Posted on :Wednesday , 13th September 2017
The Kenya Electricity Generating Company was established in 1954 and listed at the Nairobi Securities Exchange in 2006.
In 2006, The Securities Exchange was located in Nation House and I recall the euphoria and the excitement around that listing.
It was a momentous moment in the history of the Kenyan capital markets and I urge the Kenyatta administration version two to revisit that period, when our capital markets felt like they were leap-frogging into a bright new future and when Kenya Inc. was creating an ''ownership'' society right in front of our eyes.
Today, KenGen is the largest power producer in Kenya and East Africa with an installed power capacity of 1,630 megawatts.
KenGen is the largest geothermal producer in Kenya placing Kenya seventh globally in geothermal installed capacity.
The geothermal resource in Kenya, which largely follows the contours of the Rift Valley, whilst not infinite, could of itself power Kenya Inc into the future.
Kenyan's share price has soared +58.119 per cent this year, outperforming the benchmark index by a factor of two. The conditions precedent for this steep price increase are worthy of study.
I recall a mindspeak session I hosted with KenGen last year and they produced a panel and as I listened to this panel, I realised KenGen had ''bench strength''.
The quietly spoken and cerebral managing director Albert Mugo [whom all shareholders I am sure would like to see extended in his term] had empowered his senior management. Electricity generation is a very capital intensive business and as I scanned the audience, I saw big-ticket lenders like JICA, the European Investment Bank and many others.
KenGen has been transacting with these folks for a number of years. That longevity of capital markets transaction experience is a very valuable resource. In my opinion, these were conditions precedent for the parabolic share price rise we have witnessed.
Last year KenGen undertook a rights issue in order to right size [increase tier one capital] and optimise its balance sheet. The rights issue offered 4.396b new shares seeking to raise 28.798b Kenya Shillings. The total subscription rate was 92.01% leaving 351.21m shares which were not allotted.
A key driver of share price performance is the supply versus demand dynamic. Clearly, those 351.21m shares weighed heavy on the share price and we saw the price dip below the rights issue price of 6.55.
In February this year, KenGen announced that those 351.21m shares had been placed with PIC SA [Public Investment Corporation SOC Limited, acting in its capacity as the authorised representative of the government employees pension fund, a South African based institutional investor].
This was the final condition precedent for the share price to get motoring. PIC SA single-handedly, inverted the supply versus demand dynamic. They extinguished the surplus supply of shares and then started a mopping up operation. PIC SA exhibited a style of investing which is actually very similar to the style deployed by the sage of Omaha, Warren Buffett.
Today, KenGen trades on a price earnings ratio of 8.565. Investments are capital intensive in geothermal energy but have a seriously long earnings tail and a ''hockey-stick'' profile.
KenGen has the know-how and the expertise to tap this. One of the key ingredients of baking a national cake that creates jobs for our people is cheap and consistent energy. You cannot build an economy with generators or on diesel power.
KenGen sits at the cutting edge, its share price still has a lot further to catch up with the prospect.