The following analysis on Home Afrika by investment analyst Rufus Mwanyasi was first published in the Business Daily.
Since listing by introduction on the Growth Enterprise Market Segment (Gems), Home Afrika’s performance at the bourse has been nothing to write home about. Its stock currently trades at 57 per cent lower than its initial listing price of Sh12 and 15 per cent lower year-to-date.
Recent half-year performance showed a 73 per cent drop in earnings before tax, a situation likely to further dampen investor confidence in the real estate developer.
Operating profit dropped from Sh256 million to Sh73 million due to a sharp increase in the cost of goods. Revenues however maintained positive growth climbing from Sh486.6 million to Sh550 million or an equivalent of 13 per cent rise.
Be that as it may, Home Afrika’s weak interim results, albeit informed by new real-estate accounting guidelines, and the persistent poor showing at the bourse do not give an accurate projection of its long-term performance, especially considering the myriad of positive developments occurring in the real-estate sector.
Here are five points I believe are crucial to driving Home Afrika’s long-term success. First, the emergence of a young middle class in the country is creating a huge demand for integrated mixed-use residential developments.
Research shows that the number of Kenyans in the middle-income class have risen from 2.9 million as at 2006 to 5.2 million in 2012. I expect this young population to drive the formation of new households which in turn will feed the demand for Home Afrika housing stock.
Secondly, at the bottom end of the spectrum lie the low-income earners who also present a fantastic opportunity for Home Afrika.
Shortage of housing for low-income households is particularly acute in urban areas, with only 20 per cent of houses produced catering for this group.
Low-level urban home ownership is now estimated at 16 per cent with the presence of expansive slums and informal settlements. As population increases especially in the urban and peri-urban areas, this should provide interesting opportunities.
Thirdly, the introduction of Real Estate Investment Trusts (Reits) in the country provides a channel to easily liquidate investments and raise capital for Home Afrika projects.
The company is already planning to raise up to Sh2 billion through Reits. If these plans come to fruition, it could create another wonderful opportunity for investors as Reit stocks are known to give higher dividend yields and more stable returns than common stocks.
Fourth, major investments in transportation infrastructure in the region such as superhighways, link roads and bypasses, expansion of existing roads, airports as well as proposed investments in rapid rail transit are set to open up new areas for development.
Through its “Go Africa” strategy, Home Afrika’s planned participation in property development in regional countries of Tanzania, Uganda, Rwanda, South Sudan and Ethiopia is expected to boost its performance in the long run.
Lastly, the devolved government system presents more opportunities for real-estate development in the counties.
As interest rates slowly climb down coupled with the benefit of a relatively stable economy, the real-estate sector is set to perform well in the foreseeable future. Consequently, Home Afrika, being the only listed real estate developer at the Nairobi Securities Exchange, is likely to start attracting the much needed investor attention that it deserves.
