Citi research analysts have issued a buy recommendation on KCB Group. The analysts say that KCB shares are trading at a 40% discount and the target price is KSh48. The share price closed today’s trading at KSh35.95.
According to the analysts, KCB is adequately capitalized with a capital adequacy ratio of 18% and has a strong profitability track record. The bank is geographically diversified with subsidiaries in Uganda, Tanzania, Rwanda, Burundi, and South Sudan, and therefore reduces single country risk. KCB is also expected to benefit from Kenya’s quick recovery thanks to a highly diversified economy.
Nonetheless, the banking group faces significant risks such as; regulatory risk. “Kenyan bank performance is highly linked to legislation and the authorities have shown they will not shy away from populist measures that could negatively impact earnings,” reads the Citi report.
In addition, the Kenyan economy is facing numerous covid19-related challenges that could lead to a sharp increase in bad loans in the banking sector, and therefore affect banks’ earnings.
Lastly, Citi analysts fear that the Kenyan currency could significantly depreciate due to the increase in foreign investor outflows and the drop in foreign exchange earnings from tourism and remittances.
Researchers at Citi expect that KCB will not pay a dividend in the current financial year, given the tough operating environment. The analysts say, “[The bank’s] management have communicated that they do not believe [the dividend] will be forth coming.”