Nation Media Group Wants to do Buybacks
In this edition of the Baobab Weekly, Nation Media Group (NMG), Kenya’s largest media house, proposed to buy back up to 10% of its issued shares. A share buyback is when the issuing company intends to repurchase some of its outstanding shares originally issued to raise capital. In exchange for giving up ownership in the company and periodic dividends, shareholders are paid the fair market price of the stock. Companies choose to buy back because of a temporary undervaluation of the stock. Warren Buffett, the GOAT capital allocator, did repurchase some of the stocks of his company last year with this reasoning in mind:
“Berkshire’s common stock repurchase program, as amended, permits Berkshire to repurchase shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined” – Berkshire’s 2020 Shareholder Letter
The NMG announcement comes on the back of Kenyan capital markets regulator, CMA publishing guidelines on share repurchases last year. The share price responded well to the announcement.
Ballooning Kenyan Debt
The Kenyan Treasury will pay Sh1.023 trillion for loans in the year starting July, making it the single-largest expenditure and more than double the Sh435.7 billion that taxpayers paid for debt four years ago. This government will have borrowed at least Sh7.6 trillion to implement its manifesto in the 10 years of power after inheriting slightly more than Sh1.89 trillion in June 2013 from the previous administration.
Falling Returns on Savings, Fixed Deposits.
The Central Bank of Kenya (CBK) data shows that bank deposit rates have dropped to 6.3% last December from 7.1% in December 2019 while the interest rate on the savings dropped to a five-year low in December to 2.7% from 4.25% in January last year.
“Generally a decrease in the rate shows decreased appetite for the banks to mobilise funding for onward lending.When demand for loans is not high, banks prefer not to keep deposits that they are not going to lend, but when loan uptake improves, the ripple effect is that banks will offer more returns for savings.”
– Habil Olaka, Kenya Bankers Association’s CEO
Spotify Comes to Africa
The global music streaming giant is set to launch in 85 new markets, Kenya and Nigeria included. This launch comes on the back of Digital Service Tax being introduced in Kenya for non-resident companies plying the digital space in Kenya.
“Together these markets represent more than a billion people, with nearly half of them already using the internet . Some of the places we are going like Bangladesh , Pakistan and Nigeria have the fastest growing internet populations of the world”
Nairobi Stock Exchange Welcomes New Listings
Student hostels developer Acorn Holdings launched two Real Estate Investment Trusts (REITs) at the Nairobi Stock Exchange. Both Acorn Student Accommodation(ASA) REITs are the first student REITs to be issued in Africa by the student accommodation developer and the first to be traded on the Nairobi Securities Exchange Unquoted Securities Platform(USP).
The USP provides a platform for unquoted (unlisted) companies to trade their shares while offering investors liquidity and an opportunity to discover value within the market. In January 2020, Acorn became the first green bond issuer in Kenya cross-listing its Ksh 4.3B green bond at the London Stock Exchange.
“Acorn is not only providing safe, secure and affordable housing but is also aligned to our government’s Big 4 Agenda to close the housing gap in the country”
– Ukur Yatani, Kenya’s Treasury Cabinet Secretary
Other Noteworthy Items:
- Kengen, Kenya’s leading electric power generation company, reported a 38.13% drop in net profits for the half-year ended December 2020 on the back of lower earnings from thermal power and the absence of tax savings.
- Kenya Power, the country’s main electricity distributor, reported an 80.1% drop in net profit from to Ksh 138 million in the half-year ended December 2020 mainly attributed to increased finance costs “due to the depreciation of the Kenya shilling against major trading currencies leading to an unrealized foreign exchange loss”.
- Unga Group’s half-year earnings dropped 44.8% to Ksh 83.5 million. Unga group engages in flour milling and in the manufacture of human nutrition products and animal feeds. The company said: “With the current economic environment where demand is weak coupled with excess production, chances of an increase in profitability for the rest of the financial year may be bleak”
- Kenya is set to receive its first batch of 600,000 Covid-19 vaccines next week according to Bloomberg.
- Inflation in Kenya: