “poorly enforced regulation” of the industry such that counterfeits and cheap imports were finding their way into the local market and competition as two of several risk factors the company was facing.
Fast-forward to 2012 and the share is not performing very convincingly at the NSE. As we observed some time back (read that article here), the share has lost nearly 80% of its value and many people are not very optimistic of the share making a recovery. In the last year, the highest price the share has reached was KES 2.30 while the share has bottomed at KES 1.35, this happening just a few weeks ago.
While the company was indeed making profits at the time of the IPO, there was a drop in profits almost every year. The net profits reduced from KES 201 million in 2002 to KES 186 in 2004 to KES 72 million in 2006. More importantly however was that in the same period, actual sales figures were sporadic, increasing and decreasing unpredictably. The revenues in 2002 were about KES 1.786 billion, in 2004 the revenues grew to KES 1.917 and in 2006 they dropped below a billion shillings to close the year at KES 991 million. Cash generated from operations had a similar random pattern over the period prior to the IPO, KES 436 million in 2002, dropping to KES 290 million in 2004 and in 2006 the company posted KES 137 million as cash generated from operations. On the NSE, the share price has generally dropped constantly and unless something changes, either in the industry or at the firm level, there could be worse to come.
The graph depicts the steady loss in the value of the share over the last 5 years, making the harsh reality even clearer.
{The opinions and views held here do not constitute investor advice}