Market Commentary:
- The All Share and NSE 20 Indices retreated by 0.1% and 0.8% w-o-w to close the week at 140.07 and 1,836.54 respectively. This was mainly attributed to selling pressure across majority of the counters. Market turnover declined by 22.5% w-o-w to KES 1.1 billion while the number of shares traded declined by 30.9% w-o-w to 46.7 million.
- Notable declines for the week were Absa (-4.1% to KES 9.40), Equity (-2.9% to KES 34.90), Jubilee (-7.5% to KES 270.00), Centum (-6.5% to KES 18.70) and BAT (-3.0% to KES 345). Safaricom was the top mover of the week with the price gaining 0.3% w-ow to close (VWAP) at KES 30.10.
- In the coming week, we expect some demand in some of the aforementioned counters (notably Equity Holdings).Overall, we expect price stability.
News Highlights:
BAT’s Lyft Product Faces Deregistration
- BAT Kenya’s new product – Lyft – is facing deregistration following a directive by the Health Cabinet Secretary Mutahi Kagwe to the Pharmacy and Poisons Board to deregister the product on grounds that licensing of the product violated the law (contravened provisions of Section 25 of the Pharmacy and Poisons Act CAP 224).
- According to the health ministry, the nicotine pouches did not meet the definitions of “Part 1 poison” and “Part 2 poison” as prescribed by the Act. The health ministry further noted that the pouches are dispensed in automatic vending machines contrary to the law.
- The nicotine pouch, retailing at KES 20.00, has raised concerns from the Kenya Tobacco Control Alliance (KETCA) and parents (through the National Parents Association) over its addictiveness and easy accessibility to minors (the product has no age restrictions).
- According to KETCA the product should be heavily taxed and regulated similar to other tobacco products. Furthermore, the alliance stated that, at present, there is inadequate data to show that the product is less harmful than cigarettes and it should only be accessed with a prescription from a doctor.
- Lyft was introduced in the country in July 2019 and marketed as a safe alternative to smokers who want to quit.
- The new product had been part of the group’s strategy to align itself with shifting consumer trends (increased focus on health and wellness).
- BAT had planned to construct a KES 2.5 billion production facility for the pouches in Nairobi.
- In mid-September, BAT sought a 2-3 year tax holiday from the Kenya Revenue Authority (KRA) following its plan to locally produce the noncombustible nicotine pouches.
- The group had launched Lyft in an effort to grow its revenue base as total global tobacco consumption has been declining over the years. We expect stringent regulation on Lyft (such as the age restrictions, use of prescription etc.) would impact sales volume.
- We note that regulatory challenges (on tax, packaging and graphic health warnings) remain a key risk for the group.
- In light of this information, we withdraw our BUY recommendation and place the company under review.
Recommendation:
LONG-TERM BUY – Equity
SELL – HF
