Market Commentary:
- The All Share Index and NSE 20 share Index broke their losing streak to record a 0.3% and 1.1% gain, closing at 131.90 and 1,913.57 respectively. We attribute this partly to price gains on Equity (+1.2% to KES 34.40), KCB (+1.9% to KES 35.40), Bamburi (+1.9% to KES 26.50) and Britam (+5.9% to KES 7.48). Market turnover increased by 42.5% to KES 883.6 million as the number of shares traded increased by 28.8% to 34.8 million.
- Safaricom emerged the top mover of the day (price unchanged at KES 26.95), trading 24.4 million shares (74.5% of the traded value). Overall, foreign investors maintained a net selling position, accounting for 93.7% of the day’s sales against 31.5% of purchases. Local participation declined to 37.4% from 45.9% in the previous trading session.
News Highlights:
The Energy and Petroleum Regulatory Authority Increases Fuel Prices
The Energy and Petroleum Regulatory Authority (EPRA) has increased the prices of diesel, petrol and kerosene in Nairobi in its June fuel review by KES 17.30, KES 11.38 and KES 2.98 to KES 91.87, KES 100.48 and KES 65.45 respectively.
The price changes on diesel and petrol were attributed to a rise in the average landed cost of imported diesel growing by 32.2% to $228.62 per cubic metre and petrol edging up by 12.6% to $248.21 per cubic metre.
According to EPRA, during the period reviewed, kerosene was not discharged at the port of Mombasa. The prevailing price was maintained and adjusted for under recovery of Value Added Tax by Oil Marketing Companies that occurred in the previous pricing cycle.
Commentary
This is likely to cause some inflationary pressure if such costs are passed to consumers. Businesses might be caught between a rock and a hard place as to whether to pass the costs and risk seeing demand fall or absorb the costs and risk margins deteriorating (particularly if they had lowered prices to make up for lower demand as a result of the containment measures).
We note that the Organization of the Petroleum Exporting Countries and allies (OPEC+) is meeting for talks this week on the oil output policy that will apply from August. The Covid-19 pandemic had caused a decline in oil demand which necessitated OPEC+ to reduce output by 9.7 million barrels per day up until end of July.
According to the organization’s secretary general, the oil market is edging closer to balance.
Recommendations:
Long Term Buy- KCB, Equity, Absa, Stanbic, NCBA
Hold- Safaricom
Sell- Stanchart, Bamburi, HF