Market Commentary:
The All Share and NSE 20 Indices gained by 1.8% and 1.1% w-o-w to close the week at 143.93 and 1,789.52 respectively. We attribute this to price gains in several large cap counters notably: EABL (+5.5% to KES 159.00), KCB (+5.3% to KES 37.50), Equity (+5.1% to KES 36.80), BAT (+4.3% to KES 365.00) and Absa (+4.2% to KES 9.90). Equity and KCB posted price gains despite announcing a 14.6% and 43.0% decline in after tax profits for 3Q2020 respectively. Market turnover declined by 33.8% w-o-w to KES 2.1 billion while the volume of shares traded declined by 20.4% w-o-w to 82.3 million. In the coming week, we expect activity in the banking sector to remain high as more banks continue releasing their 3Q2020 financial results.
News Highlights:
Safaricom PLC Posts a 6.0% y/y decrease in After Tax Profits for 1H2021
Safaricom’s after tax profits fell by 6.0% y/y to KES 33.1 billion from KES 35.2 billion reported in 1H2020. Service revenue eased by 4.8% y/y to KES 118.4 billion (1H2020: KES 124.3 billion) primarily driven down by MPESA and Voice.
MPESA revenues declined by 14.5% y/y to KES 35.9 billion as a result of the zero rating of some M-PESA transactions( P2P transactions below KES 1,000, Bank to M-PESA wallet and wallet to bank transfers (C2B and B2C) and paybill tills for government hospitals and dispensaries). Total MPESA transaction value increased by 32.9% y/y to KES 9.0 trillion while transaction volumes rose by 14.9% y/y to 5.1 billion transactions. The chargeable transactions per one month active customers dipped by 27.6% y/y to approximately 9.0 transactions(as a result of the zero rating) in 1H2021compared to 13.0 transactions in 1H2020 while the one month active customers grew by 13.5% y/y to 26.8 million customers over the same period. The Average Revenue per User (ARPU) dropped by 23.5% y/y to KES 229.1.
Outgoing voice revenues fell by 6.5% y/y to KES 40.2 billion due to a decline in the effective rate per minute which offset the increase in both 30 -day active customers (+7.6% to 26.9 million customers) and the increase in voice outgoing minutes (+10.8% y/y buoyed by the “Tunukiwa” campaign which was aimed at customers with low usage, enabling them to call at a lower rate).
Mobile data revenues rose by 14.1% y/y to KES 22.2 billion (1H2020: KES 19.5 billion). The growth was attributed to sustained momentum in both customer growth (one month active customers grew by 11.6% y/y to KES 22.9 million while distinct data bundle customers rose by 22.7% y/y to 15.7 million customers) and usage(from 919.0 MBs in 1H2020 to average of 1.3GBs in the 1H2021). This offset the continued decrease in the effective rate per megabyte (MB), resulting in the one month active chargeable mobile data ARPU increasing by 3.5% to KES 183.80.
Fixed line and wholesale transit revenue declined marginally by 0.2% y/y to KES 4.6 billion as the 47.2% y/y growth (to KES 1.7 billion) in fibre to the home revenue (FTTH) was offset by a 1.7% y/y decline (to KES 2.9 billion) in fixed enterprise revenue (including wholesale) and a 100% y/y decline in revenue from the National Police Service contract.
Outgoing messaging revenues eased by 6.9% y/y to KES 7.2 billion as the one month ARPU fell by 8.9% y/y to KES 55.95 despite a 2.3% y/y growth in one month active customers to 21.5 million.
Incoming mobile revenues (incoming voice and messaging revenues from interconnect services) and other mobile service revenues(revenues from Bulk SMS and roaming) grew by 9.7% and 10.0% to KES 4.6 billion and KES 3.8 billion respectively.
Direct costs eased slightly by 0.2% y/y to KES 37.0 billion. Direct cost intensity (direct costs/total revenues) increased from 28.26% to 29.7% due to the bigger decline in revenues (-4.1% y/y to KES 124.5 billion). OPEX intensity (operating expenses/total revenues) declined from 18.3% to 17.0% due to the faster decrease in operating expenses (-10.6% y/y to KES 21.2 billion) than in revenues (-4.1% y/y to KES 124.5 billion).
CBK Invites Bids for Re-opened FXD2/2013/15 and FXD1/2018/20 Treasury Bonds
The Central Bank of Kenya (CBK), acting in its capacity as fiscal agent for the Republic of Kenya, has invited bids for re-opened FXD2/2013/15 and FXD1/2018/20 with the intention of raising KES 40.0 billion for budgetary support.
The features of the bonds are shown in the table below:
| FXD2/2013/15 | FXD1/2018/20 | |
| Amount | KES 40.0 billion | |
| Tenor | 15 years (7.5 years) | 20 years (17.4 years) |
| Coupon rate | 12.000% | 13.200% |
| Taxation | 10.0% | 10.0% |
| Period of sale | 04/11/2020 to 17/11/2020 | |
| Redemption date | 10/04/2028 | 01/03/2038 |
Source: CBK
With the economy opening up, we may see higher risk appetite causing demand for safe havens (e.g. government securities) to decline (yields may tick up).
We recommend bidding as follows:
i) FXD2/2013/15: 12.90%(non-aggressive)-13.20% (aggressive)
ii) FXD1/2018/20: 11.30%(non-aggressive) – 11.60%(aggressive)
Recommendation:
SELL – HF