Weekly Market Analysis

Investors holding shares at the bourse are getting swept out to sea. Psychologically, there is a skirmish between two schools of thoughts: holding shares so as not to be left out in the post-election rally and selling off so as not to be inundated with exceedingly deeper losses. It is a tried and tested strategy to buy when others are selling and to hold when others are buying. The question is, what is the floor?

Another cold week saw only 83,117,000 shares traded as compared to the previous week’s 62,024,600 (+34%). Monthly Volume was over 700,000,000 shares since May, but September’s activity plunged to only 496,159,200 shares. Average traded volume over the first 9 months of the year is 642,416,500 shares.

Weekly turnover stood at Kshs. 2,621,378,099, up 61.7% from the quondam week’s Kshs. 1,621,106,766. The main indices experienced sharp drops, especially those representing the blue chips (in fact my plate of chips is looking blue due to the blues from the decreased activity and bearish operations). The benchmark NSE 20 slipped to 3626.62 (-1.80%). It has bled to rest at these levels from a high of 4089, set on 28th August 2017 (-11.3%). The broad NASI cascaded to 159.25 (-0.91%) while the NSE 25 plummeted to 4121.96 (-2.15%).

Politics

On 10th October 2017, the Opposition leader pulled out of the election in a press conference and later wrote a letter addressed to the electoral body. On 11th October, in a pending case, the High Court ruled that the six other candidates who had been part of the August 8th elections will all be automatically nominated to vie in the fresh election. Both occurrences were bombshells, the former to the general public but the latter to the opposition strategists and legal team. The adroit leader had relied on the following in dropping his announcement:

  1. Section 138 of the constitution of the Republic of Kenya calls that a fresh election should be held if a candidate dies before the election is held
  2. A 2013 Supreme Court judgement which extended the above guideline to include the situation where the ‘pulling-out’ of a candidate is also a prime mover for cancellation of an election

The High Court judge conferred obiter dictum status on the statements said ‘by the way’ in 2. Above. Statements which are based on hypothetical facts, such as those described are not part of the reasons for a decision (ratio decidendi). This should have been obvious from the outset.

The opposition may now rely on disrupting voting activities or preventing voting in its strongholds. This is unlikely to be tolerated by law enforcement authorities and the legal system. Secondly, the electoral body need only provide the necessary infrastructure for voting and does not have to compel anyone to vote, with even one vote satisfying the criterion of ‘elections taking place’. The opposition may therefore consider the strategy of ‘compelling’ or masterminding the resignation of the electoral body staff at a critical moment, relying on the constitutional requirement for the election to be held in all the counties. They will then push for a reiterated annulment. It can be argued that a wrong-doer should not benefit from their actions, but obviously they will assert that the staff ‘quit of their own free will’.

The worrying part is that the 2013 statements may be congealed into law by a subsequent Supreme Court ruling in a petition to come by the opposition. If this happens then fresh elections will be called once again, even if the election has taken place and a President-elect already declared. The markets will crash if that diegesis plays out.

The opposition candidate has not yet submitted a document known as Form 24A, which is the correct document to calcify withdrawal. Submission of the same is necessary to bet on a favourable Supreme Court ruling in regard to the requirement of fresh nominations if one candidate abandons a two-horse race. It can be argued that the Supreme Court ordered a fresh election and did not specify any reforms that the opposition are campaigning for. With new election laws that will transfer the burden of proof on the petitioner in an election case curbing the Supreme Court powers, the effect of an exit of a nominated candidate may be a significant point that the opposition lawyers will rely on. If you think about it, the requirement for calling off elections and restarting the process should only apply to a two-horse race, even if the absurd notion is entertained. The inclusion of several candidates changes the mechanics of the ‘law’. It is unlikely that the apex court will create a precedent that will allow the propagation of a situation where a candidate pulls out repeatedly, delaying elections indefinitely. Section 13 of the constitution is also clear: If only one candidate for President is nominated, that candidate shall be declared elected.

An opposition defeat is not guaranteed and the opposition winning the election is going to be a fresh invigoration for the country and may actually see the market soar!

Telecommunications Sector

Safaricom Kshs. 25 (+1.01%) saw the transmission of 39,483,600 shares. The Communications Authority has abstained from fining the monopoly corporation Kshs. 400 million for an outage that occurred earlier this year. This came as a relief to shareholders who wouldn’t want to see another manifestation chip away at the outlier company’s bottom line. Such a punishment would have been in addition to election related slump in activity, which affected mobile money movements. Placing a punt on this share, with an orgasm at Kshs. 28 is not a bad idea at all.

Banking Sector

Barclays Kshs. 9.50 (-6.40%) was the second biggest sector loser as sellers regurgitated 859,700 shares. For the half year ended 30th June 2017, net NPL’s and advances (which are non-performing loans net of provisions) stood at Kshs. 2.92 billion as compared to Kshs. 1.75 billion in a similar period (+66.9%). The liquidity ratio came in at 36.1% v 36.6% (-0.5%).

KCB Kshs. 37 (-7.50%) traded 8,827,100 shares to lead the sector movers and losers. The half year 2017 saw it record a tremendously encouraging decrease in defaults. Net NPL’s and advances came in at Kshs. 9.2 billion as compared to Kshs. 14.2 billion (-35%). Liquidity ratio dipped slightly to stand at 35.7% v 39.1% (-3.4%).

Equity Bank Kshs. 36 (-2.70%) moved 8,070,500 shares. Concern is credible over its ability to lend to credible customers. Net NPL’s and advances for the period ended 30th June 2017 were Kshs. 9.7 billion in contrast to Kshs. 6 billion in the period ended 30th June 2015 (+62%). However, an excellent liquidity ratio of 51.1% was revealed v 37% (+14.1%). Loan growth was positive in all 7 markets that the lender plays in except Kenya and South Sudan. The other markets it is engaged in are DRC, Tanzania, Rwanda and Uganda.

Co-operative Bank Kshs. 16.50 (-0.90%) was fairly stable on the back of 4,048,100 shares exchanging hands. The tier 1 lender’s net NPL’s and advances for the half year were recorded as Kshs. 11.3 billion v Kshs. 9 billion (+25.6%). The liquidity ratio was 35.3% as compared to 41.6% in the previous period (-6.3%).

Commercial and Services

Kenya Airways Kshs. 4.65 (-2.11%) facilitated 623,900 shares to fly through the market. The troubled airline which has recently been on a campaign of replacing staff with EXPATRIATES (turning those locals sacked into EX PATRIOTS), was named Africa’s Leading Airline 2017 at the World Travel Awards.

Uchumi Kshs. 3.40 (-2.86%) saw the barter of 644,100 shares while Nairobi Business Ventures Kshs. 1.75 (-16.67%) continued its slide into oblivion.

Construction and Allied

ARM Kshs. 13 (0.00%) stood stable on the redistribution of 8,180,300 shares while Bamburi Cement Kshs. 179 (+2.29%) bobbed up slightly, albeit on thin volume.

Energy and Petroleum

Kengen Kshs. 8.70 (0.00%) saw the motion of 1,351,800 shares while KPLC Kshs. 9.75 (-2.01%) experienced low voltage with the teleportation of a similar number of shares. Kengen, Kenya’s leading power generator is set to construct a 45Mw solar power plant in Embu, subject to an environmental impact assessment. This will boost its bottom line in the longer term. Kenya Power’s CEO Ken Tarus expects the electricity grid to reach saturation point soon, with 70% of the population to be connected by June 2018. This may mean a stable income and less capital expenditure for the electricity distributor which can impel it to increase dividend payments to shareholders in the medium term. The opposition had promised to allow other companies into the market currently dominated by the two K’s. While this would have boosted the economy and stimulated foreign investment, an incumbent victory MAY protect them from competition. But for how long?

Kenolkobil Kshs. 14.50 (-9.09%) experienced the flow of 807,900 shares with consistently low demand throughout the week. This is related to the political pressures and not the underlying company. A target of Kshs. 17 will represent a 13 year high.

Insurance

All the insurance counters closed at the same levels as the previous week except three. Britam Kshs. 14.10 (-9.09%) saw new buyers lay claim over 222,100 shares while CIC Kshs. 5.35 (+0.94%) was the sector mover, turning over 1,070,600 shares. Kenya Re Kshs. 19.70 (-0.25%) was thinly traded, currently at attractive entry levels.

Investment and Investment Services

Centum Kshs. 39.50 (-2.47%) took a beating, seeing sellers holding the conglomerate’s shares let go of 763,100 shares. NSE Kshs. 19 (+1.88%) was lifted slightly although lightly traded.

Sources: Bloomberg, NSE, myStocks, Kenya Law, Capital FM, Standard Digital, Rich Management, Kenya Broadcasting Corporation, Citizen TV

@MihrThakar