Weekly Market Commentary

Politics

Historically, Kenya’s general elections have always recorded salubrious turnout; the lowest being in 2002 when only 57% of registered voters turned up to vote and the highest being the 2013 election, yielding 86% turnout. Average voter turnout over the last 6 elections (excluding the recent ‘selection’ but including the nullified one for the sake of argument) stands at 71%. Therefore, the October 26^th ‘election’ was far from run-of-the-mill. While His Excellency the incumbent President won with a landslide victory of 98.26% meeting all constitutional thresholds, overall voter turnout was just 39%! Voter turnout was below 20% in 113 of 290 constituencies. The AU and EU Observer missions have given a clean bill of health to the exercise, however, the AU noted that it cannot comment on credibility because of the decreased number of observers; field vision was diminished by deliberate diminution of focal points due to the risk of violence.

The Opposition have retraced their statement that protests will no longer be used to put pressure on the government. The demonstrations are expected to resume this week and the technique will continue to be used despite previous assurances to the contrary in international media. Two of the coastal governors from the Opposition outfit have called for secession of the Coast from the main country citing ‘marginalisation’. Mombasa is one of the prime revenue producing counties in the country, holding the main port, which is one of the busiest ports on the East African coastline. While secession is unlikely to happen (as indicated by the failed Catalonian saga), the pressure and image created by these leader’s statements are enough to discourage some investors, in line with the coalition’s intention to use ‘economic sabotage’ to attempt to ‘pull the rug from under the incumbent administration’s feet’.

The Opposition have created a People’s Assembly which will be a sitting of elected leaders, civil society groups, religious leaders and trade union officials, with a view to ‘amending the constitution’. Simply and boldly put, it’s a purported parallel government. They will work on the following grey areas:

1. Protecting devolution – the National Government withholding funds (as a political tool) renders County Governments frustrated and impotent
2. The architecture and structure of the Executive and Parliament
3. Exclusivity and discrimination in the allocation or distribution of public resources
4. Reviewing the performance of national security organs and the abuse thereof by the Executive
5. Structure and establishment of an independent electoral body
6. Pushing for fresh elections once again
7. Looking at ways to spur economic growth by dealing with pressing issues like unemployment and the problems experienced by women and youth

A petition against the re-election of the President-elect and his Deputy-elect should be filed with the Supreme Court by midnight on Monday 6^th November 2017. A ruling must be delivered within 14 days by the said apex court. While the Opposition candidate pulled out from the repeat Presidential election by conduct, his name was still on the ballot and he did not sign the official IEBC document to calcify the cessation of his candidacy. He can still file the petition.

An observer group known as Kura Yangu Sauti Yangu have raised concerns over the accuracy of the IEBC figures, citing vast anomalies. NGO’s may also file a case with information from this observer group, unless rendered impuissant by ‘deliberate sabotage’!

The new election laws which will make it hard to nullify a presidential election will also be in force when the judgment is made in regard to any petition filed and this will make things more predictable if not foreseeable. While the President did not sign the laws into effectiveness, they were adequately gazetted. According to section 116 (2) of the Constitution, an Act of Parliament comes into force on the fourteenth day after its publication in the Gazette, unless the Act stipulates a different date on or time at which it will come into force.

An activist, seemingly an Opposition proxy, has filed a case in the Supreme Court, terming the election a ‘sham’. He wants the court to interpret the adieu of the Opposition candidate and his running mate. The petitioner has raised concerns over the IEBC Chairman’s comments that he could not guarantee a free, fair and credible election, rendering the divisive October 26^th poll untrustworthy. While the Chairman, Wafula Chebukati was confident about the way in which he handled the latest election, he seems to have a positivity bias towards work he has indirectly overseen. The hearing is set for Friday 10^th November 2017.

At this point, it is hard to forecast whether the reiterated victory of the incumbent President will stand or not, but if it does, the market is going to soar despite the soaring tempers and destructive actions (or non-actions) of the recalcitrant Opposition. Being sworn-in will also give the President higher ground and an advantageous negotiating position to calm down the Opposition coalition, perhaps even by extending a hand for an inclusive government. NCCK, the national umbrella body for churches in Kenya, have proposed the creation of the post of Prime Minister, two Deputies and Leader of the Opposition via amendment of the Constitution.

Market Snapshot

Volume doubled with the movement of 120,443,300 shares taking place, up 81% from the previous week’s 66,725,500 shares. Weekly turnover came in at Kshs. 3,627,651,309 from Kshs. 2,119,647,699 (+71%). The benchmark NSE 20 soared to 3800.43 (+4.17%), the broad NASI took to the air to rest at 164.50 (+2.90%) while the NSE 25 winged its way to 4302.61 (+3.81%).

On Friday 3^rd November 2017, foreign investor participation stood at 63.7% compared to the previous day’s 56.8%, accounting for 66.2% of total buying and 61.1% of total selling.

Telecommunications Sector

What ails you Bob? The mystery illness prompting the Safaricom boss’ sick leave for “a number of months” has allured its fair share of speculation. With assurances of a strong management team continuing its work and the lack of appointment of an acting CEO, investors seem to be convinced that it is a routine off and not much is different from his usual trips abroad, which the media does not take up routinely.

Safaricom Kshs. 25.50 (+0.99%) ascended marginally with the teleportation of 41,824,600 shares. It did not drop below Kshs. 25 during the weak, even where demand was weaker. The telecommunications outperformer delivered robust HY 2017/18 earnings in a challenging macroeconomic environment laden by drought, the banking rate cap and a protracted electioneering period. Here are some of the key highlights:

• Total customer base increased by 10.8% to 29.5m.
• 30-day active M-PESA customers increased by 9.5% to 19.3m.
• 30-day active mobile data customers increased by 13.5% to 16.9m.
• Net Income increased by 9.5% to Kshs 26.20bn. Excluding the one-off adjustment and its tax impact, net income growth was 21.4%
• EPS came in at Kshs. 0.65 v. Kshs. 0.60 (+8.3%)

The share reacted to this positive news and gained 1% to close at Kshs. 25.50 (day high Kshs. 26). It was trading at Kshs. 25.75 despite being bombarded by the Opposition announcement calling for a boycott of the network and the behemoth corporation’s products. While some weakening is possible, the share has been fairly resilient despite tumultuous external noise. What will really wrestle with the share price is news like: ‘Airtel gains 3,000,000 subscribers in two weeks’ or ‘Safaricom shops sit empty in a number of counties as Opposition supporters flock Airtel outlets’ etc.

The listed company is set to launch its ecommerce website Masoko on 16^th November 2017. It will initially have 30,000 SKUs (Stock Keeping Units) and over 200 vendors. The focus will be on connecting a wide variety of buyers and sellers including someone like “a honey vendor in Kisumu”. Deliveries will be handled via partnerships with Fargo and Sendy; stringent quality control paid heed to by Safaricom. Cash on delivery as well as Mpesa payment options will be available. It looks like it is going to be a smashing success particularly because it will give a very vast platform to the smallest of sellers to market their products!

Banking Sector

KCB Kshs. 41.50 (+7.79%) moved 18,361,100 shares while Equity Bank Kshs. 40.25 (+11.03%) traded 9,782,200 shares. The latter released very encouraging earnings on Monday 30^th October 2017, explaining the rally. Here are some of the key highlights:

• Liquidity ratio increased to 54.8% up from 45% in a similar period last year.
• Non-performing portfolio ratio of 7.4% against an industry average of 10.7% as at August 2017
• A growth of 11% in assets to reach Kshs. 518.2Bn at 30th September 2017 up from Kshs. 468.0Bn at the end of the same period last year
• Non-funded income grew by 28% from Kshs 16.6Bn to Kshs 21.3Bn offsetting the effects of reduced interest income.
• The Group achieved a ratio of funded to non-funded income of 56:44 in the current period against a ratio of 66:34 over the similar period last year.
• The growth in non-funded income came as a result of blooming mobile banking commissions, trade finance, forex income growth, merchant banking commissions, agency banking commissions, credit card commissions and remittances from the diaspora.
• 91% of all transactions moved from the fixed cost delivery channels of the brick and mortar of bank branches and ATMs to variable cost delivery channels of mobile, internet, mobile App, Agency and merchant banking.
• Mobile innovation Equitel helped the Group capture 25.6% of the value of national money transfer in Kenya and 33% of the national market share of Mobile Commerce.
• EPS arrived at Kshs. 3.87 as compared to Kshs. 3.98 posted as at 30^th September 2016 (-2.8%)

Cooperative Bank Kshs. 16.70 (+3.73%) saw 8,209,100 shares exchange hands while Barclays Kshs. 10.15 (+10.93%) experienced new buyers served with 2,436,300 shares.

Commercial and Services

Kenya Airways Kshs. 6.15 (+21.78%) soared to heights that the Aviation Authority would deem unsafe for commercial aircraft! A total of 4,285,000 shares flew through the market. International Air Transport Association (IATA) expects airline passenger numbers in Africa to more than double in less than 20 years, based on a growth rate of about 5.6% per year. The Pride of Africa will definitely need to tidy up its operations and strengthen its money-making ability to be poised for this humungous growth. According to an article in the Business Daily, the CEO of the national carrier has started reorganizing staff and propping up or even creating new departments.

Uchumi Kshs. 3.60 (+4.35%) saw the barter of 602,800 shares while the loss-making Nairobi Business Ventures Kshs. 2.45 (+48.48%) experienced a surge in value of 177,100 shares. The latter rewarded speculators immensely.

Energy and Petroleum

Kengen Kshs. 9 (+3.45%) saw the transmission of 7,332,300 shares. KenolKobil Kshs. 15 (+1.35%) experienced the flow of 5,968,400 shares. The latter has been stuck at these levels like a child to a cartoon channel and an upside is imminent.

KPLC Kshs. 10.85 (+7.96%) overcame resistance as 1,689,100 shares were passed through the NSE wires. The electricity distributor’s sources of power are as follows:

• Hydro 39%
• Geothermal 47%
• Diesel 12%

More reliance on non-hydro related power sources will ensure that stable electricity is supplied even in arid conditions. This in turn will increase customer appreciation.

The Kenya Nuclear Electricity Board has been tasked with the role of promoting and expediting the development of nuclear electricity in Kenya. This type of power generation is known to provide base load (constant supply) of electricity. Kenya plans to begin constructing a 1,000-megawatt nuclear power plant in 2021, at an approximate cost of $ 5 billion. Completion is estimated for 2027. This will open up opportunities for the export of electricity to neighboring countries, especially with growth in green energy such as solar and geothermal.

Insurance

Kenya Re Kshs. 20.50 (+2.76%) saw new buyers lay claim over 2,346,000 shares while CIC Kshs. 5.65 (+2.73%) traded 1,172,500 shares. Britam Kshs. 14.75 (+5.73%) moved 835,900 shares

Investment and Investment Services

Centum Kshs. 40.75 (+2.52%) experienced investors holding the counter let go of 251,000 shares. It has performed poorly despite strong fundamentals and it makes you conclude that an upsurge is more than in the waiting.

NSE Kshs. 19.70 (+3.14%) saw 456,900 shares move meaningfully through the board.

@MihrThakar

Source: @AhmednassirAbdullahi, @IEBCKenya, Daily Nation, the Standard, Citizentv, @CoalitionNasaKenya, Capital News, Kenya Law, @NSE_Investors, Investing.com, Safaricom, Rich Management, myStocks app, Techweez, Equity Bank, Business Day, Kenya Power, Bloomberg, NSE