Q1 2016 Market Analysis: ‘Back To Where We Began’

Market Analysis

Dear Investor,

As we usher in the second quarter of the year with beautiful rains in the country’s capital, Nairobi, we trust our readers are doing splendid as they navigate through the interesting and ever surprising financial markets. Much has taken place during the first quarter and we wish to do a quick review of what has transpired in this commentary. As we dive into the numbers we leave you with a quote by the legendary Stanley Druckenmiller to ponder upon:

“I’ve learned many things from (George Soros) but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

Equity Market

The Nairobi Securities Exchange had a tough first quarter whereby prices fell sharply in January, then later on recovered gradually from the dip in February and March. We are currently around the levels we were as at January, some of the losses made in the January dip have since recovered. The NSE All Share Index finished Q1 at 147.03 points this is slight increase of 1.23% since the year begun with the index at 145.24 points.

NSE All Share 3month 16.JPG

Source: Financial Times

The benchmark NSE 20 Index which is a price weight index calculated as a mean of the shares of 20 public, listed companies ended the quarter with 3,996.38 points a slight recovery up by 1.42% from 3,940.42 points since the beginning of the year.

If we look at a 1 year chart (shown below) of the NSE 20 Index to put things in perspective, the market touched a historic 5 year high of near 5,550 points in early March 2015, since then prices have plummeted sharply and the market has generally been stuck in that bear position. It seems February 2016 is when the market bottomed out, we cannot predict the future but we will closely monitor the markets on the path to recovery.

NSE 20 Yr Chart.JPG

Source: Abacus

q1 equity stats.JPG

Note: We have excluded the Stanlib Fahari I-Reit in the data

From the above stats we compiled, March was undoubtedly the best month as some counters recovered, trading volumes also increased mainly driven by full year 2015 earnings releases of various companies notably companies in the banking sector among others.

Index Insights

The NSE currently has 6 market indices; The NSE 20 Share Index, NSE All Share Index (NASI), FTSE NSE Kenya 15 Index, FTSE NSE Kenya 25 Index, FTSE NSE KE Government Bond Index and NSE 25 Share Index. We now look at the most recent index to be added on the Exchange which is the NSE 25 Share Index. The main reason the Nairobi Securities Exchange launched this index on October 2, 2015 was ‘with a view to provide the Exchange with opportunities to develop structured products in the equities and the upcoming derivatives market.’ Chief Executive, NSE.

The criteria used in selecting the companies for the NSE 25 Share Index are as follows:

  • Shares must have their primary listing on the Nairobi Securities Exchange.
  • A company must have a least 20% of its shares quoted on the NSE.
  • A company must have been continuously quoted for a least 1 year.
  • A company must have a minimum market capitalization of KES 1 billion
  • Should ideally be a “blue chip” superior profitability and having a dividend record.

The constituents of the NSE 25 Share Index are;

  1. Barclays Bank of Kenya Ltd
  2. CFC Stanbic of Kenya Holdings Ltd
  3. Diamond Trust Bank Kenya Ltd
  4. Equity Group Holdings
  5. Housing Finance Co. Kenya Ltd
  6. I&M Holdings Ltd
  7. Kenya Commercial Bank Ltd
  8. NIC Bank Ltd
  9. Standard Chartered Bank Kenya Ltd
  10. The Co-operative Bank of Kenya
  11. Nation Media Group Ltd
  12. WPP Scangroup Ltd
  13. ARM Cement Ltd
  14. Bamburi Cement Ltd
  15. KenGen CO. Ltd
  16. KenolKobil Ltd
  17. Kenya Power & Lighting Co Ltd
  18. British-American Investments Co. (Kenya) Ltd
  19. CIC Insurance Group Ltd
  20. Kenya Re Insurance Corporation Ltd
  21. Liberty Kenya Holdings Ltd
  22. Centum Investment Co Ltd
  23. British American Tobacco Kenya Ltd
  24. East African Breweries Ltd
  25. Safaricom Ltd

Top 10 Q1 Gainers

Company 4 Jan. 2016 VWAP 1 April, 2016 VWAP % Gain Shares Traded
1. Kenol Kobil 8.85 11.25 +27.12 51,570,600
2. Standard Chartered Bank 203.00 247.00 +21.67 1,257,900
3. Co-operative Bank 17.70 20.50 +15.82 58,132,600
4. CFC Stanbic 81.50 94.00 +15.34 7,695,800
5. Diamond Trust Bank 186.00 214.00 +15.05 3,998,900
6. Longhorn Kenya 4.65 5.25 +12.90 1,655,100
7. Nairobi Securities Exchange 24.50 27.25 +11.22 5,221,200
8. Bamburi Cement 175.00 194.00 +10.86 6,186,900
9. Scangroup 27.50 30.25 +10.00 5,939,000
10. Unga Group 32.25 35.25 +9.30 578,600

Source: (NSE, Kenyan Wall Street)

Q1 Performance Calc.xlsx

Kenol Kobil an oil marketer makes it at the top of our list being the best counter since the year begun. The rally begun in in February when the company announced its intention in disposing off their subsidiaries in Congo and Tanzania effectively reducing their debt burden. In March the company announced its Full Year results and they were nothing short of spectacular. If you look at the volumes of Kenol Kobil they picked up in March with 37.5Mn shares traded. Kenol traded a total of 51.57Mn shares during the quarter.

Kenol Kobil 3 Month Chart

Kenol Kobil.JPG

Source: Financial Times

Standard Chartered Bank of Kenya exhibited some reflexivity as George Soros puts it and definitely we would never have come to the conclusion that it would make it in the top 10 gainers. The reason why we say this is because Standard Chartered had issued a profit warning for the FY 15 results and for sure their earnings were way much less than FY 14. The reason why we saw investors ride on this counter may be due to a dividend payout or a 1:9 bonus issue that was declared. The counter rallied by 21.67%.

Standard Chartered Bank 3 Month Chart

SCBK 16.JPG

Source: Financial Times

Another counter to note is Nairobi Securities Exchange which rallied on the back of a bonus issue being declared. In fact NSE touched an historic all-time high of 30.25, set on Mar 30, 2016.

NSE Counter.JPG

Source: Financial Times

Top 10 Q1 Losers

Company 4 Jan. 2016 VWAP 1 April, 2016 VWAP % Loss Shares Traded
1. Williamson Tea Kenya 401.00 183.00 -54.36 145,600
2. Kapchorua Tea Co. 200.00 94.00 -53.00 75,200
3. Uchumi Supermarkets 10.65 5.10 -52.11 6,923,600
4. Atlas African Industries 2.30 1.35 -41.30 10,226,900
5. E.A Cables 10.60 6.55 -38.21 1,387,300
6. TransCentury 8.00 5.20 -35.00 2,190,400
7. Pan Africa Insurance 60.00 40.00 -33.33 94,400
8. Limuru Tea Co. 1,085.00 799.00 -26.36 85,300
9. Home Afrika 2.50 1.85 -26.00 15,531,600
10. National Bank of Kenya 15.85 11.75 -25.87 1,232,500

Source: (NSE, Kenyan Wall Street)

Losers have been still dominating the Exchange, around 37 counters were on the red zone. Most companies still recorded double digit paper losses.

The Agricultural sector took a hit, the only company that ended the quarter with a higher price was Eaagads, a mere 2% increase.

Automobiles & Accessories industry was also in the red zone with Marshalls E.A down by 23.11%.

In the Banking Sector the counter that got a huge blow was National Bank of Kenya. It posted impressive half year and third quarter 2015 results then events unfolded just before they released their FY 15 results in March. Rumors begun circulating on social media that the bank has sacked its CEO which was then dismissed by NBK then a day after it made a somewhat contradicting announcement that it has sent the CEO and other top managers on compulsory leave which the Central Bank of Kenya welcomed. If that is not good enough a Profit Warning statement shortly preceded the banks FY 15 results. National Bank of Kenya posted a loss of KES 1.2Bn. Shocking!!! The markets responded to this news and the share price has plummeted by over 25% compared since the beginning of the year. Clearly the bank made an under provision on their non-performing loans.

NBK 3 month chart.JPG

Source: Financial Times

The Insurance Sector has not recovered yet to prices last seen in January. The sector has been led by declines in Pan Africa Insurance which was one of the companies that had previously issued a profit warning for their FY 15 results.

In the investment sector which has three active counters i.e. Centum Investments, Olympia Capital and TransCentury, all of them down YTD led by TransCentury which has been having problems repaying an outstanding debt. TransCentury is down by 35%. An agreement has since been made with the bondholders agreeing on a haircut and have given the company 6 more months to settle the outstanding amount. TransCentury is currently trading at 52 week lows.

TCL 3 month.JPG

Source: Financial Times

Heavily Traded Counters

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

Company Shares Traded
Safaricom 489,288,300
Kenya Commercial Bank 201,234,500
Equity Bank 120,529,700
KenGen 66,055,600
Kenol Kobil 51,570,600

Source: (NSE, Kenyan Wall Street)

East African Deal Statistics

The following are the number of deals that have taken place in East Africa since the beginning of the year compiled by Burbidge Capital.

Deal stats.JPG

Source: Burbidge Capital

Fixed Income Market

Debt Market Statistics Q1
  January February March
Number of deals 182 372 936
Bond Turnover (KES) 21,593,790,000 23,651,678,000 70,078,333,000

Source: (NSE, Kenyan Wall Street)

From the above statistics the fixed income market began on a low with a total of 182 deals being executed in January. Activity then picked up on February with deals more than doubling to stand at 372. March was the best month of the quarter with huge volumes being traded and the deals increased by 151% to 936.

According to the latest CBK weekly bulletin the rise in investor interest in the bond market may be attributed to portfolio rebalancing as investors move from equities into long term securities.

Q1 2016 Bond Turnover.JPG

Macro-Economic Indicators

Kenya Inflation Data

Kenya’s March inflation rate fell to a 6-Month Low to 6.45%

inflation kenya.JPG

Source: Trading Economics

Interest Rates

Interest Rate Kenya.JPG

Source: Trading Economics

Conclusion

We thank our readers for giving us much support and we wish you the very best in your endeavors, as we dive in deep to the second quarter of the year.

 

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. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. The information contained herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed.