Politics
The repeat presidential election, which had been set for October 26th 2017, went on ahead, trouncing an efflux of court cases. On 25th October 2017, the Supreme Court of the republic of Kenya, presided over by His Lordship the Chief Justice David K. Maraga, was set to hear an important case calling for the postponement of the fresh election. This was despite the declaration of a public holiday on the day of the hearing, in addition to that declared on the day of the polls. A quorum for this case never materialised. The Deputy Chief Justice’s driver was shot and injured the previous day in an incident treated as a robbery. This left her traumatised and unable to attend. The rest of the available judges gave trivial reasons or none at all, with only one additional judge being present.
An extremely controversial election ensued as scheduled. Voter turnout halved as an opposition boycott, threats, violence, poor weather and ‘confident complacency’ affected ques. It has failed to take place in four counties i.e. Homa Bay, Siaya, Kisumu and Migori due to vehement (physical) opposition from the locals. These are traditional opposition strongholds. Section 138 (2) of the constitution holds that If two or more candidates for President are nominated, an election shall be held in each constituency. The fact that it did not take place in many constituencies may expose it to nullification. However, a maxim in civil law known as ‘nemo auditur propriam turpitudinem allegans’ which means ‘no one can be heard who invoke their own turpitude’ may proscribe such a nullification. Since the unrest, riots and obstreperous hooliganism were caused in solidarity to the opposition leader’s call of ‘no reforms, no elections’ or ‘no October election’, the court may make such a determination by invoking the maxim. The election will not be nullified on the basis of the opposition candidate pulling out after nominations as the Lord Chief Justice actually voted!
The opposition outfit has converted into a resistance movement as announced by their leader in a rally at Uhuru Park on 24th October 2017. He has publicly renounced demonstrations and they are moving towards trying new ‘peaceful’ strategies to pressurise the government into giving in to demands. This will include civil disobedience (which may include repudiating tax obligations) and the boycott of goods and services from companies allied to the ruling party’s leadership. Where a strong coalition such as the dissenting one publicly denounces the ascendancy of a validly elected administration, serious problems are destined to occur. Secondly, some leaders in the opposition have vowed to conduct a parallel swearing in of ‘their president’ if the incumbent is sworn in on the basis of the October 26th fresh presidential election. This is tantamount to treason and will be treated as such; a violent uprising cannot be absolutely discounted.
With all the doom and gloom, there may be light at the end of the tunnel (and I’m not talking about the light from the endoscope that will be used to carry out carpal tunnel surgery on the IEBC Chairman’s wrist after he’s done signing the thousands and thousands of Form 34A’s). Dialogue between the principals is the only way out like the chimney for Santa Claus (both coming soon).
Market Snapshot
Volume dipped to 66.7 million shares from 74.1 million shares traded in the previous week (-10%). This was due to the duo of public holidays squeezed into the week like large breasts into a tiny bra. Investors are still maintaining the ‘wait and see’ approach. Weekly turnover edged up to Kshs. 2.1 billion a rung up from the Kshs. 1.98 billion posted in the previous week (+7.2%). This came as a result of some modest gains; bulls re-entering. The benchmark NSE 20 hopped up to 3648.31 (+2.94%), the broad NASI ascended to 159.87 (+3.19%) and the NSE 25 scaled pessimism to close at 4144.82 (+2.39%).
Telecommunications Sector
Safaricom Kshs. 25.25 (+5.21%) experienced the transmission of 26.6 million shares. Safaricom created Kshs.486b total value for Kenyan society during the 2016/2017 Financial Year, 17 percent higher than the total value it created in the last Financial year. The economic impact made through Safaricom’s operations remains the greatest contributor to the total value created, and has also grown by 23%. The social value of M-PESA remains a significant creator of value for Kenyan society, increasing by 12% in the last financial year. The major driver for this growth has been the increase in customer, agent and merchant numbers. Safaricom assesses the significant indirect value contribution to the economy, society and environment in Kenya using the KPMG ‘True Value’ methodology. It’s going to be hard for the opposition to yield significant damage by calling for a boycott of what has become a way of life for subscribers.
Safaricom currently has 95,000 homes connected to its fibre infrastructure. The first phase of the Safaricom Fibre to Home will start with Kitengela town and its environs, targeting 14,000 homes with a plan to reach 40% penetration within the next three months.
Other towns that are targeted in this phase include Athi River, Buruburu, Ngong Road, Runda, Ruaka and Karen.
Following successful trials over the last four months in Nakuru, where more than 90,000 customers and 2,000 merchants took up the service, Safaricom has announced the availability of M-PESA 1Tap in Nairobi, Mombasa, Kisumu, Eldoret and Nyeri. Customers will initially have the option of obtaining an M-PESA 1Tap wristband, phone sticker or card which will allow payment integrations with M-PESA 1Tap merchant terminals. The tags are available from Safaricom shops and dealers from Ksh. 20. To make a payment, a merchant will key in the payment amount into their device, tap the customer tag, and the customer will then key in their PIN on their phone to validate the payment. This cuts down the steps involved from more than eight steps using the M-PESA tool on SIM cards to just one step for the customer.
The telecommunications behemoth’s FY EBITDA for the year ended 30th March 2017 surged to Kshs. 100.3b as compared to Kshs. 83.1b in a similar period (+20.7%). The half year results for the same financial year were also as encouraging as the full year results it preceded. EBITDA of Kshs. 50.8b was recorded in the period ended 30th September 2016, powerfully higher than the Kshs. 38.8b posted in the half year ended 30th September 2015 (+31%). Accompanying the interim results, the monopoly corporation raised its full year 2016/17 EBITDA guidance from Kshs. 89 – 92b to Kshs 94-97b, including a one-off Kshs. 3b write off. The actual results therefore outperformed the targets set by the company itself!
Banking Sector
Equity Kshs. 36.25 (0.00%) traded 9.2 million shares while KCB Kshs. 38.50 (+5.48%) moved 8.8 million shares. Co-operative Bank Kshs. 16.10 (0.00%) saw 840,400 shares exchange hands. For Barclays Kshs. 9.15 (+1.67%), 1.6 million shares were passed around.
Commercial and Services
Kenya Airways Kshs. 5.05 (+5.21%) experienced 2.2 million shares fly through the market. The closing price represented a two and a half month high. Its full year results for the year ended 30th March 2017 presented the usual increase in most variables, despite the bottom line remaining red like the light one crosses in a rebellious mood, on a deserted street.
- Passenger numbers grew 5.4 % to 4.5 million
- Operating profit of Kshs. 0.9 billion, a 122% swing from an operating loss of Kshs. 4.1 billion
- Loss after tax reduced by 61 % to Kshs. 10.2 billion, from Kshs. 26.2 billion.
- Total assets decreased to Kshs. 146.1 billion from Kshs. 155.7 billion (-6.2%) as a result of fleet optimisation
The capital optimisation plan is set to help the garden flower further however, a protracted electioneering season is bound to affect tourist entries into Kenya, which may again wipe out gains from other initiatives.
Longhorn Publishers Kshs. 5.65 (+11.88%) flipped through motion of 73,600 shares, emerging as one of the week’s top gainers. The PE ratio stands at 11.53, which is not humungous but the share is definitely not undervalued, considering a NAV of Kshs. 3.58. The 52-week range is Kshs. 3.90 – 5.80. Not unlikely to reach Kshs. 6.50.
Uchumi Kshs. 3.45 (+7.81%) saw the barter of just 62,500 shares.
Construction and Allied
ARM Cement Kshs. 14.90 (+12.45%) experienced the redistribution of 6.9 million shares. It has room to go much higher. Currently, abundant supply is hampering a swift rally.
Bamburi Kshs. 176 (+0.57%) traded a mere 3,700 shares.
Energy and Petroleum
Kenya Power Kshs. 10.05 (+5.24%) surpassed resistance with a load of 1.4 million shares. The books closure for a mouth-watering dividend of Kshs. 0.50 is 30th November 2017, to be approved the following day at the AGM. My target is Kshs. 18 and this is unlikely to be reached this year, despite an embarrassing PE ratio of 2.70. Everything comes on golden wings to the one who is patient.
KenolKobil Kshs. 14.80 (+1.37%) enabled the flow of 3.9 million shares, leading the sector movers. The oil marketer, being part of the ‘big four’ that control 53% overall market share, has opposed the move by the government to lift the cap of pump prices of fuel. In the past, these companies were able to predict revenues and cash flows, leveraging the stability to secure bank financing and to attract investors. This will now change and chaos may come forth. Currently, the Ministry of Energy awards one oil marketer a tender to import bulk petroleum on behalf of the entire industry through the Open Tender System (OTS). To stop price controls, the Ministry will have to phase out the tender system, forcing dealers to source smaller amounts separately. This will affect the landed price leading to dis-economies of scale. Excessive supply has affected the share with investors trying to wash their hands off the risk associated with the eradication of the status quo, established seven years ago.
Kengen Kshs. 8.70 (+8.07%) saw the teleportation of 735,000 shares. In an interview by Rich Management with the CEO, Rebecca Miano, a very thorough analysis and outlook is provided.
The power generator maintains a collegiate atmosphere where the older and more experienced predecessors of the corporation mentor newcomers (as reflected by the presence of the three previous CEO’s at the latest investor briefing); the first female CEO of the company, Rebecca Miano, considers herself a product of that. Revenue in the full year ended 30th June 2017 dipped 8%, coming in at Kshs. 35.4 billion. This was due to four main reasons:
- The drought which lasted three seasons, back to back resulting in decreased hydrogeneration – Masinga Dam and others used for hydroelectric power generation experiencing some of the lowest water levels in history.
- Evacuation constraints on the geothermal and hydrological power generation front – they could not evacuate power down to the coast. The problem has now been solved by a transmission line.
- Rehabilitation of some geothermal plants
- Decommissioning of two thermal plants – at Garissa and Lamu
Geothermal electricity has acted as a hedge against severe drought, protecting consumers from load shedding. It has also made the company more resilient. With almost Kshs. 117 billion available in multi-currency funding at throwaway rates, capital expenditure over the next two years is expected to be intense. Moreover, skipping the dividend was also aimed at increasing cash availability for the plans. Paying dividend attracts a very strange and exorbitant compensating tax of 42% from the blood-thirsty Kenya Revenue Authority. However, the parties are working on resolving the issue. Dividend paid to the shareholder comes net of 15% tax, being the final outflow affecting the pay-out. You can find more information on compensating tax in the ‘other’ section of this Deloitte report
Other income also slipped to Kshs. 882 million from Kshs. 2.2 billion reported in the FY ended 30th June 2016. This was because of a drilling contract with a third-party in the previous year. The CEO expects operating expenses to increase in line with capacity expansion, with adequate cost containment measures taken.
Kengen is still very keen on growth, expecting to add 750 MW to the grid by 2020, with an incredible bias towards green energy. They have already started the process for issuing a green bond.
Insurance
CIC Kshs. 5.50 (+10.00%) allowed new buyers to lay claim over 628,100 shares while Jubilee Holdings Kshs. 494 (+2.70%) moved 344,100 shares.
Investment and Investment Services
Centum Kshs. 39.75 (+2.58%) saw sellers holding the share let go of 125,400 shares while NSE Kshs. 19.10 (+2.69%) experienced 68,200 shares move meaningfully through the board.
Sources: Standard, Kenya Law Reform Commission, Safaricom, Rich Management, Kenya Airways, NSE, Kenyanwallstreet, Deloitte, Daily Nation
