Sub-Saharan Africa Stock Markets 2010 Review & 2011 ... - Imara

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EQUITY RESEARCH KENYA FEBRUARY 2011 2010 REVIEW AND 2011 OUTLOOK Kenyans voted in favour of the constitutional referendum in August 2010, a move that has reshaped the political landscape and should avoid a repeat of the post-election violence that claimed the lives of around 1,300 people in late 2007 and early 2008. The vote also boosted investor confidence in the Kenyan economy and capital markets. In 2010, Kenya collected KES 548.1bn in revenue and received KES 20.7bn in grants, giving total receipts of KES 568.8bn. Total expenditures of KES 725.2bn translated into a budget deficit of 6.5% of GDP, up from 3.7% in FY 2009. The Ministry of Finance expects the deficit to increase to 6.8% in FY 2011, mainly due to the 50.7% increase in funds allocated to development projects. In the first half of 2010, GDP growth was 5.1% and expected to be sustained at around that level for the rest of the year. The Ministry of Finance expects a 5.0% growth in real GDP in FY 2010. The key drivers of growth were agriculture (due to favourable weather conditions), construction (increased investment in infrastructure), manufacturing (robust regional growth), and financial services (increased competition and new products). Tourism arrivals increased beyond the psychological 1m in 2010. However due to the decline in the share of high-end tourists from the EU, net tourism revenue has not grown as rapidly as arrivals. A combination of post-election violence, drought and high international commodity prices pushed the inflation rate up to a peak of 31.5% in May 2008. However, improved food supplies, easing international oil prices and the change in the methodology of computing the CPI index from arithmetic mean to geometric mean, have all resulted in a single digit inflation figure of 4.5% in December 2010. The Shilling remained relatively stable, trading in the KES 80 - KES 82 per dollar range. With the widespread uncertainty in the global markets, the stability in the Shilling is encouraging and was beneficial to exporters, especially as some products (such as tea) are quoted in US dollars. Kenya has a relatively low Central Bank Rate (CBR) at 5.75%, compared to regional peers. However the interest rate spread remains high at around 10%, and as a result we expect impressive results from the banking sector. Top gainers and losers 2010 Opening Closing % change % change Company price price (LC) (USD) NSE-20 3 247.44 4 432.60 36.50% 27.72% KenolKobil 5.00 17.00 240.00% 218.13% Kakuzi 31.75 81.50 156.69% 140.18% Eaagads 20.00 50.00 150.00% 133.92% Scangroup 25.50 61.50 141.18% 125.66% Co-op. Bank of Kenya 8.95 19.00 112.29% 98.64% B.O.C Kenya 150.00 132.00 -12.00% -17.66% E.A.Cables 20.25 16.25 -19.75% -24.91% AccessKenya Group 20.25 13.50 -33.33% -37.62% Marshalls 21.75 14.10 -35.17% -39.34% Kenya Power & Lighting 17.50 10.00 -42.86% -46.53% 1.5 1.4 1.3 1.2 1.1 1.0 0.9 Top 10 shares by market cap. Company KES (m) USD (m) % of total Safaricom 188,000.00 2,320.99 16.75% East African Breweries 158,945.65 1,962.29 14.16% Equity Bank 99,049.29 1,222.83 8.82% Barclays Bank 84,867.75 1,047.75 7.56% Standard Chartered Bank 70,167.69 866.27 6.25% Bamburi Cement 67,873.38 837.94 6.05% Co-operative Bank of Kenya 66,485.03 820.80 5.92% KenGen 52,760.67 651.37 4.70% Kenya Commercial Bank 48,236.67 595.51 4.30% British American Tobacco Kenya 27,000.00 333.33 2.41% Jan-10 NSE relative to S&P African Frontier Index SEMDEX relative to the S&P African Frontier index Feb-10 Mar-10 Apr-10 NSE 20 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 S&P African Frontier Dec-10 11
Market Review for 2010 The Nairobi Stock Exchange recorded impressive growth in 2010, with both the NSE 20 and NASI up 36.5% in local currency terms. However due to the 6.9% depreciation in the Shilling against the US dollar, both indices gained a lower 27.7% in USD terms. The NSE 20 reached its peak in October 2010, due to a rally in share prices after the Kenyans voted in favour of the August 2010 constitution referendum. Trading activity increased significantly on the NSE, with volume up 87% to 5.9bn shares and turnover up 135% to KES 89.9bn. The commercial and services sector accounted for 61.4% of shares traded, followed by the financial sector at 16.9% and the industrial sector at 13.9%. There is a lot of liquidity in the Kenyan market, as demonstrated by a number of successful capital raising initiatives in 2010. Kenya Power and Lighting raised KES 9.5bn through a rights issue, the funds being earmarked for upgrading the national grid. Kenya Commercial Bank raised KES 12.5bn also through a rights issue. The proceeds give KCB adequate capital to pursue aggressive growth and improve capital ratios which were under pressure due to the Group’s accelerated growth. KCB is one of many Kenyan firms planning to set up shop in Southern Sudan. Standard Chartered Bank Kenya raised KES 2.5bn through a rights issue, to fund its acquisition of the Barclays’ custody business. 10 Most Active Stocks by Volume Company Volume (m) % of total Safaricom 3,398.72 57.0% Equity Bank 498.53 8.4% Mumias Sugar Company 355.70 6.0% Co-operative Bank of Kenya 353.81 5.9% Kenya Commercial Bank 319.44 5.4% KenGen 198.25 3.3% KenolKobil 99.33 1.7% Kenya Airways 71.96 1.2% Kenya Re-Insurance Corporation 68.43 1.1% CMC Holdings 53.24 0.9% 10 Most Active Stocks by Value Company Val. (USDm) % of total Safaricom 224.58 20.2% Equity Bank 135.71 12.2% East African Breweries Limited 100.93 9.1% Kenya Commercial Bank 83.44 7.5% Co-operative Bank of Kenya 62.11 5.6% Mumias Sugar Company 51.10 4.6% Kenya Airways 45.81 4.1% KenGen 42.04 3.8% Bamburi Cement 32.65 2.9% Barclays Bank 31.98 2.9% Market Outlook for 2011 Kenya’s economic prospects are highly dependent on the weather, due to the importance of agriculture to the economy. An early end to the February-June 2010 rainy season and poor rains in the final quarter of 2010 due to the La Nina weather phenomenon may be indications that agriculture’s growth momentum may be subdued in the early part of 2011. We anticipate that the increased food insecurity will raise food prices in the first half of the year. This, coupled with higher international oil prices will ultimately raise the inflation rate, however we expect it to remain in single digits. Credit growth has shown signs of recovery and we expect it to continue on its upward trajectory in 2011 on the back of strong growth in deposits, a relatively stronger economy and an increase in liquidity. A continued improvement in EU tourist traffic and the increasing traffic from new markets are expected to support an improvement in tourism receipts in 2011. The NSE 20 has shed 2.55% y-t-d in US terms. However, given the upcoming reporting season for the FY 2010 results and the positive results expected, we anticipate a rise in the NSE 20 and another strong performance from the Kenyan market in 2011. Top picks for 2011 Barclays Bank – Strong and diversified capital base, wide branch and ATM network, diversified loan book, one of the lowest P/Es in the finance and investment sector. Kenya Commercial Bank – Largest banking group in East Africa with a presence in Kenya, Tanzania, Uganda, Rwanda, Sudan; cross listed in Uganda, Tanzania and Rwanda enhancing demand and visibility; one of the highest dividend yields in the finance and investment sector, impressive growth in the loan book, growing customer base, plans to re-enter investment banking market, successfully completed third rights issue and will use funds to grow the KCB brand. East African Breweries – Presence in Kenya, Uganda, Tanzania, Burundi, Rwanda and southern Sudan; diverse brand portfolio, wide distribution network, plans to contract more sorghum farmers to diversify from volatile barley, constant investment in increasing brewing capacity. 12
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