Nairobi: Week ended July 25, 2010

Global and local market conditions

The US and European stock markets recorded big gains towards the end of the week after 84 out of 91 European banks passed stress tests carried out by the Committee of European Banking Supervisors. The tests were designed to check if European banks would be able to survive another major financial crisis. The Chinese Shanghai Composite Index and the Bovespa Index (Brazil) both shot up over 6% in the week.

The Nairobi 20 share index declined by 1%. The Ghana and Nigerian all-share indexes climbed by 1.4% and 1.7% respectively. The Nairobi market seems to have taken a breather going into the August 4th constitutional referendum. A peaceful and successful referendum will likely accelarate the good run that began early this year.

Price movements of select commodities

Tea +0.4%, Coffee +0.4%, Sugar +7.7%

(Sources: African Tea Brokers Ltd, Financial Times)

Central Bank of Kenya mean exchange rates July 25, 2010

USD 81.58, GBP 124.68, EUR 105.10

NSE Movers review

Top Gainers

Express +6.5%, Carbacid +6.0%, Unga +5.9%, StanChart +5.0%

Top Losers

Centum -14.7%, EA Cables -10.8%, Pan Africa -8.0%, Kakuzi -7.0%

StanChart

StanChart shares have risen significantly this week, investors could be moving into this counter after a strong jump last week in Barclays' share price (its closely related peer) and in expectation of good half year results. StanChart has climbed from a price of Kshs 190 at the end of March to Kshs 250 this week: a gain of 31.6% in just four months. The high dividend yield (4.8% at the current price) and strong financial performance in 2009 and first quarter of 2010 have made this share attractive to investors. Trading at a PE of 12 (based on q1 2010) results, the share is still cheaper than Equity Bank, Barclays and CO-OP Bank, all of which trade at higher multiples. The share could rise further on the basis of this lower valuation and due to its limited float.

Centum

Centum's share price has dropped after closure of its books on the 16th of July for a bonus share issue (1 for every 10). The price drop has been overdone by at least 5%. The share should have fallen by just 9.1% rather than 14.7%. Centum's NAV per share ex-bonus is Kshs 15; the share is inexpensive considering that its NAV growth has beaten the NSE 20 Share index performance over the last six years. The company plans to increase its private equity exposure and to invest in the booming Kenyan real estate sector. Further price drops should be treated an opportunity to accumulate this share.

Quote of the Week:

"I've learned that you shouldn't go through life with a catcher's mitt on both hands; you need to be able to throw something back."
Maya Angelou

Nairobi: Week ended July 16, 2010

Global and local market conditions

US Stocks dropped steeply on Friday, wiping out all the gains accrued earlier in the week. The Federal Reserve lowered its estimate for economic growth. That was followed by a pair of disappointing regional manufacturing surveys (Business Week). Stocks of major companies such as Bank of America and Google fell heavily after reporting lower than expected revenues. Most global indexes: the FTSE, Nikkei, Bovespa etc fell across the board in tandem with the US fallout. The Nairobi Stock Exchange is still on an upward trend with 34 out of 55 stocks either gaining or flat for the week. With foreign investors retreating due to events back home, local investors seem to have taken up the slack and held the market up. While local factors such as lower interest rates, good rainfall and strong corporate results keep the Kenyan market humming, investors should be on the lookout for bearish global trends which will eventually affect the local economic situation.

Select commodities price movements:

Tea 0%, Coffee(Arabica) 1.7%, White Sugar -14.1%

(Sources: African Tea Brokers, Financial Times)

Central Bank of Kenya Mean Exchange Rates: July 16, 2010:

USD 81.43, GBP 125.50, EUR 105.11

Top NSE Movers review

Gainers:

Barclays Bank 10.3%, East African Cables 7.4%

Losers:

Williamson Tea -8.3%, Kapchorua Tea -6%

Barclays Bank
Barclays Bank has rallied in the week due to the expectation of good second quarter results. The first quarter results were lower than expected due to a one-off staff expense (The Standard, June 1 2010). The staff costs had increased by over Kshs 500 Million in the first quarter compared to the previous year. Exclusion of this cost alone should make a significant positive impact to the bottom line in the second quarter. As an investment idea Barclays is expensive compared to its peers. Barclays bank has had an almost nil growth in total assets compared to the previous year. Equity Bank, CO-OP, KCB and even StanChart have been growing their loan books much faster. Barclays had been the top bank in Kenya by assets for decades but has been overtaken by KCB in recent years. If the current asset growth trends continue Equity Bank and CO-OP Bank will also pass Barclays in asset size within two years. Barclays has been highly profitable because of cost control but the top line is under threat. A small float and historically good performance has kept the value of this share high.

Williamson Tea
The prices of tea stocks have been hit by fears of oversupply. According to the Business Daily (July 19, 2010), there is already a glut which is driving prices down at the Mombasa Auction. Williamson Tea and Kapchorua Tea have small floats, which can magnify price spikes and drops: while the news is negative the recent price drops are overdone. Long term investors should accumulate this share on further drops in the share price. The earnings per share in the last year were Kshs 92, which translates into a PE ratio of slighty over 2 at the current price. Even with lower tea prices in the near future, the share looks cheap. In the long term, increasing demand from consumers in Emerging Markets will push prices of tea and similar commodities higher.



Quote of the week:
"Think and grow rich." Napoleon Hill

Nairobi: Week ended July 9, 2010

Global and local market conditions

Most developed markets bounced back this week after steep falls in the previous week. The climb was driven by a US Labour department report showing a decline in job benefits claims that was more than expected (Bloomberg). Investors are also expecting strong corporate results many of which will be reported in the course of the next four weeks, and are back in the market looking to pick up bargains. Financial stocks in particular have rallied after State Street reported better than expected second quarter forecast earnings (Washington Post). The major Sub-Saharan stock markets ex-South Africa: Ghana, Nigeria and Kenya all dropped slightly in the week. Sub-Saharan markets have out-performed most of the world's equity markets this year. Within Africa, the Nairobi Stock Exchange has been the best performer in the year to date with the NSE-20 Share index up 32%. Strong half-year results particularly in the financial sector should drive the rally in Nairobi even further in the coming weeks. A successful referendum on August 4th to amend the constitution should fuel the market ascent.