Home Afrika Ltd. fell to the lowest level since the shares of the real estate developer started trading last month amid speculation the stock is too expensive relative to companies on the Nairobi Securities Exchange.
The shares plunged 4.8 percent to 14.75 shillings by the end of trading in the Kenyan capital. That compares with a closing price of 25 shillings on July 15, Home Afrika’s debut. The 14-day relative strength index has been below 30 since then, a level that signals to some technical analysts that a security is oversold and poised for a rebound.
“It is still far from its fair value and investors are dumping the stock,” Davis Mika, an analyst at Nairobi-based Contrarian Investing Kenya Ltd., said by phone. The stock will probably drop 16 percent from today’s closing price to 12.40 shillings, he said.
Shares of Kenya’s only publicly traded developer were offered at 12 shillings and have increased 23 percent since mid-July. The advance isn’t justified as the company trades at a price-to-earnings ratio of 35, according to Mika. That compares with a multiple of 16.8 times for the benchmark NSE 20-Share Index, which has jumped 2 percent since July 15.
Chairman Lee Karuri said last month that the Nairobi-based company is planning to benefit from economic growth in Africa by expanding into Tanzania, Uganda, South Sudan, Ethiopia and Rwanda. The listing “was not an avenue to raise money but for the existing shareholders to discover the value of the company,” Chief Executive Officer Gerald Chege said in a phone interview on July 24. “Revenue in real estate is only recognized after a transaction has been completed.”