Market Commentary:
- The All Share and NSE 20 share indices edged up by 1.2% and 1.1% to close the day at 130.76 and 1,751.39 respectively. We attribute this to price gains across the bourse. Notable gains were posted on Bamburi (+8.7% to KES 27.55), NMG (+8.6% to KES 10.10), Absa Kenya (+5.1% to KES 9.06), Safaricom (+1.6% to KES 27.95) and EABL (+1.3% to KES 152.00). Safaricom and the banking sector represented 42.9% (KES 125.9 million) and 43.0% (KES 126.0 million) of the day’s traded value respectively. Today’s trading activity remained relatively balanced with foreign and local investor participation at 45.5% and 54.5% respectively.
News Highlights:
DTB Kenya Receives USD $50.0 million Loan for Onward Lending
DTB Kenya Receives USD 50.0 million Loan for Onward Lending
Diamond Trust Bank Kenya (DTB) has received a USD 50.0 million (c. KES 5.4 billion) loan from the International Finance Corporation (IFC).
The proceeds will used for onward lending to small and medium sized enterprises (SMEs) which have been negatively impacted by the COVID-19 pandemic and therefore considered a risky segment.
According to DTB management, the loan will enable the group to support SMEs to address their cash flow challenges which is a key concern as businesses need easy access to short-term liquidity.
The loan is from IFC’S KES 864.9 billion ($8.0 billion) COVID-19 facility that was launched in March to support businesses.
Commentary
We expect DTB to benefit from more lenient terms (lower interest rates and longer maturity) that come with such facilities. We also note that generally, the interest environment is favourable for debt uptake.
However, as noted previously, lending to SMEs does come at a higher cost of risk especially if the effects of the pandemic drag out into the medium term.
Recommendations:
Long Term Buy- KCB, Equity, Absa, Stanbic, NCBA
Hold- Safaricom
Sell- Stanchart, Bamburi, HF