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Market Report – 8th January 2021


Faida Research - January 8, 2021 - 0 comments

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Market Commentary:

  • The All Share and NSE 20 Indices gained 1.4% and 1.5% w-o-w to close the week at 154.18 and 1,896.46 characterized by an increase in overall market activity. Market turnover and volume of shares traded increased by 241.0% and 150.6% w-o-w to close the week at KES 1.59 billion and 57.7 million shares respectively.
  • The week saw Safaricom record an all-time high of KES 35.00 (YTD +2.2%) on foreign investor demand (accounting for 57.1% of the week’s turnover). The banking sector accounted for 31.8% of the week’s turnover with notable movements in: Co-op (+4.0% to KES 13.00), DTB (+3.3% to KES 77.50), KCB (+0.5% to KES 38.30) and Equity (-1.5% to KES 36.00). We expect activity in the market to improve in the coming weeks as most institutional traders resume trading.

 

 

News Highlights:

 

Co-op Issues Profit Warning for FY2020 Earnings

  • The Board of Directors of Co-operative Bank of Kenya (Co-op) has announced that it expects the group’s full year earnings for FY2020 to be materially lower than the earnings reported in FY2019.
  • According to the Capital Markets Regulations, 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 realized in the preceding financial year.
  • This implies that Co-op expects after tax profits for FY2020 to be at least 25.0% lower compared to the after tax profit of KES 14.3 billion recorded in FY2019.
  • Co-op attributes the expected decrease in profitability to challenges in the operating environment; most notably the Coronavirus pandemic which has necessitated higher loan loss provisions (in comparison to FY2019) and hyper-inflation in Sudan which has resulted in currency translation losses.
  • The group expects the COVID-19 mitigation strategies instituted (including a Credit Risk Management Project) will provide the group with a stable anchor for sustained growth.

Commentary

  • We continue to expect more banks to face a similar predicament in respect of FY2020 results. Other banks that have issued profit warnings due to the difficult operating environment include: ABSA Kenya, KCB Group, HF Group, Standard Chartered, DTB and I&M.
  • Going forward, we believe the anticipated economic recovery in 2021 to offer some reprieve to the asset quality challenges faced by banks.
  • However, we still expect to see the high NPL issues persist in the highly impacted sectors and businesses (hospitality, SMEs).
  • We also note with concern on the slowdown in economic recovery – the Stanbic Bank Kenya Purchasing Managers’ Index (PMI) rose slightly to 51.4 in December from 51.3 in November, weighed down by higher input prices.

 

Recommendation:

LONG TERM BUY – KENGEN

HOLD – KENYA RE

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