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Daily Market Report – 14th May 2020


Faida Research - May 14, 2020 - 0 comments

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Market Commentary:

  • The All share index declined by  2.3% to 134.19. This was due to continued selling pressure on several large cap counters, notably Equity, Safaricom and KCB.  Activity was largely dominated by foreigners with foreign sells at 86.4% against foreign buys at 28.3%
  • Market turnover declined by 30.3% to KES 439.4 million from KES 630.8 million the previous day

 

News Highlights:

 Moody’s Outlook Downgrade on Kenya Hits Other Entities

 Moody’s outlook downgrade on Kenya from stable to negative has led to similar downgrades on a number of Kenyan entities.
 Moody’s affirmed the ratings (B2 for local currency deposits for all three) for KCB, Equity and Co-op, but downgraded the outlook for all three from stable to negative.
 For all three banks the outlook change was due to significant holdings of government securities (2.0, 1.5 and 1.3 times the total shareholders’ equity in FY2019 for Equity, Co-op and KCB respectively) and to a lesser extent economic impacts of the COVID-19 pandemic on the banks’ profitability.
 Moody’s also changed its outlook on Acorn’s Green Bond to negative reflecting increased country risk and the challenging business environment as a result of the pandemic. It however affirmed the local currency rating of B1.

Commentary

 The probability that the government will default on its local currency obligations is low. However, as noted in our initial reaction to the outlook downgrade, we expect the government to face higher borrowing costs (higher yields).
 The rise might be mitigated by demand from investors looking for safe havens. As a result of the higher yields, banks are likely to see lower valuations for their holdings of government securities (alternatively they could just hold until maturity to avoid realizing the losses).

 

Recommendations:

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

Hold- Safaricom

Sell- Stanchart, Bamburi, KQ

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