Weekly Market Commentary

This week (week ending August 11, 2017) volume plunged with 74.6 million shares traded as compared with the previous week’s robust volume of 210.6 million shares (-65%). This was attributable to election related absenteeism, economic lethargy and some fears over the outcome. Total turnover also decreased to Kshs. 2.09 Billion from Kshs. 5.08 Billion (-59%). In contrast to the previous week, all the main indices glittered with some serious gains. NSE 20 soared to 3976.98 (+5.33%), the broad NASI went sky high to 165 (+4.32%) and the NSE 25 also mimicked a KQ plane to reach 4401.36 (+4.43%). The NSE 20 and the broad NASI set two-year highs once again. Volume also normalized on the last day of the trading week.

Provisional results (now final) of the Kenyan General Election 2017 indicated an incumbent victory, which supported the market’s rally. Free market policies and the business-friendly nature of the government fuelled euphoria as investors stocked up on stocks. The opposition had vowed to tackle corruption, which has been one of Kenya’s long-standing problems. Potential for facing a similarity to the Tanzanian Acacia Mining Saga in Kenya would have increased if such a ruthless battle against the nagging vice was in the agenda. Socialist policies may also have dampened investor interests. The continuing rally on the NSE therefore can be concluded to have been an anticipation of an incumbent victory and not an opposition one. However, the opposition is showing no signs of conceding defeat and mass action, protests and the unavoidable riots and looting, that come as a result of political dissatisfaction are very much a reality, present and near future. While the government has shown a remarkable (and sometimes savage) ability to trample the anti-social elements of anarchy and hooliganism, an escalation in violence will definitely have an effect on the bourse. Caution should thus be exercised in the markets.

Telecommunications Sector

Safaricom Kshs. 24.50 (+4.26%) transmitted 23,042,000 shares, mostly on Friday 11th August 2017. The counter touched a new all-time high of Kshs. 25.50 and is giving good signals of further upward movement. A target of Kshs. 25 should be revised to Kshs. 26 by the risk takers. Safaricom Board recommended the payment of Sh 0.97 dividend per share; representing a total dividend payment of Sh 38.86 Billion from Sh 30.48 Billion in the the previous year. This represented an increase of 27.5%. The dividend will be paid to shareholders registered on the books as at 1st September 2017 (Book Closure).

Banking Sector

KCB Kshs. 43.50 (+7.41%) saw the exchange of ownership of 15,014,400 shares, setting a new 52-week high. The lenders HF 2017 EPS fell by 3.7% from Kshs. 6.94 to Kshs. 6.69. However, the Banks Board of Directors approved payment of an interim dividend of Sh 1.00 per share (+100%) to be paid on or about, 31 October 2017, to shareholders registered at the close of business on 4 September 2017, and therefore further headroom is available.

Equity Kshs. 42.75 (+7.55%) moved 3,708,100 shares, setting a new one-year high. The tier 1 bank’s HY 2016 profit before tax and exceptional items was Kshs. 14.2 billion up from Kshs. 12 billion in the previous period (+18%). HY 2016 EPS increased by a whopping 131% to Kshs. 2.68 from Kshs. 1.16. Therefore, the potential for a less than average half year 2017 result, in this tough banking rate cap burdened environment, is greater. The board may, however, follow in KCB’s footsteps and declare an interim dividend, which will imply confidence in the company’s future earnings capacity.

Co-operative Bank Kshs. 16.15 (+3.86%) pushed 3,053,800 shares. The lender’s HY 2016 H1 profit before tax and exceptional items was Kshs. 10.3 billion as compared to Kshs. 8.7 billion in a similar period (+18%). HY 2016 EPS was also up 18.8% from Kshs. 1.28 vs. 1.52. Half year 2017 results could pleasantly surprise.

Barclays Kshs. 10.60 (+10.42%) competed with the one-year Treasury bill, albeit on moderate volume. NIC Kshs. 36.50 (+14.06%) and NBK Kshs. 11 (+15.18%) both made awe inspiring gains on thin volume.

Commercial and Services

Uchumi Kshs. 4.20 (+21.74%) saw the barter of 1,956,600 shares. It issued a statement on 4th August that it has commenced discussions with a potential investor, with a view to getting a Kshs. 3.5 billion injection in equity capital. It should take 120 days and the market is already bubbling in anticipation of FY 2017 results; a year end of 30th June means they are not far away.

Kenya Airways Kshs. 4.60 (+9.52%) exchanged 1,288,800 shares as it gained some altitude. The loss-making carrier has requested state protection to restrict competing airlines from accessing the international airports in the country, by limiting licensing of new entrants. The Tourism Ministry, on the other hand, is doing all it can to bring in tourists into the foreign currency hungry nation.

Energy and Petroleum

Kengen Kshs. 9.25 (+10.78%) traded 7,948,200 shares while KPLC Kshs. 10.15 (+20.83%) moved 1,018,100 shares. Both thus set new 52-week highs. I still believe KPLC is priced unfairly and I would feel a lesser sense of injustice if it had a tag of Kshs. 18. The PE ratio of 2.62 is still puny against the sector PE ratio of 6.52.

Insurance

Kenya Re Kshs. 22 (+2.33%) exchanged 2,028,600 shares, normalising after easing on flat earnings. It’s the cheapest share in the insurance sector, with a PE ratio of 4.68 against an industry average of 10.07. Britam Kshs. 14.90 (+5.30%) gained some value on moderate volume while CIC Kshs. 5.60 (+13.13%) continued its consistent habit of setting new one-year highs, also on moderate volume.

Investment

Centum Kshs. 43.50 (+4.82%) moved 1,409,500 shares, finally moving upwards as supply evaporated. Its PE ratio of 3.98 means it is highly undervalued and a target of Kshs. 50 is only reasonable but not just.

@MihrThakar