Investors fine with East African Cables issuing profit warning?
East African Cables took the crown as the best performing stock today. The stock popped up 7.7% to close at Ksh1.40 apiece, more than recouping its 7.14% loss yesterday. Interestingly, East African Cables shares soared even after the company made an announcement that would ordinary scare off investors. The company issued a profit warning yesterday, citing economic blows from the Covid-19 pandemic.
What is profit warning and how does it affect investors?
A profit warning is a notice that a public company issues to inform investors of a possible material drop in its profit. Kenya’s stock market regulations require companies to issue a profit warning if they expect a profit decline of 25% or more.
Requiring companies to issue profit warning if they expect to deliver bad results is part of Capital Markets Authority’s investor protection measures. A profit warning helps investors know the risk of investing in a company’s shares.
CMA regulations require companies to issue profit warning as soon as the board becomes aware of a possible profit decline. A company can be fined as much as Ksh50,000 for making a late profit warning.
East African Cables’ profit warning
East African Cables supplies cables for a variety of applications from electricity wiring to internet connection. As business and consumer spending has weakened in the pandemic, East African Cables is seeing low demand for its products. The company still expects to register a 10% increase in revenue for the 2020 financial year. However, it anticipates a more than 25% drop in profit, hence the profit warning.
A company’s share price often drops after it issues a profit warning. The swift rebound of East African Cables shares after the profit warning is telling. It seems to signal that many investors believe the company has bright prospects beyond the pandemic. But it remains to be seen if the stock will keep its gains.
How to buy East African Cables shares
East African Cables shares trade on the Nairobi Securities Exchange under “CABL” ticker symbol. To be able to buy East African Cables shares, you will need to open a CDS account with a stockbroker or an investment bank.
Once you set up the account, you can proceed to buy the shares. You will need to decide the amount of East African Cables shares you want to purchase and place your order. You will deposit money with the broker to use to buy the shares for you.
The CDS account will act as the store of all the shares you buy. Similarly, when you sell shares, they will be taken from your CDS account. Remember, the minimum number of East African Cables shares you can buy in a single purchase is 100 units.