Weekly Market Commentary (July 10 – 14)

The previous week (week ending 14 July, 2017) activity heightened further with 285.7 million shares traded as compared to the previous week’s 186,343,300 (+53%). Total turnover was Kshs. 6.4 billion as compared to the preceding week’s Kshs. 5.5 billion (+16%). The downward trend reversed substantially as the NSE 20 rose to 3642.90 (+1.08%), the broad NASI to 153.13 (+0.58%) and the NSE 25 also moved upwards to 4046.05 (+0.85%). The NSE 20 hit a new 52-week high of 3,659.28 on Thursday 13th July 2017.

Insurance Sector

In a surprising twist of fate, due to block trades, Britam Kshs. 14.30 (+0.70%) moved a jaw dropping 117.8 million shares. The counter experienced a new 52-week high of Kshs. 15.85 on Wednesday 12th July and Thursday 13th July 2017, during the time most of these heavy volumes were exchanging hands. Such large purchases indicate local fund manager confidence in the company. Britam 2016 half year pre-tax profit had shot up 175%, on new reporting methodology, posting a 2.8 billion shilling Pre-tax profit for the first six months of 2016, from Shs 1.04 billion during the same period in 2015. The diversified insurance giant posted a Sh 4.2 billion pre-tax profit for the full year 2016 as compared to a loss of Sh 1.2 billion in 2015 (+450%). Its investments in the property market, among others a new Kshs. 3.3 billion serviced apartments project recently launched, is set to substantially increase its investment income and reduce reliance on risky assets such as listed equities. With property prices expected to spike in the capital in the near future, as space constraints take their toll, innovative projects like the aforementioned luxury serviced apartments for business executives will be in high demand.

CIC Insurance Kshs. 4.50 (+7.14%) saw a substantial recovery to reach comfortable heights, trading 1,649,500 shares. The micro-insurance mega company always reports strong half year results with growth in profit before tax of over 50% in 2014, 2015 and also 2016 to the point that investment analyst Aly Khan Satchu has noticed a consistently strong half year earnings skew. This is not necessarily indicative of strong full year results as the 2016 whole period results shocked investors with a 91.46% plunge in profit before tax to Kshs. 114.4 million from a healthy Kshs. 1.3 billion in 2015. The profit warning which preceded the results gave no indication of such a dramatic drop in earnings. However, dividend was retained at Kshs. 0.105 per share, indicating some distribution of reserves. On the positive side, its introduction of innovative ‘wananchi friendly’ products such as premium payments via mobile airtime should see its bottom line recover, as will the recent rallies in N.S.E equities see its investment income substantiate.

Banking Sector

Sector volumes were led by Co-Operative Bank Kshs. 14 (+0.00%) with a healthy motion of 20,705,800 shares. This was followed by Equity Bank Kshs. 38 (+2.01%) with 15,270,700 shares exchanging hands and KCB Kshs. 39.25 (+3.97%) where a barter of 6,929,500 shares took place. The recent rally on the largest tier 1 counters occurred after news emerged that the CBK Governor, Dr. Patrick Njoroge, hinted at scrapping the interest rates capping law after acknowledging that it needs urgent review on Wednesday 12th June 2017. I expect both tier 1 giants to hit Kshs. 40/=, as KCB already did in intraday trade on the closing day of the week. If the law is scrapped, or rather when it is scrapped, I expect the Joshua Oigara led lender’s share price to hit Kshs. 50. This is going to be a year of new 52-week highs.

NBK Kshs. 10.90 (+22.7%) rebounded with a blazing brilliance, albeit on thin volume. The potential of the takeover bid by KCB for the troubled lender is not a dream but a highly probable course of action, despite CMA not yet having possession of regulatory filings to this effect.

Telecommunications Sector

Safaricom Kshs. 23 (0.00%) remained fairly stable, despite low demand towards the end of the week, on heavy volume action of 67,252,400 shares. The mobile phone operator has revised its Mpesa upgrade downtime from 12 hours to only 4 hours on Saturday 16th July 2017 from 12.00 AM to 4.00 AM.

Due to weakening demand conditions, the counter could go below Kshs. 23 at which point, demand will spike and raise it again.

Agricultural Sector

Limuru Tea Kshs. 600 (0.00%) moved a hefty 148,600 shares. Total shares outstanding are 2,400,000 and this is just over 6% of the same.  Limuru Tea’s profits before tax fell from Ksh 7.681 million in 2015 to a loss before tax of Ksh 26.731 million in 2016. The company did not declare any dividend for the 2016 financial year, compared to a FY15 dividend of Kshs. 1 per share, which is microscopic as it has a 52-week high of Kshs. 800 and a Kshs. 1 dividend represents 0.125% of that. The PE ratio is 491.80 indicating very low earnings on substantial asset holdings, as is not unusual for agricultural companies with long-term land appreciation.

Commercial and Services

WPP Scangroup Kshs. 21.75/= (+7.41%) traded 5,700,400 shares. With a PE ratio of 19.42, it is a share with an underlying company holding substantial market power. Its half year results are around the corner and the media marketing company posted a 38.5% jump in half year 2016 Profit before tax to Ksh 395 Million compared to Ksh 285 Million posted in a similar period in 2015. The election year should have seen it bag some lucrative marketing services contracts.

Kenya Airways Kshs. 5.05 (+2.02%) gained some altitude with a large cabin load in terms of market participants. Mr. Sebastian Mikosz, newly appointed Group Managing Director & CEO, would have already implemented stringent cost cutting practices.

Uchumi Kshs. 2.90 (+28.89%) experienced the barter of 1,702,300 shares. The counter rallied after news emerged of a strategic investor looking to pump in Kshs. 3.5 billion into the loss-making supermarket chain. Trading was suspended for two straight sessions. Despite Uchumi CEO, Julius Kipngetich clarifying to the regulatory authority that no deal has yet been signed, the counter moved positively to the maximum after trading restarted on Friday 14th July 2017.

Construction and Allied

Athi River Mining Kshs. 21.75 (-1.14%) saw an exchange of 1,356,400 shares. The ticker has a 52-week low of Kshs. 18.75 and a 52-week high of Kshs. 33. The latter indicates how high the stock can go but only if there is an indication of an end in sight to the cement maker’s woes.

Energy and Petroleum

Kengen Kshs. 7.95 (0.00%) traded 10,108,200 shares. The power generator is looking to expand its geothermal power tentacles beyong Olkaria and Menegai. Its strategic partnership with the Geothermal Development Company (GDC) has seen the company continue its campaign for more geothermal energy. This particular form of power generation gives the organisation a strategic advantage and a positive outlook, especially due to the increase in the global consensus to move towards greener electricity. A trillion ton iceberg broke off the Antarctic mainland on Wednesday 12th July 2017 placing ever increasing emphasis on the potentially catastrophic effects of global warming. A 20ft increase in sea level would definitely be a reason to prioritise global warming over industrial magnanimity.

Kenolkobil Kshs. 14.10 (+4.44%) rebounded on thick volume. The oil marketer plans to open at least 30 new stations this year to boost its sales.

Umeme Kshs. 12.30 (0.00%) remains at its recently acquired 52-week low and a transmission of 5,645,900 shares occurred as investors swooped in to take advantage. Global oil prices at depressed levels will help reduce utility company’s fuel costs.

Investment and Investment Services

Centum Kshs. 41.50 (0.00%) remained unchanged on a transfer of ownership of 1,862,900 shares. The cheap stock of finest quality is set to rally in due course.

NSE Kshs. 18.55 (10.09%) moved a hefty 5,297,600. Its peaks and troughs are highly related to the performance of the market as a whole. The stock exchange’s reliance on price based commission’s and charges will obviously be pumped by the bourse’s recent rallies. The weakening Kenya Shilling, which edged over the 104 mark against the dollar, has a hand in increasing foreign participation in the market. Despite the precarious pre-election situation, movement of securities has overall been commendable this week.

Manufacturing and Allied

East African Breweries Kshs. 249 (-0.80%) retreated on heavy volume. The launch of the Kshs. 15 billion factory in Kisumu, set to be constructed with a view to increasing employment in the region and ultimately the spirit manufacturer’s bottom line, poses the question of sources of finance. The company recently extended the term of its Kshs. 5 billion note to 2020 from 2018. The interest rate will also be raised to 12.95% up from 12.25% as compensation for the delay.

Mumias Kshs. 1.05 (-4.55%) took a drubbing on substantial volume. The sugar manufacturer which has left shareholders bitter, has halted ethanol production, one of its main income sources, citing high prices of molasses. However, the company is not unlikely to remerge from its current problems; if Uchumi is set to receive Kshs. 3.5 billion to support its turnaround, even Mumias, under the able leadership of Mr. Nashon Aseka, is brimming with the possibility of capital injection. In due course, renewed vigour will reenergise the miller’s earnings scope. Only time will tell when and how but keep watching it.

@MihrThakar