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Monday, July 30, 2007

KQ No Longer the Pride of Stock Punters


Kenya Airways is a premier airline that for a long term had been christened the pride Africa. KQ the national airline of Kenya, based in Nairobi and operates scheduled services throughout Africa and to Europe and the Indian subcontinent is the largest airline in Kenya, and operates more transcontinental flights than any other African airline.

Accidents:
Kenya Airways is still reeling from the tragic accidents that removed a significant junk of asset from its balance sheet. Fresh in our minds is the tradigc accident of KQ 507 in cameroon that was carrying 105 passengers from 26 countries and 9 crew members and all perished in the incident. The Airline also suffered a fatal accident of flight 431 off the coast of Cot d'Iviore killing 169 of the 179 people on board.
Profitability:
Kenya Airways announced another record profit after tax of Ksh. 4,829 million for the year ended March 31st 2006, being 24% above the previous year's result of Kshs. 3,882 million. Though th company realized a 24% increase in profitability, the company is yet to make significant strides towards profitability and the reduced profitability trends by the company scare aware investors who are keen to make extra bucks from dividends.
Volatility:
The Airline industry is very volatile and with increased accidents the demand for airline shares will remain low. The industry is replete with issues of terrorism scare, flight hitches, changing customer needs and preferences etc. This volatility is an issue that has implications on the company.
World Oil Prices:
The volatility of world oil market prices is also an issue and the company has to contend with higher expeditures on gasoline to power its aircraft. Oil and other commodity prices continued to rise against a backdground of security concerns in the Middle East anf risks to oil production in Niger Delta in Nigeria.
Customer Service:
After rebranding to be referred to as the pride of Africa there have been concern of poor customer service that has also had negative implication on the company's bottomline. With other airlines coming into the region, competition for clients is bound to rise and with poor customer services as alleged of KQ, customers will most likely shift to other established Airlines as Emirates, KLM, British Airways, Virgin Atlantic, South African Airline, Qantas etc. Therefore KQ should up the game in its customer service.
Competition:
The emerging competition from Virgin Atlantic with significantly reduced faires on its London route will also affects the long run run prospects of KQ. Virgin Atlantic enterred this route with a bang and promised to significantly reduce flight fairs in most of its routes clearly bringing into focus the issue of heightened cut throat competition that is likely to set in.
New Aircrafts:
As Kenya Airways was voted East Africa 's Most Respected Company for the second year running they needto keep up and even exceed this recognition of no mean feat.However, despite the company planning to add 5 new aircraft to its fleet over the next few years the cost outlay is significant and the company might have to borrow heavily from world lenders a syndicated loan that will also lead to high payment of interest (Expense) which will reduce Earnings Before Interest and Tax (EBIT).
Stocks:
The company may have to contend with low stock demand ,for awhile, at the bourse that is signifiantly hampering price appreciation. The company on traded 117,300 shares at a price between 76 and 67.50 from a 12 months high of 147 a few months ago. The company has a 12 months low of 36 and with investors taking a wait and see attitude things might turn for the worse.The company may need new strategies to improve its bottomline and stir the market.

Thumbs Up
1.Leadeship Center
KQ has opened a Sh500 million Leadership Centre near their Embakasi Headquarters in Nairobi that will be used to train the airline’s staff and also staff of other air operators.

2. New Embraer Jet
KQ has already taken delivery of the first 70-seater Embraer jet, with the second regional jet expected next month. The two 70-seaters will try and bridge the gap created by the accident where we lost the third B737-800.

3. Corporate Center
KQ has also opened a Corporate Centre and a Sh21 million service centre for its frequent flyer club members. The airline is a partner on the frequent flyer programme with Air France and KLM, called Flying Blue. Both facilities are located at the Barclays Bank Plaza, Loita Street, Nairobi.

The corporate Centre will:

-Serve over 80 corporate members.

-Offer dedicated reservations and ticketing

-At as a call centre.

-Provides email address for efficient communication with customers.

-Have ‘Commercially Important Person (CIP)’ code for recognition at the check in.

-Besides Kenya, the Flying Blue Centre will serve Uganda, Tanzania, Rwanda, Burundi, Sudan, Ethiopia, Zambia, Malawi and Mozambique.


WE REMAIN WATCHFUL AS INVESTORS TAKING A WAIT AND SEE STRATEGY AND FOR THOSE WITH THE SHARES YOU CAN AS WELL HOLD FOR THE LONG TERM.

4 comments:

Riba Capital said...

Goodwork you have done here.
Will definitely be visiting you more frequently, especially now that am away from the NSE.

James said...

I am impressed with the depth of your analysis. Volatile or not volatile, KQ is the cheapest Blue chip stock at the NSE today. At a PE ratio of about 8, this is one neglected couter. True, since their last accident, few souls are getting excited about this stock. Be a Warren Buffet and enter now even if it is for a long haul, you will not regret ir Sectors associated with airline are growing tremendously; we can no longer keep up with tourism growth figures so do you expect KQ to get hurt by a booming tourism? Me thinks no way. Competition is a good ingredient, at least for the consummer: firms better learn to live with it. But I think KQ's main dominance, the African routes especially the West African one is not under serious threat yet

J K said...

I am impressed with the depth of your analysis. Volatile or not volatile, KQ is the cheapest Blue chip stock at the NSE today. At a PE ratio of about 8, this is one neglected couter. True, since their last accident, few souls are getting excited about this stock. Be a Warren Buffet and enter now even if it is for a long haul, you will not regret ir Sectors associated with airline are growing tremendously; we can no longer keep up with tourism growth figures so do you expect KQ to get hurt by a booming tourism? Me thinks no way. Competition is a good ingredient, at least for the consummer: firms better learn to live with it. But I think KQ's main dominance, the African routes especially the West African one is not under serious threat yet

J K said...

Fintrade please delete first postunder james. That was from my gmail signing and was not meant for blogging. sorry for any inconvinience