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Stock Picks

LONG TERM BUY

KCB Group

We recommend a LONG TERM BUY on KCB Group. The counter is currently trading at a P/B of 1.07x (at a price of KES 39.65) against an industry average of 0.84x as at 14th June 2019. We believe the group’s strategic partnerships and digital transformation will continue to deliver growth. However, we note with concern on the sluggish growth of operating income, as we opine that the group’s cost minimization efforts can’t be solely relied on to support bottom-line growth.

Equity Group Holdings

We recommend a LONG TERM BUY on Equity Group Holdings. Currently, Equity is trading at a P/B of 1.59x (at a price of KES 40.00) compared to the average banking sector P/B of 0.84x as at 14th June 2019.The current business model is hinged on technology, innovation and business diversification, and affirms the group’s competitive advantage. We believe the group’s business model will support growth in the long-term.

Cooperative Bank

We recommend a LONG TERM BUY on Cooperative Bank with the counter trading at a P/B of 1.04x (at a price of KES 12.40) against an industry average of 0.84x as at 14th June 2019.The counter has a high ROaE of 18.2%, which is above the industry average of 13.5% with a dividend yield of 8.1%. We expect the bank to improve its efficiency through its Soaring Eagle transformational agenda which is aimed at digital transformation.

KenGen

We revise our LONG-TERM BUY (essentially a BUY and HOLD) recommendation on KenGen to a TRADING one. As at the end of FY2018, the counter had a market share of 69.0% with an installed capacity of 1,631 MW distributed amongst various power sources. The company is currently trading at a P/E of 5.13x, (at a price of KES 6.16) as at 14th June 2019, lower than the industry average of 5.46x (excluding Umeme).

BUY

Jubilee Holdings

We recommend a *LONG-TERM BUY on Jubilee Holdings. The company, through its subsidiaries, provides all classes of insurance and has a strong market presence in East Africa. Jubilee is currently trading at a P/B of 1.13x (at a price of KES 410.00) against an industry average of 0.88x as at 14th June 2019 – higher due to its attractive fundamentals.

*The stock is relatively illiquid which means that the buyer may take a discount when exiting. Therefore, we recommend holding it for the long-term to allow for substantial capital appreciation. This will allow the investor to make a meaningful return even with the discount. Additionally, holding it for the long-term allows for the growth of the company’s new business (fund management).