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Daily Market Report – 9th June 2020


Faida Research - June 10, 2020 - 0 comments

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Market Commentary:

  • The All Share Index eased marginally by 0.5% to close the day at 140.08 which we attribute to price declines in large cap counters: Safaricom (-0.8%), EABL (-0.4%) and KCB (-0.1%). However, the NSE 20 index gained by 0.7%. Foreign investors emerged net sellers for the day with foreign sells at 83.9% against foreign buys at 71.0%. Safaricom retreated on account of profit taking activities while Longhorn emerged amongst the biggest losers of the day (-4.8%) which we attribute to their profit warning announcement (see below).

 

News Highlights:

Longhorn Publishers Issues Profit Warning

 Longhorn Publishers has issued a profit warning for the FY2020.
 Listed companies are required to issue profit warnings when they expect projected earnings for the current financial year to be at least 25.0% lower than the earnings reported in the preceding financial year. This could mean that the group’s profits for FY2020 could be at least 25.0% lower.
 The group cites the COVID-19 crisis and the ensuing mitigating measures (including the suspension of learning in schools) as the key reasons for the expected poor performance.
 The group is currently focused on scaling and optimizing its digital learning solutions as well as enhancing operational efficiency in order to support the recovery of the group’s financial performance.

Commentary
 The anticipated poor performance of Longhorn may also have a direct impact on Centum’s financial performance; Longhorn is one of Centum’s portfolio companies (Centum holds a 60.2% equity stake in Longhorn).
 In light of the challenges brought on by the COVID-19 crisis, we expect many businesses to struggle this calendar year. Thus, we expect to see more profit warning announcements.
 We expect to see more companies attempt to protect earnings by adopting cost-reducing measures.

 

Recommendations:

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

Hold- Safaricom

Sell- Stanchart, Bamburi, HF

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