Kenya August 2016 Market Report

Monthly Musing

Source: TheEventChronicle

In a year where the S&P 500 is hitting record highs, the Kenyan NSE 20 is the exact opposite going further down as the year progresses as shown below:

Now in a bad year which we are, where do the defensive and aggressive investors stand? A two by two matrix might tell the story.

Note that skill is measured over a given period of time, ideally more than a year.

Equity Markets

The NASI (Nairobi All Share Index) closed the last week of the month at 134.06 points, a monthly drop of 6.2%. The benchmark NSE 20 index fell by 7.9% to close the month at 3,187.87 points.

The main downside trigger was due to the unexpected signing of an interest rate cap bill by the President of the Republic of Kenya. The bill is meant to cap bank lending rates at 400 basis points above the Central Bank’s benchmark lending rate. This event was not received well by the markets and led to double digit percentage drops in Banking Sector stocks. The implications from the outset are that earnings might be threatened going forward.

NSE All Share.JPG

In looking at the Equity statistics table below, some interesting facts come out:

  • August had the largest number of deals (32,465)
  • August had the largest number of monthly share volume and by value traded
  • Relative Valuations dropped to the lowest in the year with the market having an average P/E of 11.21

Banking Sector valuations have dropped to fresh lows this year and if you dig deeper at individual banking stocks you will find valuations that were last seen more than two years ago. Optimists may see this as an opportunity knocking doors while others are taking the backseat and watching how the new regulations will impact the industry’s earnings before going overweight on that sector.

Top Monthly Gainers

Company1 Aug, VWAP 2 Sep, 2016 VWAP% GainShares Traded
1.TransCentury5.106.55+28.43182,800
2.Liberty Kenya14.0016.90+20.71159,300
3.ScanGroup15.0517.00+12.9618,799,900
4.Kapchorua Tea76.0085.00+11.848,600
5.Total Kenya15.9517.60+10.34198,500
6.Umeme15.0016.50+10.008,110,300
7.Kenol Kobil10.5511.45+8.5332,086,900
8.Uchumi Supermarkets2.953.20+8.473,219,400
9.Eveready East Africa2.002.15+7.50140,000
10.B.O.C Kenya80.5084.00+4.35133,700

Kenol Kobil a regional oil marketer has been an out-performer year-to-date with the share price up by almost 30%. It gained 8% in August on the back of over thirty million shares (see chart below)

Top Monthly Losers

Overall stocks were depressed across the board apart from a few counters. Most of the Banking stocks recorded double digit percentage losses led by the top tier Equity Bank. This is a clear signal of how investors reacted to the new interest rate cap policy that has clearly brought down the market to fresh lows putting more damage to the bear market that began a year ago. Banks will need to figure out quickly how to operate in this new environment.

Company1 Aug, VWAP 2 Sep, 2016 VWAP% LossShares Traded
1.Equity Group37.5026.50-29.33110,442,500
2.I&M Holdings105.0082.50-21.433,309,000
3.Cooperative Bank of Kenya14.5011.45-21.0340,302,100
4.National Bank of Kenya8.707.00-19.54173,800
5.Flame Tree Group5.104.15-18.631,645,700
6.E.A Cables8.456.95-17.75632,700
7.Sanlam Kenya Plc38.2531.50-17.652,900
8.Standard Group27.0022.25-17.5959,400
9.KCB Group32.0026.50-17.19131,359,800
10.Centum Investments43.7536.25-17.14631,500

In the year-to-date chart below we have overlaid the rest of the Tier 1 Banks over KCB Group and the only one that has managed to stay above the water is Standard Chartered Bank of Kenya.

Tea Sector Update

In the Tea Sector 2016 has been solid in the first half of the year with record production volumes posted in January as demonstrated in the table below:

However, caution should be exercised in the second half of the year as the lower prices have not equally matched with production volumes that give better monthly returns compared to 2015. We are keenly monitoring the trend and earnings variances as we closely approach the end of the year.

NSE listed agricultural companies that have exposure towards the Tea Industry are Williamson Tea, Kapchorua Tea, Limuru Tea, Sasini and Kakuzi (Kakuzi mainly sells Avocados but also has Tea in it’s product portfolio).

African Deals Jan – Aug 2016

Bond Market

In the fixed income market 316 deals were transacted worth a value of Ksh 21.8 Billion this was slightly up by 9.3% compared to July’s performance.

Kenyan Economic Indicators in Charts

Latest Manufacturing PMI

Central Bank Lending Rate

Note: Next MPC Meeting is on 22nd September

Inflation Rate

Debt to GDP Ratios

Current Account Deficits

We wish our readers great out-performance in their portfolios for the remaining few months of the year despite a negative global outlook.

Sources Of Data: (FT, Bloomberg, Uncommon Sense for the Thoughtful Investor – Howard Marks, NSE, Stratlink Global, Kenyan Wall Street, EATTA, Agriculture Authority, Markit, Trading Economics, AIB Capital, KNBS, Central Bank of Kenya)

Disclaimer: The contents of this website have been prepared to provide you with general information only. In preparing the information, we have not taken into account your objectives, financial situation or needs. The information contained herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed. Any liability whatsoever is disclaimed.

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