May 2016 Market Report

Monthly Musing

Dear Market Participant,

We trust you are doing great. It is that time of the month when we do an examination of what has transpired in the markets as you continue seeking lucrative investments in a really tough environment.

Earlier in the month when the 2016 Sohn Conference was concluding, James Chanos president and founder of Kynikos Associates (Estimated Net worth $1.5 Billion) made a presentation titled ‘A Sub-Saharan Saga.’ This caught our attention since Chanos is an individual who is renowned for short selling companies like Enron among others. His main theme was going short China, Nigeria and South Africa. According to Investment Frontier, his main points were:

  1. China entered Africa for commodities, and with commodity prices much lower now China is no longer as active and investment flows into Africa are reversing
  2. South Africa is terribly positioned with the commodity bust and rampant corruption
  3. Nigeria is even worse, due to the fall in oil prices killing its currency, terrorism from Boko Haram, and corruption that is possibly worse than South Africa – it’s  a mess
  4. His big call is to short MTN Group, a telecom company based in South Africa
  • 60% of its revenues are in South Africa and Nigeria
  • MTN has 50% EBITDA margins in Nigeria and 40% overall vs 20%-30% in most EM firms
  • Chanos thinks margins will shrink, and it will shrink while its competitors grow
  • The Nigerian government extracting fines and funds from MTN is also a real possibility

The MTN Group in fact is down -43.71% for the past 1 year. In May it went down -14.63% as shown in the chart below. What a call from Chanos!

MTN May Performance.JPG

Source: (Financial Times)

Equity Markets

With that being said, let us look at how our local markets here in Kenya performed. In the Equities side the Nairobi All Share Index went down 1.9% to 143.61 points to close the month. The benchmark NSE 20 Index which represents Kenyan blue chip companies is down 4.8% to stand at 3,827.8 points. The number of equity deals for the month dropped by 10.6% to 21,834. Volumes moved throughout the month stood at a total of 324 Million representing a drop of roughly 21% compared to the previous month.

NSE All Share Index May.JPG

Source: (Bloomberg)

Equity Stats.JPG

Monthly Gainers

Top 10 Gainers

Company 3 May, 2016 VWAP 31 May, 2016 VWAP % Gain Shares Traded
1. Longhorn Publishers 4.25 5.20 +22.35 543,500
2. National Bank of Kenya 9.30 11.00 +18.28 230,000
3. Marshalls (EA) Ltd 8.20 9.20 +12.20 1,700
4. BRITAM 13.45 14.65 +8.92 7,153,500
5. Kenya Reinsurance Corp. 19.60 21.00 +7.14 2,912,800
6. TransCentury 4.70 5.00 +6.38 324,800
7. Carbacid 14.50 15.20 +4.83 6,981,600
8. Standard Chartered 200.00 209.00 +4.50 201,000
9. Umeme Ltd 17.30 18.00 +4.05 4,112,900
10. NIC Bank 37.00 38.25 +3.38 1,114,500

Source: (NSE, Kenyan Wall Street)

Longhorn Publishers

Longhorn was an interesting play and we have to admit we did not see this coming. This rally in the share price by 22% was in our opinion as a result of a successful rights issue which had a 101% subscription. The company managed to raise KES 533 Million. Centum Investment a publicly listed company took this opportunity and managed to size up its position acquiring a whopping 60% majority stake. This makes Centum the first publicly listed company to acquire control of a company through a cash call.

Longhorn May.JPG

Source: (Financial Times)

BRITAM

Britam had some price action during the month. It touched a 2016 high of 16.80. Then later dropped to its current price of 14.65. Overall it gained 8.9% during the month. In looking at it from a broader view since January it has gained 12%. If you bought it at the price dips experienced in March – April you would be definitely be up by around the 40% or more.

Britam YTD May.JPG

Source: (Financial Times)

Monthly Losers

Top 10 Losers

Company 3 May 2016 VWAP 31 May 2016 VWAP % Loss Shares Traded
1. Kengen 8.60 6.75 -21.51 17,931,800
2. Kenya Airways 4.40 3.80 -13.64 7,839,700
3. Co-operative Bank 19.55 17.15 -12.28 13,887,900
4. Eveready (E.A) 2.45 2.15 -12.24 151,200
5. Express Kenya 4.00 3.55 -11.25 92,700
6. ScanGroup 25.50 22.75 -10.78 1,409,100
7. Olympia Capital Holdings 3.80 3.40 -10.53 42,100
8. Flame Tree Group 8.00 7.20 -10.00 223,500
9. Home Afrika 1.55 1.40 -9.68 5,628,400
10. Pan Africa Insurance 44.25 40.00 -9.60 81,300

Source: (NSE, Kenyan Wall Street)

KenGen

KenGen was the loser of the month with the share price falling by 21%. Kengen is currently in a rights issue and the cash call will last until 10th June. Kenyan Wall Street will be keenly watching out for the results of this market offer. Investors who would wish to participate in the cash call but are not shareholders can buy rights of owners who are not willing to exercise their option at the exchange. The government of Kenya which owns 70% will take part through conversion of Ksh 20.2 Billion loan into equity.

KenGen May.JPG

Source: (Financial Times)

Heavily Traded Counters

The following are the counters that were the most liquid (volume) during the month:

Company Shares Traded
Safaricom 84,742,600
Equity Bank 51,720,600
Kenya Commercial Bank 32,597,500
Barclays Bank of Kenya 19,219,200
KenGen 17,931,800

Source: (NSE, Kenyan Wall Street)

Fixed Income Market

The debt market had 465 deals worth a total of KES 49.4 Billion which was 29.5% more than the previous month.

The increase in the bond activity is attributed to a 9 Year KES 34.9 Bn. Infrastructure Bond which was issued in May 23rd and has a coupon of 12.5%. The value of bonds traded in that week were KES 18.6 Billion. It had an average traded yield of 13%.

Debt Market Statistics  
January February March April May
Number of deals 182 372 936 432 465
Bond Turnover (KES) 21,593,790,000 23,651,678,000 70,078,333,000 38,138,540,000 49,393,244,942

Source: (NSE, Kenyan Wall Street)

Bond Turnover.JPG

The Kenyan Shilling

The USDKES rate is currently at 100.891. In looking at the shilling in context it has proven to be strong and has continued strengthening since highs of 105 to the dollar experienced in 2015.

USDKES.JPG

Source: (CBK, Kenyan Wall Street)

Economic Indicators

On May 23rd the MPC met and the Central Bank of Kenya unexpectedly cut the base lending rate by 100 basis points to 10.50% for the first time in 3 years as shown in the chart below:

Interest Rate.JPG

Inflation in May dropped to a 3 year low of 5% compared to April’s 5.27% despite increases in the price of food and petroleum as electricity bills remained unchanged. The Consumer Price Index (CPI) increased by 0.68% to an all-time high of 167.99% from 167.07% posted in April 2016. Between April and May 2016, Food and Non-Alcoholic Drinks’ Index increased by 0.82 per cent as a result of notable increases in prices of several food items which outweighed the decreases. Over the same review period, Housing, Water, Electricity, Gas and Other Fuels’ Index, increased by 0.09 per cent. This small aggregate increase was mainly as a result of price increases in respect of kerosene and other cooking fuels.

Inflation Rate May.JPG

Source: (Trading Economics)

 

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