While most Kenyan Banks listed at the Nairobi Stock Exchange have been reporting record profits the same cant be said of their counterparts in the industrial sector. Most of the industrial stocks have either announced reduced profits or sunk into loss making territory i.e Express Kenya Ltd which recently reported an Earnings per share loss of 0.15.
Here are the reasons on why i'm less bullish on the industrials stocks?
1. The Weak Kenyan Shilling-the Kenyan Shilling has plunged against major currencies such as the the US$, Euro and the Sterling pound. In fact the Kenyan Shilling has lost about 10% to the green buck in 2011 alone. The weak shilling will push up costs for the industrials making their operations more unbearable as most of their input raw materials are imported, a tonne of wheat at $360 at the exchange rate of KSh 74 is not the same as at an exchange rate of Ksh84 do the math.
2. Super Inflation-year on year inflation surged to 12% in April mainly due to the escalating fuel prices following the revolts in the Middle East and North Africa( MENA) countries. Inflation will cut spending by consumers as their budgets become eroded by the high cost of living, if you cant sell anything you are out of business.
3. Raging Commodity prices-commodity prices have surged globally mainly due to the surge in the Chinese demand which has emerged as a new superpower, high commodity prices will increase input costs for the industrials i.e coal is a key input for cement companies.
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