KCB shares retreat on profit warning concerns
KCB Group shares fell 1.87 percent Wednesday to close at Ksh36.80. That marked one of the steepest decline in KCB shares in recent months. The shares fell after the Business Daily reported that the banking giant may issue a profit warning as the Covid19 pandemic continues to pound its business.
KCB CEO Joshua Oigara said the bank was discussing the profit warning issue with the Capital Markets Authority, Kenya’s securities market regulator. The pandemic has diminished demand for loans and disturbed servicing of existing loans. For banks like KCB, the most profit comes from loans business.
What is profit warning?
A profit warning is an advance notice that a public company issues to investors informing them about a possible significant drop in its profit. Profit warning is intended to make investor aware that a company may report weak financial results for the current period compared to the previous period.
Kenya’s stock market rules require companies to issue a profit warning if they expect their profit for the current year to drop by 25% or more compared to the previous year.
KCB made a profit of Ksh25.2 billion in 2019, meaning that a profit warning would imply that its 2020 profit may be less than Ksh19 billion. KCB has already reported a 43% drop in its profit for the nine months through September 2020, highlighting the effects of the pandemic on banks.
The stock market regulator CMA requires companies to issue a profit warning as soon as they become aware of a possible profit decline. That means informing investors about a possible profit drop with 24 hours of the board becoming aware of it. Companies can be fined as much as Ksh50,000 for late profit warning.
Investors understand a profit warning to mean not only a possible drop in a company’s profit but also a possible loss. A company’s share price often drops following its issuing of a profit warning. That explains why KCB shares fell today on fears of an impending profit warning.
Are KCB shares a good investment?
The pandemic impact aside, KCB Group has long been one of the most profitable companies in Kenya, making it a top candidate for investors shopping for the best companies to invest in Kenya.
KCB shares its success with investors by distributing a portion of its profit as dividend. The bank has a long history as a reliable dividend payer, making it a top investment choice for investors seeking a steady stream of income.