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Market Report – 18th June 2021


Faida Research - June 22, 2021 - 0 comments

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Feature of the week:

EPRA Increases Petrol Price

  • The Energy and Petroleum Regulatory Authority (EPRA), in the June review, raised the price of petrol in Nairobi by KES 0.77 per litre to KES 127.14. The price change on petrol was attributed to a rise in the average landed cost of imported super petrol growing by 1.5% to $496.10 per cubic meter.
  • However, the prices of diesel and kerosene were unchanged at KES 107.66 and KES 97.85 respectively. This was despite average landed costs of diesel and kerosene growing by 4.4% to $439.60 per cubic meter and by 4.4% to $430.4 per cubic meter respectively. EPRA did not disclose the reason for retaining the prices but we opine it could be to cushion users(this is the second time EPRA has not adjusted the price of diesel and kerosene)

Commentary

  • Global oil demand is likely to improve as economies around the globe gradually recover from the COVID-19 pandemic (higher vaccination rates are reducing infection rates and allowing economies to gradually re-open). This is expected to support oil prices.
  • The higher oil prices will likely continue creating inflationary pressures in the economy.
  • Despite the higher inflationary pressure, we expect monetary pressure to remain accommodative because (i) In our view, economy is still operating below pre-COVID levels (Stanbic PMI showed weak private sector activity in recent months) and stills needs support in the form of accommodative policies (ii) Inflationary pressures are being driven largely by food and fuel prices. Monetary tools are generally less effective against such food and fuel driven inflation. On the other hand, core inflation, which is more appropriate in setting monetary policy targets by central banks, has been stable. Additionally, overall inflation remains within the CBK limits (5.0+-2.5%) (iii) Less leeway in fiscal policies due to fiscal consolidation.

Equities Market Summary:

Nairobi Securities Exchange Performance

The All Share Index (NASI) gained marginally (0.03%) while the NSE 20 Share Index fell by 0.6% w/w to close the week at 172.38 and 1,901.21 respectively.  Market turnover declined by 51.0% to KES 2.4 billion while the volume of shares traded eased by 51.1% to 66.9 million shares. There were notable price gains on Equity (1.6% w/w to KES 44.75), I&M (1.4% w/w to KES 21.80), Jubilee (1.1% w/w to KES 309.50) and Britam (0.8% w/w to KES 7.32). Safaricom remained at KES 41.25. Banking stocks comprised majority of the top five movers in the week (Equity, KCB and Absa Kenya). BAT eased by 3.1% w/w to KES 450.50. We attribute this to the negative tax proposals contained in the FY2021/2020. The proposals will impose excise tax on products such as Lyft that were previously exempted from excise tax. We expect this to lead to higher prices on affected products which might negatively impact uptake of the products and revenues.

We expect only modest price appreciations as investors remain cautious of the rising COVID-19 infections in some parts of the country.  Already, more stringent measures have been announced in the western region following a surge in COVID-19 cases. However, movement in and out of the affected areas is only “discouraged” and not banned. While this might be good for economic activities, it does present a risk of spreading the infections to other parts of the country. We also note that vaccine roll-outs, which may help in curbing the spread, have been slow.

 

Recommendations:

EABL – Long-term Buy

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