Financial Performance review
KCB Bank Group, East Africa’s largest banking group by assets, reported a 54% rise in pre-tax profit to KES 15.1 Billion: 26% more than the KES 12.1 Billion pre-tax profits reported by Barclays Bank Kenya (until 2010 Kenya’s most profitable bank).
Operating income rose by 25% from KES 29.6 Billion to KES 36.9 Billion. Operating costs increased by 19%. The faster growth in income relative to expenses translated into the huge boost in pre-tax profit growth.
KCB Bank Group, East Africa’s largest banking group by assets, reported a 54% rise in pre-tax profit to KES 15.1 Billion: 26% more than the KES 12.1 Billion pre-tax profits reported by Barclays Bank Kenya (until 2010 Kenya’s most profitable bank).
Operating income rose by 25% from KES 29.6 Billion to KES 36.9 Billion. Operating costs increased by 19%. The faster growth in income relative to expenses translated into the huge boost in pre-tax profit growth.
The Group’s Balance sheet grew from KES 251.3 Billion to KES 330.7 Billion, cementing KCB’s position as the largest bank in the region by assets. Barclays Kenya total assets at the end of the year were KES 167.3 Billion.
Operating environment and outlook
KCB Group managed to post a strong performance despite a difficult operating environment. 2011 was occasioned by a big spike in interest rates in Kenya and a steep fall in the Kenya Shilling relative to the dollar.
KCB Managed to grow its loan book by KES 50 Billion (to KES 198B from KES 148B in the year), and deposits by KES 63 Billion (from KES 196B to KES 259B). In comparison deposit growth for Barclays was almost nil from KES 123.8 Billion to KES 124.2 Billion.
Even with the huge growth in the loan book, KCB’s loan loss provisions dropped to KES 1.9 Billion from KES 2.1 Billion in the prior year. It is probable that the loss provisions will increase in 2012 as customers struggle to maintain payments in the current high interest rate regime.
KCB has announced that it shall open a subsidiary in Burundi, widening its reach to all nations in the East African community. KCB currently has a presence in Kenya, Uganda, Tanzania, Rwanda and Southern Sudan. All subsidiaries were profitable in 2011.
KCB is likely to report a strong performance in 2012 underpinned by further regional growth and integration.
Investment analysis/Recommedation
The company’s share price closed at KES 21.25 (March 2, 2012); a 26% gain from the closing price on last day from trading in 2011 (December 30, 2011), KES 16.85.
Even after the rally in the year to date the share is inexpensive, trading at a PE of only 5.7.
KCB has declared a dividend of KES 1.85 which translates to a yield of 8.71% at the current share price
Recommendation:
KCB has declared a dividend of KES 1.85 which translates to a yield of 8.71% at the current share price
Recommendation:
Strong buy
Banking sector stocks as a whole are trading at huge discounts at the Nairobi Stock Exchange. KCB is relatively cheaper than its peers on a PE basis (38% cheaper than BBK). Investors with a time horizon of at least two years should accumulate this stock. In the short term (2012) there is likely to be a lot of volatility on this and other counters as Kenya faces an uncertain election year.
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