Dyer & Blair Investment Bank and Genghis Capital see limited upside regarding KenolKobil’s share despite the firm’s increasing sales and higher dividend payout. The analysts are also concerned about the firm’s dependence on short-term borrowings which exposes it to exchange rate risk.
The analysts from the two companies, therefore, have assigned a hold recommendation on the stock which means they do not expect the price to fluctuate either way by more than 15 percent in the short-term.
KenolKobil’s net profit remained flat in FY17 at Sh2.4 billion because one-off costs reduced the benefits accrued from rising sales.
“The stock is currently trading at our fair value estimate. This implies a price to earnings of 10.1 times and returns on equity of 23.4 percent against peer average 12.3 times and 12.2 percent respectively,” said Genghis Capital analyst Gerald Muriuki in an analysis note on the firm.
The firm is paying out a final dividend of 30 cents per share bringing the total dividend to 60 cents for the 2017 financial year. In 2016, KenolKobil paid out a dividend of 45 cents in 2016.
Faith Mwisywa, a Dyer and Blair analyst said although the company has reduced its debt, its short-term loans, especially those borrowed in dollars, represent about a third of total equity and liability are exposed to exchange risk.
“Foreign exchange volatility and heightened competition are expected to continue posing a threat to the company,” said the Dyer analyst.
KenolKobil closed the financial year having cleared its long-term borrowings. On the other hand, short-term borrowings remained at Sh7.3 billion as finance costs declined to Sh340.7 million compared to Sh354.7 million in 2016.