Weekly Market Commentary

This week saw the market sunk to abysmal depths as foreign investors increased their pessimism quotient. Volume soared as avarice took the stage with 150.8 million shares traded as compared to the previous week’s 120.3 million (+25%). Total turnover increased to Kshs. 4.2 billion from Kshs. 3.1 billion (+36%). All the main indices plunged. NSE 20 retreated below the psychological ‘4000’ mark to 3887.28 (-4.47%), the broad NASI came to rest in a valley at 162.91 (-5.46%) and the NSE 25 also ebbed to 4328.07 (-4.63%).

On Friday 01st September 2017, a little after 11.00am, the Supreme Court of Kenya ruled in favour of the petitioner, against the President-elect and the electoral body that oversaw the General Elections 2017. The Presidential Election results were declared null and void due to the electoral body’s ‘failure to carry out the election in accordance with the constitution of the Republic’.

Briefly after the incredulous decision by the Court, the Kenyan shilling weakened by 0.3% against the greenback, while the country’s stock market fell sharply by 9.71%, forcing the Nairobi Securities Exchange to halt trading for more than 30 Minutes. The fear of widespread violence after the momentous determination as well as the shock effect caused the market to react erratically. Foreign investor participation on the day of the ruling stood at 64.5% compared to Thursday’s 55.4%, accounting for 39.8% of total buying and a whopping 89.1% of total selling. However, several positive effects stemmed from this pioneering departure from a continental aversion to judicial nullification of Presidential elections:

  1. The President accepted the Court ruling despite his disagreement with it
  2. Violence did not result from the shocking news of the unexpected Court determination
  3. The President immediately embarked on the campaign trail, merely hours after the bombshell ruling, signifying his commitment to hard work in order to garner the majority vote
  4. This is the first presidential election petition to be upheld in Africa and only the fourth time in the world – this elucidates the independence of the judiciary and puts the country on the map as a strong democracy

The Supreme Court focused on the process rather than the end, citing irregularities in the transmission of results and this may actually be considered a move undermining the ultimate sovereignty of the people of Kenya. However, it can be argued that perfect systems result in perfect outcomes.

The market should correct once again in anticipation of a reiterated incumbent victory. However, it is to be noted that an Opposition victory could be a blessing for the nation. They have vowed to ruthlessly tackle corruption.

Telecommunications Sector

Safaricom Kshs. 24.25 (-8.49%) took a good beating on panic selling and herd mentality. 82,729,300 shares were traded with slightly more than half of those being moved after the jittery reactions from the Supreme Court ruling. The counter set a new all-time high of Kshs. 27.25 earlier in the week with fortunes reversing when it touched a one- month low of Kshs. 23 on Friday. This represented a 15.6% fall from its roseate elevation. The dividend books closure date has been extended to 15th September 2017, which is also its AGM date. Dividend hungry investors will not let this counter rest below Kshs. 25, as they swoop in for the mouth-watering dividend of Kshs. 0.97 per share. The ticker is +27.63% in 2017.

Banking Sector

Equity Kshs. 40.25 (-7.47%) led the movers after the barter of 10,143,800 shares. It punched an intra-day low of Kshs. 39.50 on Friday, a three-week low. The share is +34.17% in 2017. With a price to book value (P/BV) of 1.77, a plus side is imminent if the political risk subsides.

KCB Kshs. 43.75 (-3.85%) saw the exchange of 6,812,200 shares, stumbling to a three-week low of Kshs. 40.50 during the closing day’s intra-day trade. With books closure stated for Monday 4th September 2017, it could see a rebound to Kshs. 45, only to retreat later. The lender’s share price is +50.86% this year with a P/BV of 1.36.

Co-operative Bank Kshs. 16.70 (-1.47%) saw investors transfer 5,510,300 shares. Last traded price was Kshs. 16.50, but Friday’s day low was 15.90, which is also a 3-week low. A target of Kshs. 17.50 is like expecting snow in Nyahururu, Kenya. The share is +28.46% in this election year.

Barclays Kshs. 10.30 (-2.83%) saw 6,894,500 shares exchange hands. It failed to fall below the psychological floor of Kshs. 10, despite the post-verdict panicky selling. The counter could leap for Kshs. 11 this week. Its +17.71% in these 3 quarters.

Commercial and Services

Kenya Airways Kshs. 4.55 (-1.09%) pushed 2,568,800 shares. The troubled airline’s share price is -21.55% in 2017.

Nairobi Business Ventures Kshs. 3.60 (-24.21%) was the week’s top decliner; 202,000 shares walked through the market. The local shoe and leather accessories retail chain reported a half year ended 30th September 2016 profit before tax of Kshs. 1.49 billion compared to Kshs. 1.40 billion (+6%). It has reported growth in profitability ever since its listing on the GEMS section of the bourse, which was midway in 2016. With a PE ratio of 24, its quite expensive even at these levels, but companies with share prices of around Kshs. 5 are often expensive due to their low cash requirement for insertion into portfolios. Its net asset value (NAV) is 3.34. The share has been a poor performer, shedding 54.43% this year.

Construction and Allied

ARM Cement Kshs. 18.35 (-6.38%) sifted through 384,000 shares. The cement manufacturer reported some very disappointing half year 2017 earnings. A threefold increase in loss per share from Kshs. 1.10 to Kshs. 3.30 saw pessimistic shareholders exit and speculators swoop in. Despite its problems, the share is undervalued with a NAV of 28.96. However, its shaved off 21.91% in 2017.

Energy and Petroleum

KPLC Kshs. 10.75 (-7.33%) was the top decliner in the sector, depleting gains on heavy volume. The electricity distributor has a book value of Kshs. 35.48 and a P/BV of 0.30 indicating an erroneous undervaluation, even for a utility company. It is +34.38% from January 3rd 2017.

KENGEN Kshs. 9.20 (-5.15%) also saw a similar sell-off on heavy volume. The power generator has a NAV per share of 26.89 which is 192% stronger than the share price. It is +60% this year.

Insurance

CIC Insurance Kshs. 5.55 (-10.48%) saw new buyers lay claim over 3,228,900 shares. Among insurers who reported the highest losses in the private motor segment in 2016 included CIC General at Sh496 million. The micro insurer’s 2016 net profits were down by 83.4% to stand at Ksh 188 million vs a net profit of Ksh 1.1 Billion in 2015. However, it made a Sh347.87 million net profit for the six months to June 30 2017, a 14.53 per cent increase from a similar period last year. The second half could go either way as the company’s half year results are not necessarily a good prediction of the full year performance.

Britam Kshs. 14.30 (-5.30%) traded 1,321,100 shares following the trend of steep declines on most shares. Its +13.49% in 2017.

Manufacturing and Allied

East African Breweries Kshs. 257 (-3.38%) saw 1,416,800 shares being poured into new portfolios.

Investment Services

NSE Kenya Kshs. 20.25 (-8.99%) moved 379,100 shares as new buyers wringed every penny they could out of sellers. The stock exchange reported a 6.25% decrease in earnings per share from Kshs. 0.32 for the half year ended 2016 to Kshs. 0.30 for the half year ended 2017. However, total Income increased by 4% from 334.3m in the six months ended 30 June 2016 to 346.8m for 6 months to June 2017. This was driven mainly by an 11% increase in equity turnover from 73.6b to 82b. The share is +38.7% this year.

 

N/B: Book Value/Net Book Value/Net Asset Value refers to the valuation of a company’s assets that shareholders would theoretically receive if the company was liquidated and can be used in comparison with the market value (P/BV) to show whether the stock is under/overpriced.

Sources: @NSEKenyaInvestors, Rich Mangaement, Kenyanwallstreet, Daily Nation, Financial Times, Business daily

@MihrThakar