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Daily Market Report – 9th July 2020


Faida Research - July 9, 2020 - 0 comments

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Market Commentary:

  • The All Share Index and NSE 20 share index extended their downward trend, shedding 1.4% and 0.7% to close the day at 132.51 and 1,907.82 respectively. Safaricom declined for the 4th consecutive day this week (-7.3% week to date to KES 27.50), with activity on the counter accounting for 63.8% of the day’s traded value. Activity in the banking sector accounted for 32.7% of the day’s traded value with notable declines on Equity (-3.8% to KES 31.50) and Absa (-3.1% to KES 9.4). Trans-century was among the top gainers of the day (+9.3% to KES 1.76) on announcement of plans to de-list from the NSE (read more on this in our news highlights segment). Overall, foreign investors emerged net sellers in today’s trading session with 78.8% of the day’s sales against 37.6% of purchases.

 

News Highlights:

TransCentury Announces Plan to Delist

 TransCentury, in a cautionary statement on 9th July 2020 to shareholders, announced plans to delist from the Nairobi Securities Exchange (NSE). The delisting is subject to shareholder approval at the company’s Extraordinary General Meeting to be held on 30th July 2020.
 According to management, delisting is in line with the next phase of the 4-year strategy. The strategy – launched in 2017 – involves delivering a robust and fundable order book, debt re-profiling to match cash flows, fundraising and order book execution.
 The company’s performance improved in 1H2019 to KES 297.6 million profit from a loss of KES 684.8 million reported in 1H2018. The performance was characterized by a 10.6% increase in revenue
(attributed to enhanced execution of the order book in line with the strategy), KES 1.3 billion net gain from the debt re-structuring strategy and 24.0% reduction in finance costs owing to initiatives to optimize
capital structure.
 In recent years the company has struggled with high finance costs which weakened bottom line performance. As a result, and in line with the aforementioned strategy, the company restructured debt
related to one of its subsidiaries (East African Cables) in 2018 resulting in debt reduction of over KES 1.5 billion (reflected in 1H2019). Moreover, there has been debt reduction of commercial debt across
the group by over 40.0% since March 2016.
 The company’s focus on reducing debt was driven by an aim to position the business favorably to attract capital for growth.
 In 2019 the company resorted to selling non-core assets (residential areas, buildings and land) valued at more than KES 700 million in Kenya and the regional market, to increase liquidity and reduce the debt burden.

Commentary
 The delisting will allow the company to focus on long term objectives (avoid short-termism). This however requires a long-term outlook on the company and involves higher risk taking.

 

Recommendations:

Long Term Buy- KCB, Equity, Absa, Stanbic, NCBA

Hold- Safaricom

Sell- Stanchart, Bamburi, HF

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