NSE hunts elusive IPO as market conditions improve

The Nairobi Securities Exchange (NSE) will be seeking an end to a five year dry spell which has seen it go without a listing by initial public offer (IPO) in 2021.

This is as market conditions are tipped to improve this year from sharp contractions seen in 2020, driven down primarily by the COVID-19 pandemic.

Low stock valuations are expected to provide the NSE with the much needed impetus for a lift as they provide cheap entry points to investors.

NSE valuations contracted sharply in contrast to other markets in the region with Kenya having taken a much severe hit in the 2020 slump.

“The Kenyan market (NSE 20) is trading at circa 41 per cent and 14 per cent discounts to multiples in the Nigerian (NGSEINDX) and Ghanaian (GGSECI) markets respectively. Consequently, we anticipate that the Kenyan market is primed to outperform its regional frontier market peers in 2021,” noted analyst at KCB Capital.

NSE’s primary indices in the NASI, NSE 20 and NSE 25 shed 8.6, 16.7 and 29.6 per cent in 2020 as foreign investors’ dumped stocks valued at Ksh.30.9 billion throughout the year.

Similarly, the value of stock listed on the NSE/ market capitalization fell by Ksh.200 billion to Ksh.2.34 trillion as the pandemic wiped out investor gains.

Besides low valuations, the improving macro-economic environment is tipped to grow company performance boosting investor appetites for stocks in the year.

“We maintain our bias towards a bullish equities market with expectations of a gradual recovery in corporate earnings,” noted analysts at Cytonn Investment.

Kenya’s increased weighting in the MSCI Frontier Markets (FM) index in November last year is further expected to anchor growth as the country sees a greater share of flows from foreign investors.

A number of analysts have however tied down the recovery of the NSE to the onboarding of new companies to revive investor interest and boost liquidity.

Cognizant of the pressing need to end the listings drought, the NSE is pursuing different avenues to grow the number of companies in the bourse to wet up investor appetites.

NSE Chief Executive Officer Geoffrey Odundo say the bourse is eyeing increased listings from government to break the fast.

“We have been very deliberate about engaging the government in reviving its listings program. The majority of our large cap companies are from previously state owned enterprises. We are hoping for further sell downs and even the possibility of IPOs,” he said in an interview last week.

To compliment the chances of more primary listing, the NSE has focused on onboarding new companies by way of introduction including its recent launch of an unquoted securities platform (USP).

The USP which has seen new interest from atleast three companies and three real estate investment trusts (REITS) is seen as a potential pool for future listings alongside secondary trading platforms such as the growth enterprise segment (GEMs).

The NSE is without an IPO since October 2015 when the Stanlib Fahari REIT was listed.

Despite improving market conditions, IPOs’ are still seen as rare as they involve long and tedious application processes.

“IPOs comprise of very long processes in terms of bringing in companies into the market. If we talk of listings by introduction, we could see a number of companies coming to market by this route as it is much simpler,” stated Genghis Capital equities analyst Gerald Muriuki.