Kenya Commercial Bank Analysis

Kenya Commercial Bank (KCB) Analysis

Profile

Kenya Commercial Bank Limited is a Kenya-based commercial bank.

The principal activity of the Company is to offer corporate and retail banking services.

The Company’s operating segments include Retail banking, Corporate banking, Mortgages and Treasury.

The retail banking segment includes incorporating banking services, such as customer current accounts, savings and fixed deposits to individuals.

Retail lending are mainly consumer loans and mortgages based lending.

The Corporate banking segment includes incorporating banking services, such as current accounts, fixed deposits, overdrafts, loans and other credit facilities both in local and foreign currencies.

The Mortgages segment includes incorporating the provision of mortgage finance.

The Treasury segment operates the Company’s funds management activities.

The Company’s other operations include trade finance and forex business.

The Company also participates in investments in Treasury Bills and Bonds from the Central Banks.

Key Facts & History

KCB opened office in Kenya under the name National Bank of India in 1904. It later merged with Grindlays bank. After independence, the government of Kenya acquired 100% ownership of the bank and renamed it Kenya Commercial Bank in 1970.

KCB is the biggest bank in Kenya, with:

• •Total Assets worth KES 566.6Bn
• •Total Customer deposits KES 443.0Bn
• •Total loans at KES 320.6Bn
• •Shareholders’ Funds at KES 78.1Bn

KCB has over 250 branches and over 7 million customers

Financials (Q3 2015)

For the nine months ended 30 September 2015, Kenya Commercial Bank Ltd. interest income increased 16% to KES 39.66B.

Net interest income after loan loss provision increased 15% to KES24.51B. Net income increased 10% to KES 13.73B.

Net interest income after loan loss provision reflects Interest on Loans/Advances increase of 26% to KES 32.89B.

Net income was partially offset by Interest on Deposits increase of 28% to KES10.04B (expense).

Shareholder Analysis

KCB has a total of 3,025,219,832 shares. Majority of the investors are local institutions (42.8%), followed by foreign investors (31%) and local individuals (26.2%). The counter has a free float of 73%.

Top Ten Shareholders

1. •PERMANENT SECRETARY TO THE TREASURY – 17.31%
2. •NATIONAL SOCIAL SECURITY FUND – 6.10%
3. •CFC STANBIC NOMINEES LTS A/C NR3530153-1 – 1.98%
4. •STANDARD CHARTERED NOMINEES NON-RED. A/C 9069 – 1.85%
5. •STANDARD CHARTERED NOMINEES NON-RED. A/C 9867 – 1.70%
6. •STANDARD CHARTERED NOMINEE A/C KE17682 – 1.62%
7. •KANAKSINH KARSANDAS BABLA & SANDIP KANA SINH BABLA – 1.55%
8. •STANDARD CHARTERED NOMINEES A/C 9688 – 1.51%
9. •STANDARD CHARTERED KENYA NOMINEES LTD A/C KE18972 – 1.50%
10. •STANDARD CHARTERED KENYA NOMINEES LTD A/C KE20531 – 1.32%

Note: The Bablas have various holdings, however when we combine their total holdings they should be having over 87 million shares, effectively, they will become the third largest shareholders in KCB. Making them the largest local individual investors.

Notable Institutional Holders

1. •Schroder Investment Management Ltd
2. •Norges Bank Investment Management
3. •Templeton Asset Management Ltd. (Hong Kong)
4. •Morgan Stanley Investment Management, Inc.
5. •Harding Loevner LP
6. •Parametric Portfolio Associates LLC
7. •Blackrock Fund Advisors
8. •JPMorgan Asset Management (UK) Ltd.
9. •Old Mutual Investment Group (Pty) Ltd.

Source: Factset Research Systems Inc.

Share Price Trend

We maxed out KCB’s historic chart, and we found out some interesting stuff. KCB hit a historic low of KES 7.39 in 2002 and it hit an all-time high of KES 233.77 in 2006 before it fell sharply in 2007 due to a 10-1 split that year .Undoubtedly, KCB has been volatile with various swings in its lifetime, this has presented profit making opportunities and loss making endeavors.

Lately, Investment Professionals have been using the 1 year chart on KCB as a Barometer of investing on the counter as shown below, their argument is that it is trading on 52 week lows and presents solid entry points with target prices ranging from KES 50 – 58 per share.

Commentary

Vantage Points

KCB Mpesa, a partnership, is expected to be a key growth driver for the bank in terms of deposits and loan growth. KCB has over 2 million customers disbursing over KES 2Bn in loans.

Strong growth in alternative channels including mobile banking and agency banking to enhance digital payments and more efficient delivery services. KCB has signed up 3 universities to issue smart cards to students with HELB loans and is expected to earn commissions and obtain cheap deposits from the government.

Pan African Agenda: KCB recently announced it had received a license to open a representative office in Ethiopia. This gives the bank a chance to tap Africa’s second largest market by population.

Disfavors

Exposure to different political, economic and regulatory environments as the bank has regional subsidiaries in different countries hence is exposed to different changes in its operating environment. Case in point, recently, South Sudan devalued its currency by 84%, this might have a negative impact on KCB going forward as its South Sudan subsidiary contributed 17% of Group assets and 9% of group revenue for Q3 2015.

KCB has a 3.8% Return on Average Assets as compared to Equity Bank (5%). This shows that it is finding it difficult in maximizing its huge asset base.

Conclusion

KCB is cheap, has good value, loved by Wall Street, and has a dividend yield over 4%, trades below a PE ratio of 10x and trades less than 7x its operating profit.

KCB managed to post relatively good Q3 earnings compared to its peers amidst tough operating conditions. Solid business here. Your Thoughts?