Weekly Market Commentary

This week saw the market recover after a bit more weakening at the beginning. Volume increased to 188.3 million shares compared to the previous week’s 150.8 million (+24.8%). Total turnover soared to Kshs. 5.7 billion from Kshs. 4.2 billion (+36.9%). Mixed performance was recorded on the main indices. The NSE 20 took a step down to 3839.99 (-1.22%), the broad NASI climbed to 165.65 (+1.68%) while the NSE 25 shaved off 3.87 points to rest at 4324.20 (-0.09%).

Market activity continued to be imbued with foreign exits; the political instability is untenable. On Friday the 8th of September, foreign investor participation stood at 50.5%, accounting for only 17.3% of total buying and a worrying 83.8% of total selling.

Market recovery was significantly buoyed by the country’s independent electoral body announcing the repeat election for 17th October, not too far off; this horror may actually end soon. Kenyans are tired of taking care of petulant politicians. It is hoped that this election will not be fraught with even seemingly trivial errors.

The Hon. Chief Justice of the Supreme Court had stated, before his judgement, “The greatness of a nation lies in its fidelity to its constitution and a strict adherence to the rule of law and above all the fear of God.” This obiter dictum is likely to be very persuasive in future cases. Stringent adherence to protocol is therefore expected of the organisation overseeing the repeat presidential election.

Telecommunications Sector

Safaricom Kshs. 25.75 (+6.19%) moved 100.5 million shares. It managed to touch Kshs. 26.25 late in the last trading day of the week. Scarce supply, a deliberate strategy used by the collective consciousness of investors, has pushed for a recovery on this counter. The telecommunications giant is planning expansion across borders, focusing on its mobile money and upcoming ecommerce offerings. It expects to launch the Masoko website, which will be more like Alibaba than Amazon, connecting people more than focusing on holding inventory. What type of immense value creation Bob Collymore has in mind for investors, we can only guess, but pessimism is hard to maintain.

Banking Sector

Equity Bank Kshs. 39.25 (-2.48%) saw old investors sweep away 20,190,800 shares. In the half year to 30th June 2017, the Group continued to evolve its business model to weather the interest capping effects by focusing on growing the non-funded Income which constitutes 42% of the Group’s total income. This grew from Kshs. 10.8B to Kshs. 13B representing a 20% rise from the same period last year.  This was mainly driven by mobile banking commissions which grew by 337% to Kshs.649.7M from Kshs 148.8M. Trade Finance grew by 25% to hit Kshs 532.8M from Kshs 426.3M, Merchant commissions grew by 12% to Kshs 579.6M from Kshs 519.4M while Agency revenue grew by 27% to Kshs 424.5M up from Kshs. 333.8M in the same period last year. The Group also reaped benefits of regional diversification and saw the regional banking subsidiaries’ contribution to the Group’s pre-tax profit double from 5% to 10% with Uganda PBT growth of 139%, Rwanda 75%, Tanzania 55%, and DRC 20%.

Co-op Kshs. 16.45 (-1.50%) traded 19,318,400 shares. 94% of transactions are now on alternative channels allowing the tier one bank to turn its branches into sales, service and advisory centres. The lender continues to maintain competent staff with 84% of staff rated ‘achieving’ and ‘exceeding’ targets for the half year 2017. As at 30th June 2017, 3.95% of the group was held by foreign investors, with local institutional investors controlling 79.05% of it. The balance is owned by local individual investors. With such a large local chunk, foreign investor jitters of the prolonged election fears are unlikely to affect the share price. A target of Kshs. 17.50 is not like drinking milk and whisky in a bizarre duo. The delay can be attributed to the political hubbub.

KCB Kshs. 42.25 (-3.43%) saw an exchange of 6,671,800 shares. The fact that it met its book closure with the day’s low being Kshs. 41, shows how badly the Supreme Court ruling has affected the market. Politicians continue to quibble however, the environment is redolent of a reiterated incumbent victory, which is not necessarily good for the country, but we can guess the market’s reaction to a comforting status quo.

Barclays Kshs. 10.35 (+0.49%) remained fairly stable with 3,848,600 shares exchanging hands. Investors holding the share on Friday at the close of business, will walk away with a dividend of Kshs. 0.20 per share. No one was willing to pay more to acquire rights over the instrument in order to garner the said inflow. Asks of Kshs. 11 went unanswered. The bulls are jaded and need to be reenergised with good news that is nationwide.

National Bank Kshs. 10.50 (-7.49%) took a beating, albeit on thin volume. The Government controlled bank is still +40% this year. With a book value of Kshs. 33.74, undervaluation is still active.

Commercial and Services

Kenya Airways Kshs. 4.55 (0.00%) remained unchanged. 1,290,700 shares flew through the market. The troubled airline recently breached the terms attached to loans from the African Export and Import Bank (Afrexim). It did not specify the breached terms but stated it is currently seeking waivers from Afrexim. The carrier’s losses attributable to aircraft subleasing significantly declined, easing to Kshs. 2.6 billion in FY 2017, as compared to Kshs. 4.1 billion in 2016. On 08th September 2017, the Pride of Africa announced that it has received a final order from the U.S Department of Transport which grants the airline approval to fly both passengers and cargo to the great nation. This is one of the last few hurdles the company must cross in order to begin to operate non-stop flights to the States in 2018. This is among the many initiatives such as a code sharing agreement with Oman Air and a contract to fly all national teams in and out of the country that the aviation corporation has taken to improve profitability and enhance brand power.

Longhorn Kenya Ltd. Kshs. 5.30 (+13.98%) flipped through 115,000 shares. The publisher posted a 29 per cent increase in net profit for the full year 2017 to Sh134 million up from Sh104 million in 2016. The company recommended a final dividend of Kshs. 0.29 per share (interim dividend was Kshs. 0.07). Therefore, total dividend being Kshs. 0.36, a yield of 7.5% on the year’s opening price of Kshs. 4.80 has been achieved. This is a great long-term buy.

Uchumi Kshs. 3.95 (+5.33%) saw the barter of 536,100 shares. With limited stocks at Nakumatt outlets, this supermarket chain is bound to benefit from its main competitor’s gradual demise.

Construction and Allied

Athi River Cement Kshs. 16.45 (-10.35%) experienced the transfer of 425,400 shares. The cement manufacturer has entered into a sale agreement with Omya (Schweiz) AG of Switzerland and Pinner Heights Limited of Mauritius for its wholly owned subsidiary Mavuno Fertilisers Ltd. This is expected to bolster its cash position. It appeared more practical to divest than to carry on in the business, since the subsidiary carries some serious uncrystallised cash in its operating machinery. The loss-making manufacturer is also expected to garner more capital from another cement company, which could even be the Dangote Group, the African conglomerate responsible for the tough competition in Tanzania that has seen ARM sell its cement below cost. However, additional funds will dilute existing shareholders.

Energy and Petroleum

Kengen Kshs. 9.20 (0.00%) remained unchanged on heavy volume while KPLC Kshs. 10.65 (-0.93%) retreated minimally on similar volume. The Energy Regulatory Commission refused a request by the power distributor to increase tariffs. This increment would have helped the monopoly cover its surging costs on new customer connections, as mandated by the government’s aggressive campaign to increase access to electricity, and to help water down electricity losses on its aging infrastructure.

Insurance

Britam Kshs. 13.95 (-2.45%) moved 1,026,700 shares while CIC Kshs. 5.80 (+4.50%) saw new buyers lay claim over 1,895,800 shares.

Investment and Investment Services

NSE Kshs. 18.95 (-6.42%) dipped on volume of 340,500 shares.

Centum Kshs. 42 (-2.33%) traded 2,253,600 shares. Its full year results for the year ended 30th March 2017 carried a number of pluses despite the dip in the bottom line. Improved profitability in the Group’s portfolio companies with the beverage business recording a 37% growth in trading profit and the share of associate’s profits increasing by 25%. During the year, the Group sold its 26.4% stake in Kenya Wine Agencies Limited (KWAL), realising a gain of KES 1.1 billion and partially exited its stake in Platcorp Holdings Limited, realising a gain of KES 432 million. The Net Asset Value per share has increased from KES 13.8 in 2010 to KES 67.34 as at 31 March 2017, representing an increase of 388% and a compounded annual growth rate of 26% over the last seven years. Mostly experiencing range bound trading, this share is just begging for a meaningful rally.

Sources: @NSEKenyaInvestors, The GreatVEVO, Financial Times, Equity Bank, Cooperative Bank, Capital FM, Business Daily, Rich Management, The Standard, Centum

@MihrThakar