Centum Investment Company - Building Value in Kenya: Ryan Hoover, Investment Analyst, Africa Capital Group

Posted on : Friday , 23rd October 2015

The Nairobi Securities Exchange’s main index has lost 31.7% in U.S. dollar terms since the start of the year in response to security concerns, China’s slowing growth, and a brief experiment with a 5% capital gains tax.

The drop makes for a compelling opportunity to purchase shares of the country’s largest investment holding firm.

Prime assets

With a basket of profitable private equity investments and a remarkably consistent record of building shareholder wealth, Centum Investment Company appears intent on becoming the Berkshire Hathaway of Kenya.

Centum’s investment portfolio is concentrated in four of East Africa’s most promising sectors: real estate (22%), consumer goods (22%), financial services (17%), and energy (5%). Notable holdings include controlling stakes in fast-growing K-Rep Bank, four of Kenya’s six Coca-Cola bottlers, a pipeline of power projects with a combined 1120MW of generating capacity, and an 18% stake in General Motors’ East African subsidiary.
Perhaps the most exciting of all of these assets, however, is its stake in Nairobi’s Two Rivers Mall. The first phase of this massive, $240 million integrated real estate development is nearly complete. And when it opens its doors next month, it will become sub-Saharan Africa’s largest mall outside of South Africa, with international brands, two hotels, and high-end residential and office space.

Top-notch management

These investments are overseen by two luminaries of Kenya’s investment community, Chris Kirubi and James Mworia.

Kirubi is Centum’s largest individual shareholder and chairs the company’s investment committee. A graduate of Harvard Business School and one of Kenya’s wealthiest citizens, he made his fortune in Nairobi real estate and now holds major stakes in a number of leading Kenyan businesses. His reputation has played a crucial role in Centum’s ability to land key deals, such as a contract to develop a 1000MW power plant on the island of Lamu.

Meanwhile, the company’s daily operations are overseen by youthful CEO James Mworia. A lawyer and accountant by training, Mworia began his investment career as a Centum intern in 2001. His deal-making skills and knack for spotting value soon caught Kirubi’s attention, who appointed him Centum’s CEO at the ripe old age of 31.

He took the reins in the wake of post-election violence in 2008. Kenya was in the midst of 26% inflation, a stalled economy, and a bear market that saw stock prices drop 40% in the space of a year.

Recognizing a fine opportunity to pick up blue chip assets on the cheap, Mworia opted to stop paying dividends and allocate all available assets to building and diversifying the firm’s holdings.

The bold move paid off. Centum’s net asset value has grown at an annualized rate of 33% during Mworia’s six years at the helm.

This growth, in tandem with innovative capital raising strategies, has helped the company to quadruple its asset base over the past five years without coming back to the market via a dilutive rights issue.

What’s more, in spite of Centum’s rapidly increasing scale, management has done an admirable job of keeping costs in check. The company runs very lean with a small staff. Total costs as a percentage of total assets has remained comfortably below 2.5% in each of the past six fiscal years.

A bargain price tag

Centum shares now trade 33% off their 12-month high and at a 10% discount to book value. Given the company’s top-notch management team, its stable of blue-chip assets, and a track record of consistent growth, we believe the stock is poised to contribute market-beating returns to our fund over the next five years.