MARK the Financial Analyst

MARK the Financial Analyst Giving updates and senzitize on financial matters

17/04/2021

Exactly don't be afraid of failure, be afraid of repeating the same mistakes

28/03/2021

Investment Options in the Kenyan Market, & Cytonn Weekly #12/2021

By Cytonn Research, Mar 28, 2021

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Company updates

Fixed Income

Equities

Real Estate

Focus of the Week

Executive Summary

Fixed Income

During the week, T-bills recorded an undersubscription, with the overall subscription rate coming in at 82.9%, a decline from the oversubscription of 115.0% recorded last week, partly attributable to the tightening liquidity in the money markets as evidenced by the interbank rate increasing during the week to 5.6%, from 5.4% recorded last week. Investors’ continued interest in the 364-day paper saw it record the highest subscription rate of 166.0%, an increase from 150.8% recorded the previous week, due to the paper’s attractive rate of 9.3%, which is higher than the rate for most bank placements. The yields on the 182-day and the 91-day bills closed the week at 7.9% and 7.1%, respectively. The Monetary Policy Committee (MPC) is set to meet on Monday, 29th March 2021 to review the outcome of its previous policy decisions and recent economic developments, and to decide on the direction of the Central Bank Rate (CBR), in our view, they shall hold the rate stable since the economy is still very fragile from the continued effects being brought about by the pandemic. We are projecting the inflation rate for March 2021 to range between 5.9% - 6.1%, from 5.8% in February, as a result of the rising fuel prices;

Equities

During the week, the equities market was on a downward trajectory, with NASI, NSE 20 and NSE 25 declining by 0.3%, 1.6% and 1.2%, respectively, taking their YTD performance to gains of 9.5%, 1.6% and 7.5% for NASI, NSE 20 and NSE 25, respectively. The equities market performance was driven by losses recorded by banking stocks such as Diamond Trust Bank (DTB-K), NCBA Group and ABSA Bank, which declined by 9.8%, 7.4% and 6.1%, respectively, following the results releases which indicated declines in their profitability. T

21/03/2021

Fixed Income

During the week, T-bills recorded an oversubscription, with the overall subscription rate coming in at 115.0%, an increase from the undersubscription of 94.3% recorded last week as a result of improved liquidity in the money markets due to government payments. The interbank rate however increased during the week to 5.4%, from 5.0% last week. The highest subscription rate was in the 364-day paper of 150.8%, an increase from 121.9% recorded the previous week. The Energy and Petroleum Regulatory Authority (EPRA) released their monthly statement on fuel prices, the maximum wholesale and retail prices, indicating a 6.6%, 5.9% and 5.6% increase in petrol, kerosene and diesel, to Kshs 122.8, Kshs 97.9 and Kshs 107.7 per litre, from Kshs 115.2, Kshs 92.4 and Kshs 101.9, respectively, recorded in 15th February 2021;

Equities

During the week, the equities market was on an upward trajectory, with NASI, NSE 20 and NSE 25 gaining by 3.0%, 0.5% and 2.6%, respectively, taking their YTD performance to gains of 9.8%, 3.3% and 8.8% for NASI, NSE 20 and NSE 25 respectively. The equities market performance was driven by gains recorded by large-cap stocks such as Co-operative Bank, Equity Group, Safaricom and KCB Group, which gained by 7.3%, 4.1%, 4.0% and 3.5%, respectively. The gains were however weighed down by losses recorded by stocks such as EABL, Diamond Trust Bank (DTB-K) and Standard Chartered Bank, which declined by 3.0%, 2.0% and 1.1%, respectively. KCB Group and Co-operative Bank released their FY’2020 financial results which indicated a profit decline of 22.1% and 24.4% respectively;

Real Estate

During the week, the Kenya Mortgage and Refinance Company (KMRC), a treasury-backed lender, announced that it has so far advanced Kshs 2.8 bn in credit to mortgage lenders accounting for approximately 7.5% of the Kshs 37.2 bn they had planned to lend from September 2020. Student Factory Africa, a consortium of architects, partnered with Betonbouw B, a Dutch-based

24/01/2021

Executive Summary

Fixed Income

During the week, T-bills subscription rate improved with the overall subscription rate coming in at 84.5%, from 65.7% recorded the previous week due to slight improvements in the liquidity of the money markets. In the primary bond market the government issued a 16-year bond, IFB1/2021/016 with a coupon rate of 12.3% and an amortized time to maturity of 12.5 year. The overall subscription rate of the bond came in at 250.7%, supported by the attractiveness of the bond due to its tax free benefits;

Equities

During the week, the equities market was on a downward trajectory with NASI, NSE 20 and NSE 25 shedding off 2.1%, 1.7% and 1.6%, respectively, taking their YTD performance to gains of 1.8%, 0.8% and 0.7%, respectively. The equities market performance was driven by losses recorded by large-cap stocks such as Diamond Trust Bank (DTB-K), Safaricom, KCB and Co-operative Bank which were down 5.2%, 2.7%, 2.4% and 2.3%, respectively. The declines were however mitigated by gains recorded by other large-cap stocks such as BAT and Bamburi which gained by 2.1% each. The Insurance Regulatory Authority (IRA), recently released the Q3’2020 Insurance Industry Report highlighting that the industry’s gross premium income increased by 2.6% to Kshs 179.4 bn, from Kshs 174.9 bn recorded in Q3’2019;

Real Estate

During the week, the British Foreign Secretary Dominic Raab announced that Kenya is expected to receive at least Kshs 8.0 bn from the United Kingdom government to finance the construction of approximately 10,000 affordable houses through Acorn Holdings, a local real estate developer. In the retail sector, Naivas Supermarket announced plans to open its 70th retail store in Kilifi taking up space previously occupied by troubled retailer Tuskys;

Focus of the Week

Land has consistently been ranked as one of the best investment assets in the real estate sector attributable to its resilience. For instance, in 2020, land asking prices recorded an

08/12/2020

Nairobi Metropolitan Serviced Apartments 2020, & Cytonn Monthly-November 2020

By Research Team, Dec 6, 2020

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Cytonn Report

Company updates

Fixed Income

Equities

Real Estate

Focus of the Week

Executive Summary

Fixed Income

During the month of November, T-bill auctions recorded an oversubscription, with the overall subscription rate coming in at 102.5%, a rise from 90.4% recorded in the month of October. The yield on the 91-day paper remained unchanged at 6.7%, while the 182-day and 364-day papers all increased by 0.2% points and 0.3% points to 7.2% and 8.2%, respectively from 7.0% and 7.9%, recorded the previous month. The T-bills acceptance rate increased to 96.4% during the month, compared to 90.2% recorded in October, with the government accepting a total of Kshs 94.8 bn of the Kshs 98.3 bn worth of bids received;

During the week, T-bills remained undersubscribed, with the overall subscription rate coming in at 45.5%, down from 64.3% the previous week. The highest subscription rate was in the 91-day paper, which came in at 74.3%, down from 114.5% recorded the previous week. The subscription for the 182-day paper declined to 26.9% from 63.7%, while that of the 365-day paper dropped to 52.6% from 44.7% recorded the previous week. Also, during the week, the Kenya National Bureau of Statistics (KNBS) released inflation data, revealing the y/y inflation for November increased to 5.5%, from the 4.8% recorded in October 2020. During the week, Stanbic Bank released the Monthly Purchasing Managers’ Index (PMI) for November 2020, which came in at 51.3, a decline from the 59.1 recorded in October 2020. During the week, The Cabinet secretary for National treasury, through a press statement indicated that some of the tax incentives effected in April 2020 will revert back to pre-COVID rates effective January 1st 2021;

Equities

During the month of November, the equities market recorded mixed performance, with the NASI and NSE 25 gaining by 3.7%

06/07/2020

Global Markets Review:

According to the International Monetary Fund (IMF) World Economic Outlook (WEO) Update June 2020, dubbed “A Crisis like No Other, An Uncertain Recovery”, the global economy has been significantly impacted by the pandemic and is projected to contract by (4.9%) in 2020, down from the initial outlook of (3.0%) in April 2020. This is largely driven by lower demand for goods due to lower incomes and also the impact of supply chain disruptions;

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Sub-Saharan Africa Regional Review

The International Monetary Fund (IMF) revised the Sub-Saharan Regional GDP growth to a contraction of 3.2% from a contraction of 1.6% projected earlier in April 2020, due to continued spread of the Virus. Except for the Malawian Kwacha, all the major African Currencies have depreciated against the US Dollar on an YTD basis. Due to increased levels of risk, emerging markets have witnessed significant outflows from their bond funds and there has been a spike in the yield on government-issued Eurobonds especially by African Countries;

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Kenya Macroeconomic Review

The macroeconomic environment in Kenya remained negative in the first half of 2020, as evidenced by (i) Slower economic growth, with Q1’2020 GDP growth coming in at 4.9%, a 2-year low, (ii) Volatility in the foreign exchange market driven by uncertainties concerning the impact of COVID-19 with the shilling having depreciated by 5.1% against the US Dollar in H1’2020. The average inflation has remained within the government projections and it ended H1’2020 at 5.6%, a slight increase from 5.2% in H1’2019;

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Fixed Income

During H1’2020, T-bills were oversubscribed, with the overall subscription rate coming in at 152.8%, up from 144.6% in H1’2019. The oversubscription is partly attributable to the continued preference for shorter-dated papers by investors looking to avoid duration risk especially during this period of uncertainty. Overall subscriptions for the 91, 182, and 364-day papers

07/06/2020

Company updates

Fixed Income

Equities

Real Estate

Focus of the Week

Executive Summary

Fixed Income

During the week, T-bills remained oversubscribed, with the subscription rate coming in at 209.1%, up from 102.5% the previous week. The oversubscription is partly attributable to the favourable liquidity in the money markets as evidenced by the average interbank rate declining to 3.2% from 3.5%, recorded the previous week, as well as the continued preference for shorter-dated papers. The subscription rates for the 91-day, 182-day, and 364-day papers all increased to 255.6%, 213.0%, and 186.5%, respectively, from 81.3%, 58.4%, and 155.0% recorded the previous week. During the week, the National Treasury announced that it will reopen two bonds namely, FXD3/2019/5 and FXD4/2019/10 with effective tenors of 4.5-years and 9.4-years respectively for a total value of Kshs 40.0 bn for budgetary support. According to Stanbic Bank’s Monthly Purchasing Managers’ Index (PMI), the economic prospects have improved as the seasonally adjusted PMI index came in at 36.7 for the month of May 2020, up from the 34.8 seen in April 2020. The National Treasury is set to release the 2020/2021 fiscal year (FY) budget on 11th June 2020. According to the Estimates of Revenue and Expenditure for FY’2020/21, total revenue collected is expected to decline by 2.1% to Kshs 1.85 tn from the Kshs 1.89 tn as per the FY’2019/2020 supplementary budget estimates II, while total expenditure is set to decline by 2.2% to Kshs 2.71 tn from Kshs 2.74 tn;

Equities

During the week, the equities market recorded mixed performance, with NASI gaining by 1.5%, while both NSE 25 and NSE 20 declined by 0.1% and 0.4%, respectively, taking their YTD performance to losses of 16.4%, 21.9%, and 26.9%, for NASI, NSE 25 and NSE 20, respectively. During the week, Britam Holdings sold 21.6 mn shares of Equity Group valued at Kshs 695.5 mn at the current price of Kshs 32.2 per share as at 5thJune 2020, in an effort to com

17/05/2020

Fixed Income

Equities

Real Estate

Focus of the Week

Executive Summary

Fixed Income

During the week, T-bills were slightly oversubscribed, with the subscription rate coming in at 100.4%, up from 62.6% the previous week. The oversubscription was partly attributable to favorable liquidity in the market due to government payments, which saw the average interbank rate decline to 4.1%, from 4.2%. For the month of May the government shall be reopening the 5 year, FXD1/2020/5 and issuing a new infrastructure bond IFB1/2020/6, for a total value of Kshs 30.0 bn for the FXD1/2020/5 and Kshs 25.6 bn for the IFB1/2020/6, for budgetary support purposes and funding of infrastructure projects, respectively. Oil prices were revised downwards effective from 15th May 2020 to 14th June 2020. Petrol and diesel prices have declined by 10.3% and 19.7% to Kshs 83.3 and Kshs 78.4 per litre, respectively. Kerosene prices have risen by 3.2% to Kshs 79.8 per litre. The International Monetary Fund (IMF) raised Kenya’s risk of distress to “High” from “Moderate” due to the effects of the Coronavirus pandemic. Global credit rating agency Moody’s affirmed Acorn Group’s Kshs 5.0 bn guaranteed, Senior Secured medium term note programme (the MTN Programme) but downgraded the outlook from ‘B1 stable’ to ‘B1 negative’;

Equities

During the week, the equities market was on a downward trajectory, with NASI, NSE 20 and NSE 25 recording losses of 3.9%, 2.9% and 5.2%, respectively, taking their YTD performance to losses of 18.7%, 25.6% and 22.5%, for NASI, NSE 20 and NSE 25, respectively. During the week, global rating agency Moody’s changed the outlook for KCB, Equity and Co-operative Bank to “Negative” from “Stable” but affirmed all three banks’ local currency deposit ratings at B2, citing the link between their rating and that of the state due to the top banks’ large exposure to government securities. During the week, KCB Group became the latest lender to disclose it had restructured loans amount

12/04/2020

Money Markets, T-Bills & T-Bonds Primary Auction:

During the week, T-bills were undersubscribed, with the subscription rate coming in at 35.6%, down from 112.7% the previous week. The undersubscription is partly attributable to the IFB1/2020/9 bond sale in the primary market that closed during the week, coupled with tightening liquidity in the money market as evidenced by the interbank rate, which increased to 5.3% from 5.2% the previous week. The subscription rate of the 91-day, 182-day, and 364-day papers declined to 14.3%, 16.3%, and 63.4%, respectively, from 22.7%, 46.3%, and 215.1% the previous week, respectively. The yields on the 91-day, 182-day, and 364-day papers all remained unchanged at 7.2%, 8.1%, and 9.0%, respectively, similar to what was recorded in the previous week. The acceptance rate declined marginally to 99.3%, from 100.0% recorded the previous week, with the government accepting Kshs 8.46 bn of the Kshs 8.53 bn bids received.

During the week, the Central Bank of Kenya released the auction results for the newly issued infrastructure bond, IFB1/2020/9 with an effective tenor of 9.0-years and a coupon rate of 10.9%, in a bid to raise Kshs 60.0 bn for funding of infrastructure projects in the FY’2019/20 budget estimates. The bond was oversubscribed, with the government receiving bids worth Kshs 68.4 bn, higher than the quantum of Kshs 60.0 bn, translating to a subscription rate of 114.0%. The high subscription as per our expectation was mainly attributable to its short tenor as well as the tax-free incentive for infrastructure bonds, translating to a higher return. However, as per the proposals from the Tax Laws (Amendment) Bill, 2020, going forward, securities used to raise funds for infrastructure and other social services with tenors of at least 3-years will now be subject to 10.0% withholding tax, just like the other normal bonds. The introduction of the tax is set to remove the single most distinctive and attractive feature of these bonds, w

23/03/2020

During the week, T-bills were undersubscribed for the first time in 10-weeks, with the subscription rate coming in at 87.9%, down from 264.0% the previous week. The undersubscription is attributable to investor’s preference to hold on to their cash due to low confidence in the market attributable to the Coronavirus outbreak. The subscription rate of the 91-day, 182-day and 364-day paper declined to 13.7%, 36.1% and 169.4% from 201.8%, 92.5% and 460.4%, respectively, the previous week. The yields on the 91-day paper and 364-day paper remained unchanged at 7.3% and 9.1%, respectively, while the yield on the 182-day paper declined by 0.1% point to 8.0%, from the 8.1% recorded the previous week. The Monetary Policy Committee (MPC) is set to meet on Monday, 23rd March 2020, to review the outcome of its previous policy decisions and recent economic developments, and to make a decision on the direction of the Central Bank Rate (CBR). We expect MPC to reduce the Central Bank Rate (CBR) by 100 bps to 7.25% from 8.25%, this decision will be driven by factors such as the instability in the Kenyan shilling and the expected cost-push inflation caused by shortages arising from supply chain disruptions. During the week, the Central Bank of Kenya (CBK), under Sections 9 and 51 of the CBK Act and following approval by the CBK Board, announced that it has transferred Kshs 7.4 bn from its General Reserve Fund to the Government Consolidated Fund in support of the fight against Coronavirus;

Equities

During the week, the equities market was on a downward trajectory, with NASI, NSE 20 and NSE 25 declining by 0.5%, 4.7% and 3.4%, respectively, taking their YTD performance to losses of 20.1%, 23.7% and 21.4%, for the NASI, NSE 20 and NSE 25, respectively. During the week, Equity Group, Co-operative Bank, DTB and Stanchart Bank, released their FY’2019 financial results, recording core eps growths of 13.8%, 12.4%, 1.6% and 1.7%, respectively;

Real Estate

During the week, Kenya National Bu

02/03/2020

Fixed Income
During the month of February, T-bill auctions recorded an oversubscription, with the overall subscription rate coming in at 211.8%, compared to 164.1% recorded in the month of January 2020, attributable to easing liquidity in the money market. The subscription rates for the 91-day paper recorded a decline to 70.3%, from the 86.2% recorded in January. The subscription rates for the 182-day and 364-day papers, however, were on a rise coming in at 88.2% and 391.9%, higher than the 50.0% and 230.5% recorded in January, respectively. We note that there is continued pent up demand for the 364-day paper, having recorded the highest subscription rate of the 3 papers, at 391.9%, which we attribute to the market having a bias to the shorter-dated government instruments to avoid duration risk. Given the scarcity of shorter-dated bonds in the primary market, with the government issuing medium-term and longer-dated papers in a bid to increase the debt maturity profile, this has seen most investors still keen on the primary fixed income market, finding the 364-day T-bill more attractive on a risk-adjusted return basis. The yields on the 91-day and 182-day papers both recorded increases of 0.1% points to close at 7.3% and 8.3%, respectively. The yield on the 364-day paper, however, recorded a decline of 20 bps, to close at 9.8% in February. Month-on-month inflation also increased by 0.6%, mainly attributable to a 2.6% increase in the food and non-alcoholic drinks’ index, due to an increase in prices of significant food items including tomatoes, onions, and spinach, which increased by 29.6%, 7.3%, and 3.2%, respectively;

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