Stock Picks

KCB Group

We recommend a LONG TERM BUY on KCB. The counter is currently trading at a P/B of 1.16 (at a price of KES 39.95) against an industry average of 0.92x as at 7th December 2018. Whilst we expect the rebound in interest income to continue in the short-term (given the improvement in the operating environment), we remain concerned over the Group’s deteriorating asset quality. However, we believe the group’s strategic partnerships and digital transformation will continue to deliver growth in the long-term.

Equity Group Holdings

We recommend a LONG TERM BUY on Equity Group Holdings with a one-year target price of KES 54.11 – representing an upside potential of 37.4% from the current market price of KES 39.40 (as at 7th December 2018). Currently, Equity is trading at a P/B of 1.60x compared to the average banking sector P/B of 0.92x as at 7th December 2018. The current business model is hinged on technology, innovation and business diversification, and affirms the group’s competitive advantage. We believe the group’s business model will support growth in the long-term.

Cooperative Bank

We recommend a LONG TERM BUY on Cooperative Bank with the counter trading at a P/B of 1.21x (at a price of KES 14.45) against an industry average of 0.92x as at 7th December 2018. The counter has a high ROaE of 17.4%, which is above the industry average of 13.4% with a dividend yield of 5.5%.  – commensurate with the industry average. We expect the bank to improve its efficiency through its Soaring Eagle transformational agenda which is aimed at digital transformation.

Jubilee Holdings

We recommend a BUY on Jubilee Holdings. The company, through its subsidiaries, provides all classes of insurance and has a strong market presence in East Africa. Jubilee is currently trading at a P/B of 1.06x (at a price of KES 368.75) against an industry average of 0.92x as at 7th December 2018 – higher due to its attractive fundamentals.

Britam Holdings

We recommend a BUY on Britam. The counter trading at a P/B ratio of 0.98x (at a price of KES 10.25) against an industry average of 0.92x as at 7th December 2018. The company recently completed the sale of 360.8 million new shares worth KES 5.7 billion to private equity fund AfricInvest. These funds will be used to ramp up property development, increase investment in its subsidiaries and improve its digital delivery channels.

KenGen

We recommend a LONG TERM BUY on KenGen. As at the end of FY2018, the counter had a market share of 69.0% with an installed capacity of 1,631 MW distributed amongst various power sources. The company is currently trading at a P/E of 5.82x, (at a price of KES 6.98) as at 7th December 2018, lower than the industry average of 6.72x (excluding Umeme). 

Centum

We recommend a LONG TERM BUY on Centum. At the end of the 1H2019, the company’s NAV per share stood at KES 73.6 (reflecting a CAGR of 20.8% between FY2014 and FY2018), a 62.8% discount to the company’s share price of KES 27.35 as  at 7th December 2018. In 1H2019, Centum posted a 27.5% y/y growth in consolidated after tax profits for 1H2019 to KES 2.1 billion (1H2018: KES 1.6 billion). The rise in profitability was mainly driven by higher investment income, which surged by 84.1% y/y to KES 4.1 billion.