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Daily Market Report – 20th July 2020


Faida Research - July 21, 2020 - 0 comments

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Market Commentary:

  • The All Share Index shed 0.02% to close the day at 132.22. The NSE 20 share index however gained marginally by 0.01% to close at 1,909.63. Market turnover increased by 0.8% to KES 548.0 million. The day’s top traded counters were BAT, Safaricom and Equity Group with a turnover of KES 310.1 million, KES 184..7 million and KES 15.5 million respectively.
  • Foreign investors dominated trading on both the sell side (93.93% of the day’s sales) and buy side (83.65% of the day’s purchases). Local investor participation declined to 11.2% from 57.0% in the previous trading session. We attribute this to re-allocation of funds to the recently re-opened treasury bonds of which we expect high investor appetite.

 

News Highlights:

I&M Holdings Set to Acquire 90.0% stake in Orient Bank Uganda

 I&M Holdings PLC is set to acquire a majority stake in Orient Bank Limited (OBL) based in Uganda.
 The group entered into an agreement with the shareholders of OBL for the sale and purchase of shares making up 90.0% of the issued share capital.
 OBL reported a net loss of UGX 1.1 billion (KES 32.0 million) in FY2019 from a profit of UGX 5.6 billion (KES 162.9 million) registered in FY2018.
 The decline in profitability was primarily due to an increase in total expenditure by 19.1% y/y to UGX 97.2 billion (KES 2.8 billion). This was mainly due to a rise(more than 100% y/y) rise in bad and doubtful debts to UGX 17.9 billion (KES 520.6 million).
 OBL’s shareholders equity (excluding non-controlling interest) stood at UGX 113.9 billion (KES 3.3 billion).
 The bank’s total assets amounted to UGX 814.3 billion (KES 23.7 billion) in FY2019 compared to I&M’s KES 274.0 billion).
 OBL has a branch network of 22 branches, bancassurance operations and has continued to invest in alternative delivery channels (as part of its strategy to migrate 40% of its customers to digital channels by FY2020).
 In 2016, I&M had attempted to purchase an 80.0% stake in OBL but was unsuccessful.
 Completion of the acquisition is said to be subject to conditions such as receipt of all regulatory and corporate approvals and shareholder approval.

Commentary
 The acquisition is unlikely to make a significant impact on I&M’s financial performance in the short to medium term. However, the acquisition will make the entry into Uganda much easier compared to a greenfield operations.
 Expanding into Uganda is part of the group’s key strategic objectives to growing its regional businesses. In addition to I&M’s strong organic growth, the group has over the years opted to grow inorganically through mergers and acquisitions having successfully acquired and integrated banking entities in Mauritius, Tanzania, Rwanda and Kenya. We expect the bank to leverage on its i) upgraded core banking system ii) rollout of is digital Omni channel iii) growth of its nonbanking entities to offer products seamlessly across the markets.
 We however remain concerned with the deteriorating asset quality in both banks, expected to be exacerbated by the adverse economic outlook in both countries as a result of the pandemic.

 

Recommendations:

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

Hold- Safaricom

Sell- Stanchart, Bamburi, HF

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