Nairobi and Accra: Week ended August 13, 2010

Global and local market conditions

All the developed and emerging market indices fell steeply in the week. Stock markets across the world fell due to a combination of weak manufacturing data from China and growing concerns about the health of the US economy. The yen rose steeply against the US Dollar. Germany reported the strongest quarterly GDP growth since unification but that piece of good news was not enough to lift market sentiment.

In Africa the South African JSE index fell in tandem with the rest of the world, down 2.67% for the week. The Nigerian market was down 3%, while the Ghana all share index bucked the trend and was up 2.73%. The Nairobi Stock Exchange 20 Share index fell 3.83%; the big correction can be attributed to profit-taking after steep rises in most company share prices for the last several weeks.

Price movements of select commodities

Tea +5.73%, Sugar -7.93%, Coffee (Arabica) -4.48%, Crude Oil -6.30%, Gold +0.88%, Cocoa -3.83%, Palm Oil +1.37%

NSE Movers

Top gainers

Diamond Trust Bank +12.37%, Standard Group +11.95%, Crown Berger 10.00%

Top losers

StanChart -15.72%, Eveready -9.89%, Access Kenya -9.41%

Diamond Trust Bank

The company reported an increase in half year profits of 122% to Kshs 1.16 Billion. With an annualized EPS of Kshs 14.12 the share is now trading at a PE of only 7.7. Even with the 10% spike in the share price on Friday, DTB is still cheap on PE valuation basis.

Standard Group

The Standard Group announced an increase in profits before tax of 139% in the six months to June 30, 2010 compared to the same period in 2009. With an annualized EPS of 5.84 the share now trades at a PE of just 7.6 which is extremely cheap compared to the 21.25 PE that The Nation Media Group is currently trading at. The share should continue trending upwards in the medium term.

Standard Chartered

The huge price drop is a correction after the previous week’s excessive rally which was not backed by fundamentals. Even after this price drop Standard Chartered Bank is still expensive compared to its peers on a PE valuation basis.

Access Kenya

Access Kenya is faced with stiff competition from much stronger players in the Internet connectivity market. With Safaricom and Zain making a big push into broadband Internet service provision, the growth prospects for Access Kenya have been greatly diminished.

GSE Movers

Top gainers

Enterprise Insurance +25%, Ghana Commercial Bank +11.76%, CAL Bank Limited -6.9%

Top losers

HFC Bank -14.81%, Ghana Oil- 8.00%, CAL Bank Limited -6.90%

Enterprise Insurance

The share price jumped in the week on very low volumes. EIC is trading at a PE of just 8 based on June 30, 2010 results. At the current price of GHc 1.6, the share price is 37.5% below its 52 week high. The gross premium written grew by 34% in 2008 and 40% in 2009, with this rapid growth trend and low valuation the share is a good buy.

Ghana Commercial Bank

GCB Share price has been on a strong rally this year. The current share price of GHc 1.9 is 156% up on the opening price at the beginning of 2010. Operating income was up 47% in the first six months of the year though the profit after tax was the same as in the same period last year due to a huge impairment charge. The share currently trades at a PE of 14.

HFC Bank Limited

The share fell in the week to its 52 week low. Other than an ongoing court case alleging Internet fraud perpetrated against the company there seems to be no other tangible reason for the steep price drop in the share. At the current price, the company is trading at a P/E of only 8.

Quote of the Week:

By wisdom a house is built, and by understanding it is established; by knowledge the rooms are filled with all precious and pleasant riches. - Proverbs 24: 3-4