Weekly Market Analysis

The market’s plumage was unruffled by election jitters; the roseate flight continued as a result of burgeoning demand. However, activity slumped considerably with 170.5 million shares traded as compared to the previous week’s hefty 285.7 million shares (-40%). Total turnover came in at Kshs. 4.2 Billion as compared to the previous week’s Kshs. 6.4 billion (-34%). The main indicators of bullish activity were the substantial spikes in the main indices. NSE 20 rose to 3,700.44 (+1.58%), the broad NASI to 155.30 (+1.42%) and the NSE 25 also moved upwards to 4,127.60 (+2.02%). The NSE 20 and NSE 25 thus set new 52-week highs.

The decrease in activity is attributed to sellers holding on and not meeting buyer’s purchase price aspirations. Buyers are trying to get the best possible prices as they take positions before elections. The elections are expected to be relatively peaceful because the new constitution has introduced very effective dispute resolution measures. Article 140 of the Constitution decreed a time frame for filing a presidential election petition. Article 140 (1) and (2) of the Constitution provides as follows:

  • A person may file a Petition in the Supreme Court to challenge the election of the President-elect within seven days after the date of the declaration of the results of the presidential election.
  • Within fourteen days after the filing of petition, under clause (1), the Supreme Court shall hear and determine the petition and its decision shall be final.

The risk is posed by mass protests in the event of an opposition defeat. However, placing the dispute resolution burden on the courts, with a strict timeline for verdicts, will ensure that such protests do not occur after the verdict is issued, unless the protesting parties blatantly discount the independence and credibility of the judiciary system.

Telecommunications Sector

Safaricom Kshs. 23.25 (+1.09%) led the movers, seeing 54,171,900 shares transmitted. This comes despite the launch of MVisa, a partnership between Visa and many local banks. Users will be able to send money between bank accounts for free and also shop at many outlets such as Nakumatt, KenolKobil, Bata etc. and pay using QR code technology. While theoretically posing significant competition, it is to be noted that a subscriber’s Mpesa account actually functions as a bank account. Earlier in May, Safaricom unveiled a suite of solutions dubbed the “M-Pesa One Tap”, aimed at accelerating and easing payments. The suite of solutions includes the M-Pesa card, Wristband and M-pesa tags which will allow customers to make payments easily.

Banking Sector

KCB Kshs. 39.75 (+1.27%) led the banking sector volumes, serving a movement of 22,422,500 shares. This was followed by Co-op Kshs. 14.95 (+6.79%) with an exchange of 16,603,100 shares. Equity Bank Kshs. 39.75 (+4.61%) traded 15,507,800 shares. Genesis Investment Management recently bought 221 million shares between May and June of the tier 1 banking counter. The UK based Limited Liability Partnership is definitely betting on some big news. Fund manager confidence in the banking sector has re-emerged from all time depths of pessimism. The government is set to debate the banking rates cap in the next parliament with a view to normalising access to credit. Half year results are also expected soon. The quarter one 2017 results were as follows:

  • KCB reported a pre-tax profit of Kshs. 4.5 billion, a 2% decrease from the Kshs. 4.6 billion reported in a similar period
  • Co-op posted a pre-tax profit of Kshs 4.5 billion, a heftier 8% drop from the previous period’s Kshs. 4.9 billion
  • For Equity Bank, Profit before Tax declined by 5% to KShs 6.9Bn down from KShs. 7.3Bn

Co-operative Bank is planning to open 5 new branches, reversing the branch closure trend that the dread inspiring legislation had initiated. Another sign which points to its scrapping.

Commercial and Services

Kenya Airways Kshs. 4.90 (-2.97%) recorded a descent on heavy volume. It even hit a low of Kshs. 4.30 in intra-day trade during the week and therefore the week’s closing price resulted from some altitude regained. The troubled aviation company recently announced an extraordinary general meeting to be held on 7th August, a day before an even more stressful day, to discuss a special resolution. The carrier intends to increase the government’s stake, convert local lenders debt to equity and float a rights issue to existing shareholders by the end of the year, all at a significant dilution. Speculation on the counter is becoming more and more risky as the big day nears.

Uchumi Kshs. 3.15 (+8.62%) saw a barter of 5,210,000 shares. The State is planning to let go of its investment and recoup taxpayer’s funds as the loss-making retailer stabilises. This also indicates confidence in the supermarket chain’s operations, post insertion of the Kshs. 3.5 billion strategic investor funds. Its improvement was reflected by a half year 2017 loss after tax of Ksh 547.3 Million from a loss after tax of Ksh1. Billion (45% improvement).

Nation Media Group Kshs. 108 (+2.86%) moved 754,200 shares. The newspaper company reported a FY 2016 decrease in profit before tax to Kshs. 2.46 billion from Kshs. 2.82 billion (-12.8%). EPS was Kshs. 8.9 significantly down from Kshs. 11.8 (-24.60%). However, total DPS was retained at Kshs. 10 to appease shareholders, at the expense of reserve depletion. The media giant will definitely see some good sales in this election season, including sales from campaign advertisements.

TPS Serena Kshs. 25 (+4.17%) rebounded on volume of 520,500 shares. The hotel management company, which operates hotels under the Serena brand name, posted a 254.2% increase in FY 2016 PBT to Kshs. 325.3m from a loss of Kshs. 211m. With a PE ratio of 15.34, it is a fairly respected counter. With a 52-week low of Kshs. 15.40 and a 52-week high of Kshs. 26, it probably doesn’t have too much further to go. Tourism recorded a growth of 15.8% in Q1 2017 from 10.4% in Q1 2016. The Ministry of Tourism, under the able leadership of CS Najib Balala, is poised to grow the sector further.

Energy and Petroleum Sector

KPLC Kshs. 8.20 (+1.23%) saw a load of 8,468,200 shares change ownership. The electricity distributor is engaging in several profit maximising measures such as an aggressive crackdown on illegal power connections, targeting to bring down the timeline for connecting new commercial customers to less than two months and implementing a Shs.13.2 Billion Underground Cabling project for Nairobi. The monopoly’s customers have grown tremendously over the years to the current 6.1 million. The country’s rate of access to electricity has increased from 27 per cent in 2013 to the current 68 per cent. The ticker has a PE ratio of 2.12 implying mind-boggling undervaluation!

Kengen Kshs. 7.80 (-1.89%) exchanged 9,283,500 shares and remains behind KPLC despite higher volumes. The electricity generator recorded a 21.7% decrease in FY17 profit before tax to Kshs. 6.6b from Kshs. 8.4b. In the absence of a profit warning, an upside seems imminent. With a PE ratio of 7.22, it is still fairly cheap despite the operational challenges.

KenolKobil Kshs. 14.95 (+6.3%) and Umeme Kshs. 13 (+5.69%) both re-emerged on heavy volume. The latter is already up 5.4% from its recent 52-week low of Kshs. 12.30.

Insurance Sector

CIC Kshs. 4.95 (+10.00%) moved 4,555,100 shares, setting a new 52-week high of Kshs. 5 in intra-day trade. Its profit warning laden FY2016 results posted a 83.4% decrease in Net profit to stand at Ksh 188 million vs a net profit of Ksh 1.1 Billion in 2015. Since listing on the Nairobi Stock Exchange in 2012, note that the 2016 bottom-line figures have been the worst. However, the ticker has ignored challenges and soared to these levels with an awe-inspiring PE ratio of 70.71! The market’s confidence in the share indicates the potential for a millionaire making rally, once profits normalise.

Britam Kshs. 13.80 (-3.50%) waned on moderate volume, as demand evaporated.

Investment and Investment Services Sector

Centum Kshs. 40.25 (-3.01%) receded on volume of 476,900. Despite a dividend hike of 20% to Kshs. 1.20, lack of clarity on the books closure date and inadequate stimuli are starting to get to the share price. Unjustified undervaluation at its harshest; the PE ratio is only 3.68.

NSE Kshs. 19.05 (+2.70%) rose on moderate volume, following the gains on blue-chips as keenly as us. It’s a mirror for the same.

Manufacturing and Allied Sector

BAT Kshs. 786 (-1.75%) moved a meagre 86,000 shares. The cigarette manufacturer reported a decline of 9 percent in profit after tax to Sh 1.95 Billion for the half year period ended 30th June 2017.  The company’s board declared an interim dividend for the year ending dec 31, 2017 of 3.50 shillings per 10 shillings ordinary share, despite the drop in profits. With a 52-week low of Kshs. 750 and a 52-week high of Kshs. 920, there is more headroom than legroom and it looks good for a year’s holding at these levels, offering good scope for capital appreciation as well as dividend earning capability.

@MihrThakar