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Daily Market Report – 14th July 2020


Faida Research - July 15, 2020 - 0 comments

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Market Commentary:

  • The All Share Index and NSE 20 share Index eased by 0.8% and 0.4% to close the day at 131.54 and 1,893.65 respectively. We attribute this mainly to the price decline on Safaricom (-2.0% to KES 26.95) on the back of foreign investor sell-side activity. Activity on the counter accounted for 83.6% of the day’s traded value.
  • The banking sector saw price gains on Equity (+2.9% to KES 34.00) and KCB (+2.1% to KES 34.75) on the back of foreign investor demand. Kenya-Re maintained its upward price momentum, gaining by 6.0% to close the day at KES 2.31. Foreign investor activity in the market remains skewed towards the sell-side with 81.6% foreign sales against 26.6% foreign purchases. Local participation improved to 45.9% compared to 37.2% in the previous trading session.

 

News Highlights:

NSE Increases Stake in CDSC to 40.5%

 The Nairobi Securities Exchange (NSE) raised its indirect stake in the Central Depository and Settlement Corporation Limited (CDSC) to 40.5% from 22.5% in FY2018.
 This was achieved through an initial acquisition of a 61.0% stake in Association of Kenya Stockbrokers (AKS) Nominees Limited – which owns 18.0% of CDSC – at a cost of KES 77.0 million in FY2019.
 This was followed by an increase in shareholding in the subsidiary to 88.8% in 1Q2020 through the purchase of an additional 1,381 shares at KES 34.9 million.
 The NSE now holds 4,428 shares out of 4,986 shares in AKS which holds equity shares in CDSC in trust for its members authorized to operate as stockbrokers and investment banks.
 The CDSC provides automated clearing, delivery and settlement facilities in respect of transactions carried out at the exchange.
 According to management, the acquisition was for synergistic purposes and was aimed at strengthening the trading ecosystem. Moreover, it complements the NSE’s other investments in the Dar-esalam Stock Exchange in line with its objective of investing in related businesses.
 The NSE registered a 58.0% y/y decline in profitability to KES 80.2 million in FY2019 (FY2018: KES 190.7 million). This was on the back of a 9.4% y/y dip in revenues to KES 567.4 million (occasioned by a 12.0% decline in equity turnover) and one-off restructuring cost of KES 52.0 million.
 The restructuring was aimed at lowering the cost to income ratio and enhancing efficiencies across the group.

Commentary

 This is the right move on the NSE’s part. We opine that a full acquisition of the CDSC would yield even more benefits such as faster roll out of new products and services. A full acquisition would enable the NSE coordinate infrastructure rollouts at both the NSE (trading element) and the CDSC (depository & settlements element) for new products and services.

 

Recommendations:

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

Hold- Safaricom

Sell- Stanchart, Bamburi, HF

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