Uchumi, the only Kenyan retailer listed on the NSE, closed yesterday nearly four shillings lower than the share’s price in late May on profit-taking and falling inflation which had earlier boosted investor demand in the share.
“The counter has been hit a bit hard by profit-taking” said Mr. Kimathi Ikiao, an Independent Equities Analyst. Profit-taking is the action of selling a stock to cash in on a sharp rise according to Investopedia, an investment resource website. The definition further states that profit taking pushes the price of a share down temporarily as is the case with Uchumi.
“Investor profit taking has recently been on the back of increased concerns on the resumption of dividend payout amid the company’s need to retain earnings for further expansion in the competitive retail sector and its plans to venture across East Africa.”, Mr. Kimathi further explained.
At the close of trading yesterday, Uchumi shares were down 0.32 percent marking a total decline of 20 percent since the shares reached their highest price of Ksh 19.35 in May after resuming trading on the NSE last year.
Mr. Kimathi added that the share’s half-year rise was driven by investor confidence from the awareness of Uchumi’s advantageous position in the inflationary environment as the retailer transferred rising costs to customers. Inflation has declined an average of 1.65 percent for every month this year reaching its lowest of 10.05 percent last month according to the Kenya National Bureau of Statistics.
“Uchumi is still a very good counter as the only retailer listed on the Kenyan stock market”, Mr. Kimathi said adding that the counter has had strong demand from both local and foreign investors which has propelled the counter as the best performing stock on the NSE this year.
Uchumi is one of Kenya’s four biggest retailers and had the biggest profit margin last year according to a report by Kestrel Capital dated March 2012. The report gave Uchumi shares a ‘BUY’ recommendation based on the retailer’s planned expansion strategy and growth in consumer spending among other reasons.