Market Commentary:
- The All Share Index retreated by 1.4% to close today’s trading session at 142.54 from 144.58 in the previous trading session. NSE 20 Index also declined marginally by 0.6% to 1,957.54 as majority of the counters recorded price declines. Equity turnover declined significantly by 78.4% to KES 202.5 million largely owing to a decline in Safaricom volumes from 11.8 million to 0.9 million.
- Foreign investors were net-sellers, accounting for 82.8% of the day’s sales against 44.9% of the day’s purchases. Notably, foreign investors were net sellers on BAT Kenya Plc, EABL and Safaricom Plc.
News Highlights:
Standard Chartered Slashes FY2019 Dividend By Half
The Board of Directors (BOD) of Standard Chartered Bank Kenya decided to change its earlier cash dividend recommendation of KES 15.00 per ordinary share to KES 7.50. The BOD cited economic challenges brought about by COVID19 as the basis for the decision change.
The bank further noted that the cut in dividend would allow the bank to maximize its lending activities, preserve capital ratios and invest in the business for the long term.
In an attempt to make up for the lower cash dividend, the BOD also recommended a bonus issue of 1 new ordinary share for every 10 ordinary shares.
The bank will hold an AGM on the 24th July 2020 to ratify its proposals with the new proposed dividend only payable to registered shareholders on the company register by 27th April 2020.
Based on the revised cash dividend, the company’s dividend yield now stands at 4.5% (8.9% as at 19th June 2020).
Commentary
The decision comes in as banks (NCBA and Equity) as well as other listed companies have cut their dividend payout to preserve capital and liquidity as they face increased uncertainty during the
pandemic. As noted in our recommendations report, dividend investing has become a high-risk strategy. A money market fund (fixed income securities) is a safer option for those looking for regular
income.
We maintain our SELL recommendation on the bank based on:
o We don’t expect the bank’s loan book growth momentum to be sustained in FY2020 due to the anticipated economic challenges.
o Some of the loans are still pegged to the previous interest rate regime (CBR + 4.0%). Given the low CBR of 7.0%, we expect the yield on loans to come under pressure in FY2020.
Moreover, given the introduction of repayment breaks and loan extensions, we expect interest incomes on loans to take a further hit.
o StanChart’s NPL ratio (as measured against net loans) reduced to 15.6% in FY2019 from 18.3% in FY2018. Despite this improvement in asset quality in FY2019, we expect asset quality to deteriorate in FY2020 – the sectors that have been adversely affected by the pandemic include: the hospitality and tourism sector, property market, trade and SMEs.
Recommendations:
Long Term Buy- KCB, Equity, Absa, Stanbic, NCBA
Hold- Safaricom
Sell- Stanchart, Bamburi, HF