On Tuesday last week, the Nairobi Securities Exchange welcomed its fourth baby in the Growth and Enterprise Segment (GEMs) category. This followed the listing through introduction of Nairobi Business Ventures (NBV), which operates a chain of shoe stores under the K-Shoe brand. Strikingly, NBV became the first stock in the small and medium businesses category to list on the NSE in nearly two years.
NBV currently sells shoes, canvas, cheetah boots and slippers, with a target on the middle class market. According to a market report on the listing by Cytonn Investments, the listing will now allow NBV to access additional capital. “This should be vital in the opening of new stores and outlets, and in conversion of its working capital and the additional raised capital to venture into the leather footwear and accessories manufacturing,” said the market note. Its current biggest competitor is Bata Shoes Company which is family-owned.
Although the GEMS category was founded to enable SMEs to list on the local bourse without tough requirements of other bigger businesses, the category has failed to live up to its expectations. Among the listed stocks which include Home Afrika, Flame Tree, Kurwitu, and Atlas Development Services only Flame Tree has proven to be a fundamentally growing stock with stable price movements. Flame Tree listed 162 million shares out of its 190 million issued shares at Sh. 8 per share. It is currently trading at Sh. 5.60 per share. Home Afrika, which was the first counter to list in this category has since listing fallen to a penny stock with a trading price of Sh. 1.30 per share. It had listed at Sh. 12 per share and has an all-time high of Sh. 25 per share. Kurwitu on the other hand has been the most illiquid stock on the NSE with zero trading and a rigid Sh. 1,500 per share price which was its listing price. Atlas has crumbled from its listing price of Sh. 11.50 per share through private placement that raised sh. 450 million from the sale of a 10 per cent to local investors. Companies looking to list on the GEMS category are required to have at least 100,000 issued shares, a minimum fully paid-up capital of Sh. 10 million, have been in operation for at least one year, and have adequate capital. However, profitability data records aren’t required.
According to Ndindi Nyoro, an investment expert and the head of Investax Capital Limited, small companies listing on the NSE under GEMS are mainly doing to raise their profiles only rather than add value to their fundamentals and the investors’ money. “This category has less stringent rules that do not critically augur well for the market. Stocks under GEMS aren’t liquid even though their prices appear supported,” he says. “It would have been better for the local market if we had bigger companies like Bata which are subjected to strict listing requirements coming in.” According to Mr. Nyoro, investors should not be in a hurry to buy newly-listed NBV before a proven traction on its price. His sentiments are echoed by Eric Munywoki, a research analyst Sterling Capital Limited who says that NBV should be a wait-and-see for investors. “There’s not too much information for the public regarding this counter, and subsequently, this being a new stock, investors may need to pause and observe what direction the stock will take before throwing their money on it,” he says.
These sentiments are reflected by how the market has welcomed the new stock. At the time of listing, NBV had a market valuation of Sh. 118 million with a listing price of Sh. 5 per share. Immediately after listing, the counter’s price per share jumped to Sh. 8 per share. However, in its four days of trading on the NSE, NBV has hardly popped heads. The NBV stock has been illiquid, with zero movement in price. The counter currently has 23.06 million issued shares and a par value of 1.