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Market Report – 6th November 2020


Faida Research - November 6, 2020 - 0 comments

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Market Commentary:

  • The All Share Index gained by 0.9% w-o-w to close the week at 141.32 while the NSE 20 Share Index retreated by 0.8% to close the week at 1,769.54. Market turnover increased by 86.6% to KES 3.1 billion as the volume of shares traded rose by 78.4% to 103.5 million. Activity in the market was driven by the banking sector (KCB +0.6% to KES 35.60, Equity +1.0% to KES 35.00 and Co-op +0.9% to KES 11.60) and Safaricom (+0.2% to KES 31.30).
  • The counters witnessed an uptick in investor demand following price declines in the previous week and earlier on in the week. We note that most of the demand came after the president announced “new” containment measures. We opine that these measures alone will not derail the economic recovery. However, the rising COVID-19 cases in other countries and the measures taken to curb further spread remains a cause for concern.
  • In the coming weeks, we expect an increase in activity in the banking sector ahead of the 3Q2020 results and on Safaricom ahead of the 1H2020/21 results (announcement on 9th November 2020).

 

News Highlights:

 Kenya Power Receives Approval on 20.0% Tariff Increase

  • KPLC has received regulatory approval from the Energy Petroleum and Regulatory Authority (EPRA) on the revision of tariffs, following the company’s submission of an addendum last month, which reflected the current developments in the energy sector.
  • The 20.0% increase in tariffs, if implemented, would see the consumption charge for usage of less than 100 kilowatts per month rise to KES 12.50 a unit from the current KES 10.00.
  • Further, the consumption charge for usage above 100 units would increase to KES 19.53 from the current KES 15.80.
  • The new tariffs would be revealed in the coming weeks and subjected to public participation before they can take effect.
  • According to the company, the higher tariffs are justified given the current electricity prices lapsed last year. Tariffs are to be reviewed every 3 years, however, this may vary as the regulator may delay or amend the rates when the government seeks to lower inflationary pressures.
  • The company had previously made an application to EPRA in September 2019 seeking a revision of tariffs.
  • By raising the tariffs, KPLC aims to reverse the decline in profitability (the company has so far issued three profit warnings in a row).

Commentary

  • If implemented, the increase in tariffs would enhance Kenya Power’s revenues and cash flows, providing the much needed boost it needs to sufficiently cover its cost base especially distribution & transmission costs and finance costs (both principal and interest). This could potentially increase the company’s profitability in the short-term.
  • However, the increase in tariffs would also have the negative impact of increasing the cost of living and doing business and this could have detrimental effects on the economy in the long run.

 

Faida & IMBC Deliver 12% Oversubscription for I&M Bank (Rwanda) PLC Rights Issue

  • We (Faida Securities Rwanda) and I&M Burbidge Capital Limited, as the Joint Lead Transaction Advisors for the 2020 Rights Issue, are pleased to announce the successful completion of the transaction with the Rights Issue having closed with an oversubscription of 12%.
  • The rights issue raised 7.9 billion Frw (approx. Kshs 887 Million) at a share offer price of Frw 39.60 for a total 202,000,000 shares on offer. However, those applied for totaled 225,584,700 buoying the performance of the transaction by 112%. Please see the press release here:

 

Recommendation

LONG-TERM BUY – Equity

SELL – HF

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