The Nairobi Securities Exchange (NSE) had a dismal year in 2015, dropping 10.6% (21.5% in US dollar terms), and market watchers remain decidedly unenthusiastic about the prospects for Kenyan stocks in the year ahead.
When bearish sentiment prevails, it’s often difficult to see just how profitable a long-term investment in stocks can be.
So let’s turn back the clock ten whole years, to the early days of 2006.
Kenyan voters had just rejected a proposed new constitution, a disastrous drought was creating misery in the north, and the Anglo Leasing scandal had just broke. The intervening years have brought devastating election violence, a global financial crisis, and horrific terrorist attacks.
In hindsight, it seems like an absolutely dreadful decade to have been invested in Kenyan stocks.
Yet throughout that time period individual companies have posted some sensational performances. A dozen stocks more than tripled in value during that time period, creating a healthy nest egg for their long-term shareholders.
Here’s a countdown of the NSE’s five best performers over the past ten years.
(10yr Rtn: +560.4%)
Ten years ago, this diversified agricultural producer was saddled with heavy debt and reported an earnings loss due to drought and low tea prices. But over the past decade, the tea price has nearly doubled and the company invested heavily in lucrative new crops like avocado and macadamia nuts.
Management also sold off one of its tea plantations and retired the company’s interest-bearing debt. The combined impact of all these factors has been consistent profitability.
Undervalued land assets along the Thika Road added to the surging share price’s momentum.
And so did activist investor, John Kimani. Kimani, who was born and raised on Kakuzi farm, has been steadily buying shares of the relatively illiquid stock in an effort to represent the rights and interests of the company’s workers and neighbors. His stake in the company has risen from virtually nil ten years ago to a whopping 25% of outstanding shares today.
4. Diamond Trust Bank
(10yr Rtn: +663.9%)
While its larger peers, Equity Bank and KCB, may get most of the headlines, Diamond Trust is arguably Kenya’s best-managed bank. The past ten years saw it embark on an ambitious expansion drive that increased its branch network from just five in 2005 to well over 100 today and extended its reach beyond its Kenyan home base to Burundi, Tanzania, and Uganda.
So, far it looks like the moves are paying off. Customer deposits have increased in excess of 20% in each of the past five years, while non-performing loans have been held to less than 2% of total lending.
The share price has benefited from steady purchases from Pakistan’s Habib Bank. In 2013, Habib announced its intention to increase its stake in DTB from 11% to 26% through purchases on the open market by the end of 2018.
(10yr Rtn: +676.3%)
The comparisons to Berkshire Hathaway are perhaps a bit premature, but if this investment holding company continues to grow at the rate it has over the past ten years, it won’t be long before Chairman Chris Kirubi and CEO James Mworia become Kenya’s answer to Warren Buffett and Charlie Munger.
Starting from small holdings in listed companies, Centum now boasts controlling stakes in firms active in consumer goods, manufacturing, banking, and real estate. Look for it to take on an even more instrumental role in the Kenyan economy over the next ten years through big investments in energy, healthcare, and education.
2. Jubilee Holdings
(10yr Rtn: +743.6%)
Kenya’s largest insurance company has given its shareholders plenty to celebrate over the past ten years. In that time period, the company’s grown its net insurance premium revenue by an astounding 660%.
Savvy investments in Diamond Trust Bank, real estate, undersea fiber-optic cables, and energy projects have augmented the insurance income and positioned it to benefit directly from some of the most promising sectors in the region.
The company now sells its policies throughout East Africa, is on the verge of launch in the DRC, Madagascar, and Ethiopia, and is eyeing expansion opportunities in West Africa, too.
1. Limuru Tea
(10yr Rtn: +1158.0%)
A true home run stock. Lucky shareholders of this 677 acre tea plantation just northwest of Nairobi saw the value of their shares rise more than eleven-fold this past decade.
Rising tea prices certainly didn’t hurt the company’s valuation, but the real impetus behind the stock’s rise is real estate. Limuru’s rolling hills are also highly coveted by property developers. With its pleasant climate and convenient location just 40 kilometers from the capital’s central business district, the plantation is ideally situated for high-end property developments. But if you’d like to own a piece of the company, you’d best be patient. Unilever Tea Kenya owns 52% of shares and the remainder rarely trades even after a 2:1 share split in June this year.
Who were the other top performers on the NSE? The chart below shows the top ten Kenyan shares since December 31, 2005.
10 Best Kenyan Stocks of the Past Decade
|Company||Return (12.2005 – 12.2015)*|
|1. Limuru Tea||1158.0%|
|2. Jubilee Holdings||743.6%|
|3. Centum Investment||676.3%|
|4. Diamond Trust Bank||663.9%|
|6. ARM Cement||425.6%|
|7. Crown Paints||381.5%|
|8. Equity Bank||314.5%|
|9. KCB Bank||301.1%|
|10. BAT Kenya||284.8%|
|* excludes dividends|
[Disclosure: At date of post, I (Ryan) held a beneficial interest in shares of KCB Bank and Centum Investment Holdings.]