Accra, Nairobi: Week ended November 19, 2010

Global markets view
The decline in most major stock indexes continued from the previous week. The main driver of the drop has been fear of the negative impact on global economic growth as China tightens its monetary policy to rein in runaway inflation. This week China raised its reserve requirement for banks to 18%. UK’s FTSE 100 dropped by 1.10%, India’s Sensex by 2.84% and China’s Shanghai composite by 3.24%. Japan’s Nikkei bucked the global trend rising 3.06%. The strength in Japanese equities has been attributed to the slip of the yen against the dollar and the flow of funds into undervalued Japanese stocks.

In Emerging Africa the Ghana All Share Index rose by 2.90% taking it past the 7,000 mark which it last touched in June 2010. The Nairobi 20 Share index was down 0.33%. The Nigerian All Share index dropped by 1.61%.

Global commodity price movements were mixed. Crude Oil, Gold and Copper fell by 3.37%, 0.97% and 1.43% respectively. Arabica Coffee and Cocoa futures prices rose by 4.69% and 4.50% respectively. Tea prices at the Mombasa auction increased rose marginally: up 1.38%, while the volumes sold leaped by 12.78%.

Standard & Poor's Ratings Services raised Kenya's long-term sovereign credit rating to B+ from B due to a more stable political environment, the ratings agency said Friday. "The raising of the sovereign credit rating on Kenya reflects our view of the country's falling political risks in the wake of the adoption of a new constitution, as well as the country's improved economic outlook," .

Accra, Ghana

GSE Movers

Top gainers
Ghana Commercial Bank +7.50%, Ecobank Transnational + 7.14%

Top losers
Mechanical Lloyd Company -14.29%, SG-SSB Bank – 1.69%

Ghana Commercial Bank
Ghana Commercial Bank reported an 8% increase in profits after tax for the first nine months of 2010 compared to the same period in 2009. The top line has grown by over 50% but a huge credit impairment loss (71 Million Cedis) dragged down the profit figure. Excluding this possibly one time hit to the income statement, GCB results would have been very solid. Although the share is trading at close to its 52 week high of 2.05 Cedis, the current PE ratio 12 is undemanding given the strong income growth over the past year.

Nairobi, Kenya

NSE Movers

Top gainers
Kenya Power and Lighting +6.13%, City Trust +4.17%

Top losers
Sameer -19.50%, Scangroup -11.97%

Kenya Power and Lighting (KPLC)
KPLC's share price jumped on Friday; the closing date for the one for eight shares split. KPLC announced a rights issue in the ratio of 20 for every 51 held. The record date for the rights issue is the 25th of November 2010. The objective of the rights issue is to raise Kshs 9 Billion to fund long term growth.

While KPLC’s restructuring of its capital (redemption of the preference shares held by the government and the rights issue) is potentially dilutive, the medium term to long term prospects for the company are good. The dilution from the issue of the additional ordinary shares to the government has been mitigated by the cancellation of preference shares on which KPLC pays Kshs 1.25 Billion in interest annually. The ongoing rural electrification program and Kenya’s strong projected economic growth will lead to increased demand for electricity over the long term.

KPLC is moving towards prepaid metering for a majority of its clients. This will enhance the company’s working capital position. The cash that has been paid upfront could be invested in short term treasury bills to augment interest income to electricity sales. Prepaid metering should also reduce risk of default.