Smaller Firms Drove NSE This Year -Report

Small listed companies outperformed most big blue-chip firms, gaining faster at the Nairobi Securities Exchange (NSE) on the back of economic shocks, giving their investors better returns.

This trend highlights the impact of the massive flight by investors that gripped the bigger firms as they searched for better returns in the foreign market amid the weakening of the Kenya shilling and increased dollar demand.

Analysis of data from NSE reports shows that the stock prices of firms such as comprising Williamson Tea, Sasini Tea and Coffee, BOC Kenya, and Kakuzi, have all appreciated by in between 6 percent and 20 percent since January 2022.Others include Carbacid Investments, Limuru Tea, East African Portland Cement, Kapchorua, and Crown Paints.

Olympia Capital gained an estimated 40 percent price valuation, ranking it second on the NSE, in terms of year-to-date performance.

These gains, according to NSE data, have mainly been driven by the cheap nature of the firm’s stocks, which has made them much more attractive than the bigger companies.

“Most of these companies are trading way below the average market price. So they are really cheap. That’s why you find many stocks become active when they are at a very low level. For some, performances are stable, so they are doing good recovery,” says NSE CEO Geoffrey Odundo.

These cheaper stocks also cause more speculative trading, especially among small retail investors, whose demand can be met through the daily trading volume.

The top gainers of the market since the beginning of the year have mainly been the small firms with lower market capitalisation, most of which make less than 0.8 per cent of the NSE equity market.

The prices of some of these small firms are however higher than their big counterparts, but certain corporate actions such as higher dividends and rights issues have driven up their stock demands, leading to price appreciation.

For instance, Williamson Tea and Kapchorua Tea issued final dividends of Sh20 and Sh10 per share, respectively, the highest under the corporate actions witnessed between July 2022 and September 2022.

The small firms are however susceptible to volatility in prices, mainly because of their tiny customer base, evident in the minimal volume of shares traded.

Their customers are mainly illiquid and hardly vacate to external markets where prices are higher.