Kenya Market Outlook - August 2012 - myStocks: Opinion and Commentary

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Kenya Market Outlook - August 2012

By Cannon Asset Managers (Cannon Asset Managers)
Comments Friday, September 28, 2012 at 8:25 AM EAT

Kenya Market Outlook – August 2012

Inflation and Interest Rates

In July 2012 inflation rate dropped more than the market had anticipated to 7.74% and subsequently interest rates have fallen with 91-days TBills currently at 8.58% as at 24th August 2012. The fall in inflation gives MPC room for further CBR cut during next month meeting and concern on stability of Kenya Shilling to be addressed by CBK continually mopping up liquidity.

Last month Monetary Policy Committee of the Central Bank of Kenya cut the CBR rate by 150 bps on 5th July 2012 to 16.50%. The CBR cut was supported by:

  • Consistent drop in inflation from a high of 19.78% in November 2011 to 10.05% in June 2012
  • Stable Kenya shilling with a narrow range of fluctuation against major currencies.
  • A slowdown in GDP growth with the first quarter of 2012 expanding by 3.5% the lowest since 2008
  • The Term Auction Deposit with flexible tenors introduced by the Committee in June 2012 as an additional instrument for liquidity management had stabilized the interbank rates around the CBR.

The first half 2012 has witnessed ease on interest rates and inflation. The 91-day Treasury bill yield has dropped by 668bps while inflation has dropped 1,116bps from the beginning of the year to end of July 2012.

kenya inflation vs 91 day tbil aug 2012

We expect the fall in interest rate to ease during Q4 2012 as the government moves to beat the borrowing target before end of this year considering next year is an election year.

Secondary Market Trading Outlook

Market yields have been declining since the beginning of the year, with a sharp fall in August after the CBR was cut to 16.5% and more than expected drop in inflation to 7.74% in July 2012.

The yield curve has moved downwards resulting to a rise in mark to market revaluation on existing bonds portfolio.

nairobi securities exchange yield curve aug 2012

Most of the activities in the secondary market have been on few bonds: 5yr (FXD 1/2012/5), 10yr (FXD1/2012/10) and Infrastructure bond (IFB1/2011/12). These bonds have seen appreciation as follows.

 Issue/ Reissue  DateJune  29, 2012August 24, 2012
  Average YieldAvg. PriceAverage YieldAvg. Price

We expect within the next 1 month the yields on bonds to drop below 10% which will result to more mark to market gains. We recommend booking capital gains on the bonds portfolio and placing the proceeds on fixed deposits to buy back during Q4 2012 at higher yields.

Equity Markets

The stock market continues to move north, with the NSE All Share Index up by 23% year to date. The stock market has been favoured by falling inflations and interest rates and impressive results that companies have reported during the year.

NSE All Share Index Dec 31 2011 - Aug 24 2012

Top Gainers and Losers as at 24th August 2012

Top 10 GainersTop 10  Losers
 CounterPercentage Change CounterPercentage Change
1Uchumi Supermarket Ltd97%1Kenya Airways Ltd-38%
2Crown Paints Kenya Ltd70%2TPS Eastern Africa  Ltd-25%
3Pan Africa Insurance Holdings69%3Williamson Tea Kenya Ltd-20%
4BAT59%4Sasini Ltd-15%
5Eaagads Ltd58%5Centum Investment Co Ltd-15%
6Kenya Commercial Bank Ltd51%6 Sameer Africa Ltd-14%
7KenolKobil Ltd46%7National Bank of Kenya Ltd-12%
8Nation Media Group Ltd46%8Co-op Bank-10%
9Kenya Re44%9AccessKenya Group Ltd-10%
10Unga Group Ltd42%10Trans-Century Ltd-8%

Summary of Results Announcements during the Period

Companies especially the banks started announcing half year results. In general the results have been impressive. However its worth to note that finance/interest cost has increased significantly across the board due to high interest rates witnessed in the last quarter of 2011 and first quarter of 2012.

PAT (KES mn)Change
SCBKHY Year 124,5392,50082%
Express KenyaHY Year 12895563%
BOCHY Year 12835357%
Kenya Commercial BankHY Year 126,0864,05850%
NIC BankHY Year 121,5941,09645%
Nation Media GroupHY Year 1291573125%
EABLFY Year 1211,1879,01524%
Co-op BankHY Year 124,0243,30522%
BATHY Year 121,4051,16521%
Jubilee InsuranceHY Year 1274062319%
Barclays Bank K.HY Year 124,2683,64217%
Equity BankHY Year 125,4024,73714%
Bamburi CementHY Year 122,5682,970-14%
Limuru TeaHY Year 1216-91%
Total KenyaHY Year 12(260)79-429%

We expect continued fall in inflation and interest rates to be favourable to the stock market going forward. Some reallocation of funds is expected from fixed income as interest rates continues to fall. However, it’s important to note that near the end of the year and beginning of next year we are likely to see reduced interest in the stocks market as we near general elections.

In the banking sector we remain positive on Kenya Commercial Bank and NIC Bank as we believe the banks have good growth prospects going forward and have very attractive valuations compared to their peers.

Centum Investments remains a buy considering it’s very cheap, trading at a heavy discount of 40% to its Net Asset Value. We believe it’s a matter of time for the market to realize Centum’s value.



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