Accesskenya Shares Surge After Slump

Mergers, Acquisitions and Financial Results

AccessKenya shares climbed above the initial public offering price of Sh10 per share, helped by a sustained one-week rally that saw the stock gain 47 per cent after touching an historic low.

Analysts said the surge to Sh10.35 on Friday was driven by increased demand as speculators sought to make capital gains on the counter after it sunk to an unprecedented low of Sh7.05 on March 30.

The telecommunication company's stock jumped by the maximum allowable limit of 10 per cent in Wednesday's trading at the Nairobi Stock Exchange.

Counter oversold

"It is speculative trading. Probably the market feels that the counter has been oversold and has hit bottom," said Mr Samuel Gichohi, a senior research analyst at NIC Securities.

AccessKenya has seen increased investor demand moving 1.39 million shares over the past four days.

"I think investors are viewing it as a cheap share which has been trading at a discount so there has been increased demand," said Mr Robert Munuku, an analyst at Drummond Investment Bank.

He said factors such as increased competition and costs from dollar denominated loans which resulted in a profit warning and subsequent decline in earnings had put its fundamentals and outlook into question.

NIC Securities in a research note said increased competition in the data sector by mobile operators such as Safaricom and Orange which have aggressively been marketing their cheaper internet services has eaten into the firm's revenues.

AccessKenya announced a Sh7.9 million after tax loss last year compared to Sh148 million profits in 2009.

It attributed the drop to increased administrative expenses and foreign exchange losses on the repayment of dollar denominated loans

According to the company's full year results, administrative expenses shot up by 31 per cent to Sh1.02 billion in 2010 from Sh781 million in 2009 while turnover declined by 17 per cent to Sh1.7 billion from Sh2.1 billion over the same period of time.

The company's internet and IT services posted reduced sales while the internet services segment posted a loss after tax of Sh12 million for the year.

IT services which recorded Sh4 million in profits after tax saw its sales drop 66 per cent to Sh152 million while internet services sales dropped by a marginal four per cent to Sh1.55 billion.

But even with reduced revenues the company managed to increase its corporate clients from 3,100 to 3,900 customers, while residential clients grew to 4,500 from 3,000 according to NIC Securities in their research note.

Access Kenya also posted a Sh43 million net foreign exchange loss up from Sh3.5 million the previous year while its financing costs increased more than 10 times to Sh92 million last year from Sh8.7 million in 2009.

The massive drop in profits was anticipated by the market after the company posted a 55 per cent decline in half year profits after tax to Sh40 million in the first six months of 2010 compared to Sh89 million recorded within the same period, a move that started a steady decline in the share price.

The company's stock was trading at between Sh18 and Sh20 at the time

In December - when the stock had declined to below Sh15 - the company issued a profit warning.

In February this year, the stock price fell below its Sh10 initial public offer price, hitting the historic Sh7.05 low at the end of March.

The company's management is however optimistic about the future of the company and is banking on the big, unexploited internet market and investment in fibre optics to grow its revenues.