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Centum valuation gap widens

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Centum Investment Company’s valuation gap in the stock market has widened as the firm’s share price declined to a new average low of Sh10.05 on Friday.

The company is now valued at just 16.18 percent of its net assets per share of Sh62.09 that it reported in the half-year ended September.

Centum had net assets of Sh41.3 billion but its market value now stands at Sh6.6 billion. Centum is among the listed firms whose share prices have dropped by a large margin due to the bear market and other factors specific to the companies.

In Friday’s trading session, Centum’s share price set a new 52-week low of Sh9.6. Over the past 12 months, the stock is down 36.2 percent according to market data.

The company narrowed its net loss to Sh662.1 million in the half-year ended September from Sh1.9 billion a year earlier as its trading and financial services subsidiaries registered improved performance.

The investment firm has considered buying back some of its shares to address its undervaluation but has not yet taken steps to implement such transactions.

Share buybacks have the effect of reducing the volume of outstanding stock, potentially boosting the market valuation besides increasing the stakes of continuing shareholders.

Centum has also said it would raise dividend payouts and improve earnings by cutting costs and selling subsidiaries with weak cash-generation potential.

The company has in the past earned major capital gains from the sale of some of its assets and subsidiaries but most of the cash did not flow down to shareholders in the form of dividends.

Instead, the gains helped to reduce debt and fund new investments. Centum also believes its weak share price is a result of investors’ perception of risk and not fully understanding its business model.

The investment firm says it has dealt with the risk perceptions by reducing debt and increasing investments in liquid and defensive assets including government bonds.

Centum has also structured its operations to enable subsidiaries to borrow on their own without relying on the parent company to arrange or guarantee the obligations.

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