Weekly Market Commentary


The NASA Coalition, one of the harbingers of hope for the Kenyan people, the melodious song of a willow warbler in the wee hours of the morning when naught but a ray of hope has landed, the roar of a lion against the perpetrators of injustice and impunity, rainfall in the scorched, baked sand of the desert, is looking more and more like the Vega star now, unusual and inconsistent.

The Super Alliance calls on patriots to “build a new humane, people-centered government founded on…African cultural values and norms.” Among the agenda of the People’s Convention, one objective definitely stands out:

Restructuring the Kenyan State

Whether to share executive authority between President and Prime Minister or to adopt full parliamentary system.

Whether executive authority should rotate between the different regions of the country.

Some guidance on such an amendment to the Constitution of Kenya is given in Chapter 16 Amendment of this Constitution as follows:

A proposed amendment shall be approved by a referendum…if:

  1. at least twenty per cent of the registered voters in each of at least half of the counties vote in the referendum; and
  2. the amendment is supported by a simple majority of the citizens voting in the referendum.

The second most senior principal in the Opposition coalition denounced allegations that he would be sworn-in as the People’s Deputy President, going as far as suggesting that the oath would be unconstitutional. He expressed fear of being arrested for taking part in an illegal exercise, suggesting the risk of constriction. His political ambitions remain unblemished for the next season of country-wide madness over rich, powerful politicians.

The government’s hesitance to arrest the People’s President for the illegal oath taken on 30th January 2018 continues to perplex the Opposition. The arrest and prosecution of the Opposition leader would have given the powerful coalition the next leg of political mileage in the movement against a regime that hungrily gobbles up unsustainable debt and uses the security forces like personal gardening tools. However, be confused not. If the other principals would have taken part in the January 30th exercise, they would not have been spared; they would have been arrested and dealt with very firmly. Prison is not a place rich people enjoy, while some poor people are so bad off in existing circumstances that jail cells are not much worse than the sewage surrounded shanties that they already live in, dozens of people sharing a single toilet without adequate water supply. It’s a pity that these are not the problems being focused on.

The Chief Justice recently made a political statement regarding contravention of court orders by the government, condemning the disobedience. He failed to make similar statements on defiance of a court order issued by the Kitui High Court, which prevented utilisation of the NASA’s People’s Assembly disruptive instrument. His Lordship also refrained from commenting on whether judges were allowed to swear-in the former Prime Minister as a purported President. Jubilee has responded with a seething letter, accusing the President of the Supreme Court of bias. This could be termed intimidation. There is also an additional case against the People’s Assembly concept.

The deported general of the National Resistance Movement recently accused the President and the Deputy President of looking for excuses to declare a state of emergency and threatened that the resistance arm of the NASA coalition would begin an ARMED STRUGGLE if the elected executives indeed do so.


Moody’s Investors Service forecasts government debt to increase to 61% of GDP in fiscal year 2018/19 (the year ending in June 2019), from 56% of GDP in FY 2016/17 and 41% of GDP in FY 2011/12. Large infrastructure-related development spending needs combined with subdued revenue collection and rising cost of debt will result in large fiscal deficits and keep government debt on an upward trend. Moody’s downgraded Kenya’s long-term issuer bond rating by one notch to B2 from B1 with a stable outlook. Moody’s said the key driver of its downgrade is the large primary deficits combined with worsening debt affordability and rising debt levels.

The country’s official rating agencies S&P and Fitch Ratings retained Kenya’s credit score at B+ which implies the possibility of default but with some margin of safety. I still remember one school term where I NEVER attended the physical education lesson, and my report card included a B+, with just a little bit of scolding from the teacher on how I should improve my endurance and ensure consistency in exercising! The statement is not related to the above mentioned benign ratings (I watched a Nicki Minaj video on television after making that assurance but it was my nose that grew longer).

A new Eurobond is expected to be issued by the end of the first quarter of this year. Up to $3 billion is likely to be raised from investors in the UK and USA. Kenya is paying between 5.9% and 6.9% interest for five-year and ten-year tranches in the previous issue. In 2014, $2.8 billion was raised in a similar issue. A Eurobond is denominated in currency not native to the country in which it is issued. This exposes the issuer to foreign currency risks. The Kenya shilling started 2014 at about Kshs. 86.8 to the dollar and ended the year at Kshs. 90.66 for the same. We all know the current levels it has depreciated to and we must therefore acknowledge the interest rate and administrative and issuer expenses as fixed costs. It is the variable element (local currency depreciation) against the initial fixed receipt of foreign funds that makes the issue particularly costly with unpredictable circumstances. However, the foreign currency element is likely to prevent a government-initiated shilling devaluation (which is a nightmare for those with large sums of cash in the bank) and is also likely to promote a stable currency (through market control – we’ll avoid using another word), under the able leadership of Dr. Patrick Njoroge who is EXTREMELY BRILLIANT in his role.

As per a National Treasury report tabled in Parliament, debt repayments will stand at Kshs. 1 trillion in FY18/19. This represents a 51.9% increase from the Kshs. 658.2 billion budgeted in the current fiscal year that ends in June 2018.

Market Snapshot

Volume came in at 92,033,100 shares. Total turnover diarised Kshs. 2,723,262,829. 5,606 deals took place during the week.

NSE 20 shed 27.77 points to rest at 3713.25 (-0.74%), the broad NASI edged up to 180.25 (+0.16%) while NSE 25 also creeped up to 4511.95 (+0.06%). Overall, this indicated a stagnant market with a lot of rangebound trading. Foreign investors remained net sellers.

Telecommunications Sector

Safaricom Kshs. 29.25 (+0.86%) experienced the transmission of 18,888,300 shares. Safaricom has launched a new all-inclusive music streaming service offering a wide variety of music to consumers as well as an additional platform for artistes to sell their music. The “SONGA by Safaricom” streaming service will be accessible as an app on Android mobile devices. The app curates, codifies and classifies vernacular, local music and a world class international music catalogue with over 2 million songs from over 400,000 artistes. Available music includes songs by Wizkid, Camila Cabello, Usher, Chris Brown, Beyonce, Davido and local hit artistes such as Sauti Sol, Mercy Masika, Nyashinski, and Eric Wainana among others. SONGA by Safaricom offers online and offline play, track and full album downloads, playlist creation and an ability to share links with other subscribers. The service will launch with a free 14 days trial. Thereafter customers will have the freedom to choose a subscription plan that suits them at Kes 25/= a day, Kes 150/= weekly or Kes 499/= monthly. The service has concluded agreements with major international and African labels and aggregators including Sony Music Entertainment, Africori, Africha, Ngoma, Expedia and is at an advanced stage of negotiation with other major labels. Safaricom runs the biggest ringback tunes popularly known as Skiza for its 29 million customers. Last year Skiza service paid out over Kes 1.4 billion to artistes.

However, all is not rosy for the telecommunications behemoth. The debate around its market dominance is still awake and the corporation may soon be forced to share its infrastructure with rivals at subsidized rates.

Banking Sector

Equity Kshs. 42.75 (-1.16%) traded 12,244,900 shares, the heavy volume on correction implying the potential for an upside in the short term.

KCB Kshs. 45.50 (+0.55%) moved 9,282,200 shares. The lender is working on a Kshs. 1.5 billion mobile money app. The platform, which is being built by Huawei Technologies, will replace the current KCB Mpesa platform and will focus on mobile loans, savings and payments.

Co-operative Bank Kshs. 17.10 (+0.59%) saw the transfer of 5,726,300 shares. The lender won the Kenya Banker’s Association (KBA) Sustainable Finance Catalyst award, beating 13 other peer institutions. Businesses were appraised based on whether they covered the essential indicators which included the impact to the Gross Domestic Product (GDP), the growth of the business, job creation and support of minority groups including women and the youth.

It will be interesting to see how the share prices of the three banks will react to the downgrade of the long-term local currency deposit ratings of the tier 1 banks, which occurred in tandem with the downgrading of the credit profile of the government by Moody’s.

NIC Kshs. 36 (+0.70%) traded 5,259,200 shares while Barclays Kshs. 10.65 (+0.47%) experienced new buyers served 1,658,000 shares.

HF Group Kshs. 10.70 (+0.94%) saw 96,500 shares exchange hands. Cytonn has bought 689,655 shares of the troubled lender, in a show of confidence likely to soothe investors. The leading mortgage provider’s Q3 2017 results were not as good as finding a warm cooked meal from a neurosurgeon wife, when reaching home after a long day at work:

  • Total interest income decreased to Kshs. 5.5 billion from Kshs. 6.7 billion for the period ended 30th September 2016 (-17.9%)
  • Total interest expenses decreased to Kshs. 3.3 billion from Kshs. 3.6 billion (-8.3%), which was a moderate decrease
  • The ratio of total non-interest income to total operating income was 22.8% in Q3 2017, up from 17.8% in Q3 2016 – however, a substantial increase in non-interest income was not the cause of this change
  • Total operating expenses remained flat at Kshs. 2.6 billion, with a less profound rounding up in the recent results
  • Profit before tax and exceptional items plunged 80.7% to Kshs. 231.9 million
  • EPS came in at Kshs. 0.81, as compared to Kshs. 3.20 in a similar period (-74.7%)
  • Total non-performing loans and advances jumped to Kshs. 6.7 billion from Kshs. 4.7 billion in Q3 2016 (+29.9%)
  • Total non-performing loans and advances as a % of gross total loans and advances to customers were 12.9% in the latest disclosed period and 8.6% in a similar period
  • Customer deposits fell to Kshs. 33.6b from Kshs. 41.6b (-19.2%)

These were fairly disappointing earnings for a tier 2 bank that has consistently been admired by investors. Let’s look at some ratios:

Operating profit margin (OPM) is calculated as follows:

(Net interest income – operating expenses)/total interest income

This came in at -7.57% for Q3 2017, while Q3 2016 presented 7.96%. The lender therefore made an operating loss from the core business and only non-interest income allowed it to prevent a red bottom line.

Cost to income ratio is calculated as follows:

Operating expenses/(net interest income + non-interest income)

This ratio logged a whopping 91.8% against 68.1% in the 9 months ended 30th September 2016

The share was down -25.71% in 2017 but has gained 2.9% in 2018.

Commercial and Services

TPS Serena Kshs. 35 (-2.78%) saw 1,475,300 shares exchange hands. Tourism definitely defied the odds in 2017:

  • Domestic bed nights went up 15.9% to 4.05m nights from 3.5m nights in 2016
  • Total international arrivals were up 9.8% to 1,474,671 from 1,342,899
  • Tourism receipts soared to Kshs. 119.9bn in 2017 from Kshs. 99.69bn in the previous year (+20.3%)

Investors are clearly pricing for a full-fledged rebound and the awe-inspiring return of 58.54% in 2017 has already been complimented by a further gain of +7.7% this year.

Kenya Airways Kshs. 16.05 (-3.89%) experienced 157,100 shares fly through the market while Uchumi Kshs. 3.30 (-2.94%) saw the barter of 437,800 shares. I am awaiting Uchumi to reveal details about fresh incoming capital and the effect on the balance sheet and other shareholders. When surgery takes place, some bleeding always occurs, even in innovative procedures like greenlight surgery for prostate enlargement (which is carried out through the urethra using high energy light).

Construction and Allied

ARM Cement Kshs. 12 (-2.44%) traded 241,300 shares. South Africa based Global Credit Ratings (GCR) agency has put the cement maker on watch for the second time in 12 months. A further downgrade is possible. Suppliers of the company have consistently complained of delayed payments however, many have not forsaken ARM, implying that the troubled corporation was previously credit worthy.

Bamburi Cement Kshs. 175 (0.00%) was flat on the motion of 458,100 shares.


Kenolkobil Kshs. 15.10 (+0.33%) experienced the flow of 17,816,100 shares. Despite ample demand and waning supply, the share has not managed to break resistance.

KPLC and Kengen both closed at Kshs. 8.20 on heavy volume.


CIC Kshs. 5.30 (-3.64%) moved 1,136,200 shares while Britam Kshs. 12.50 (-3.47%) traded 856,700 shares.

Investment and Investment Services

Centum Kshs. 45.75 (+1.67%) saw shareholders let go of 1,373,400 shares they were holding. The conglomerate has often been accused of putting employee bonuses (some of the highest payouts in Kenya) ahead of shareholder dividends. This has the following advantages:

  1. Achievement of clear defined objectives becomes a priority rather than haphazard decisions on goals and targets; knowledge of targets must be made clear from the beginning of the period, necessitated by the bonus factor
  2. Goals, objectives and targets can be adjusted to economic conditions and eventualities, shielding employees from missing out on their bonuses due to unfavorable macroeconomic conditions
  3. It will motivate the employees to work harder due to the promise of financial reward linked to companywide objectives
  4. The element of variable income (as opposed to a fixed salary) is likely to create a general feeling of ownership and team spirit – this can be further enhanced by part bonus in shares

However, there are also disadvantages:

  1. Employees can exert collective pressure (including strikes) for increased bonuses
  2. Shareholders may feel left out and may not like the increased payouts to staff at their expense – especially when a company does not perform very well due to pressures of the external environment
  3. A culture of blaming the external environment may develop in order to retain bonuses despite poor performance
  4. Collusion between employees to manipulate the books of accounts and mask unsatisfactory performance

NSE Kshs. 20 (-1.23%) saw 423,500 of its shares move meaningfully through the board.

Manufacturing and Allied

BAT Kshs. 786 (+0.64%) moved 9,500 shares. The -21.2% decline in EPS to Kshs. 33.36 was mainly due to higher finance costs and reorganization costs. Total dividend per share slumped -39.5% to Kshs. 26 from Kshs. 43 in 2016. The counter lost investors -16.39% in 2017.


Sources: NASA Coalition, Futurism, Citizen Digital, Daily Nation, The Star Kenya, Kenyanwallstreet, XE currency charts, Dr. Miguna Miguna, @NSE_Investors, Safaricom, Capital FM, NSE, Standard Digital, Kenya Bankers Association, Magical Kenya, Business Daily, Rich Management, HF Group