Nairobi and Accra: Week ended August 27, 2010

Global and local market conditions

The S&P 500 (US) and Nikkei (Japan) indexes dropped for a straight third week as investors digested a number of disappointing economic reports: GDP, jobs, manufacturing and housing data reports all pointed to a weak economic recovery in the USA. The Sensex (India), the Bovespa (Brazil) and the SSE Composite indexes fell by 2.19%, 1.64% and 1.19% respectively.

The Ghana All Share index rose by 1.72% while Nairobi Stock Exchange 20 share and the Nigerian All Share indexes fell by 1.90% and 3.26% respectively. The Nigerian Stock Exchange continues to be battered by corporate governance issues: this week the Exchange sacked 32% of its workforce.

Price movements of select commodities

Tea +0.67%, White Sugar 0.33%, Coffee (Arabica) -2.48%, Crude Oil 1.23%, Gold +0.68%, Cocoa -3.88%, Palm Oil +0.55%

Tea prices at the Mombasa auction hit an all time high of USD 3 per kilo but the volumes sold dropped by 28% compared to the previous week.

(Sources: African Tea Brokers, Financial Times)
NSE Movers

Top gainers

Olympia +15.71%, Scangroup +15.38%, Crown Berger +5.30%

Top losers

Kapchorua Tea -13.79%, Safaricom -10.19%, Diamond Trust Bank -6.36%

Scangroup

Scangroup leaped on the expectation that its plans to acquire 51% of Ogilvy’s business in Sub-Saharan Africa ex-South Africa will obtain regulatory approval. The share-swap transaction was approved in an Extra Ordinary general meeting on the 17th of August 2010. The deal will give Scangroup a market share of about 70% in Kenya and access to several African countries’ advertising markets. The share rally has had more to do with the “feel good” factor about this transaction rather than fundamental valuation.

Crown Berger

Crown Berger reported half year results showing an increase in profit before tax of 17.7%, Kshs 70 Million compared to Kshs 59.5 Million generated in the half year to June 2009. These results are good considering that the 2009 full year results had leaped by 80% compared to the 2008 performance. With the ongoing construction boom Crown Berger should post even better results in future. With an annualized PE of just 9.79 (based on the June 30, 2010 half year results) the shares are inexpensive.

GSE Movers

Gainer

HFC Bank Limited +1.92%

Top losers

SG-SSB -25.00%, Anglogold Ashanti Limited -11.11%, CAL Bank -7.41%,

SG-SSB Limited

While there has been no specific negative news to explain the huge drop in SG-SSB’s share price the share is relatively expensive compared to its banking stock peers. Even after the heavy price drop SB-SSB trades at a PE of 12 (based on June 30, 2010 half year results) compared to 7 for ETI and 9 for HFC bank.

Quote of the Week:

Mwenye pupa hadiriki kula tamu. “A hasty person misses the sweet things (because he cannot wait for the fruit to ripen)”. Swahili Proverb

Nairobi and Accra: Week ended August 20, 2010

Global and local market conditions

U.S. stocks finished mostly lower on Friday as worries about the slowdown of the economy took hold. The Japanese, UK and South African stock indices fell for a second straight week.

The key frontier African stock markets bucked the global trend. The Ghana All Share index leaped 3.5%; the Nairobi Stock Exchange 20 share index jumped 2.26% while the Nigerian All Share index scrapped a .36% gain. The Nigerian market was weighed down by the recent sacking of the Director General of the Nigerian Stock Exchange and the suspension of business mogul, Aliko Dangote, from its Board.

Price movements of select commodities

Tea +2.75%, White Sugar 4.64%, Coffee (Arabica) 3.45%, Crude Oil -6.30%, Gold +1.07%, Cocoa -2.28%, Palm Oil -1.08%

The price of Arabica Coffee hit a 12 year high this week due to high demand and mediocre production from key producers such as Vietnam and Colombia (Financial Times). If these high prices are sustained Sasini’s and Eaagad’s revenue will be positively impacted this financial year.

NSE Movers

Top gainers

Pan Africa +22.50%, NIC Bank +12.12%, Co-op Bank 10.03%

Top losers

Olympia -7.28%, Williamson Tea -5.13%, KenolKobil -4.48%, Safaricom -3.57%

Pan Africa

Pan Africa reported an eleven fold increase in half year profits. The profit after tax for the half year ended June 2010 was Kshs 210 Million compared to Kshs 17 Million in the first six months of 2009. The bulk of this profit was from investment gains. The core insurance business under-performed the prior year due to increased business acquisition costs. With the rally in both bonds and equities at the NSE from June 2010 to date, the company should be in a position to report even higher investment gains at the end of the year. While the share price of this company is expected to climb, the counter is illiquid: the float is very small with minimal shares trading on a weekly basis.

NIC Bank

NIC Bank reported a 55% increase in half year profits to Kshs 818 Million. The annualized earnings per share on the June 2010 results are Kshs 4.46 which translates to a PE ratio of 10.31. While this is a reasonable valuation, the company is more expensive than its close peer Diamond Trust Bank which is trading at a PE of only 7.8.

Safaricom

Safaricom’s share has been hit by Zain’s announcement of a cut in calling charges to Kshs 3 per minute to all networks. Safaricom currently charges Kshs 8 per minute. Zain is now owned by Bharti Ariel which has a successful high volume/low charge operation in India. This new entrant is likely to mount a serious challenge to Safaricom’s dominance. The expected price wars will dent Safaricom’s profitability going forward.

GSE Movers

Top gainers

Enterprise Insurance +15.63%, Unilever Ghana Limited +11.11%, HFC Bank +11.11%,

Top losers

African Champion Industries -11.11%, Ghana Commercial Bank -2.94%, SIC Insurance Company Limited -2.5%

Enterprise Insurance

The rally on this share has been sustained and volumes traded have been much higher compared to the previous week. Even after the 40% leap in the share price over two weeks, the company is still cheap: trading at a PE of just 10 based on June 30, 2010 results

HFC Bank Limited

The company’s’ share price seems to have merely bounced back this week after last week’s price drop. At the current price, the company is trading at a P/E of only 9.

Quote of the Week:

We have the blessing of the wealth of our vast resources, the power of our talents and the potentialities of our people. Let us grasp now the opportunities before us and meet the challenge to our survival. "Kwame Nkurumah”

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

Nairobi: Week ended August 6, 2010

Global and local market conditions

US, South American, European and Asian equity markets rose mildly in the week largely driven by positive economic news in Europe which mitigated the negative jobs report released by the US government. The Nairobi Stock exchange leaped; most counters gained strongly before and after the August 4^th 2010 constitution referendum vote. The NSE 20 Share index rose by 5.31%, the Nigeria All Share, and the Ghana All Share indexes fell by .36% and 2.16% respectively. With the referendum elections having been concluded peacefully, a goodwill rally is expected in the upcoming weeks. The low interest regime in Kenya is another factor that is working in favour of Nairobi’s equities. The one year Treasury bill rate at the latest auction was 4.11 %( Central Bank of Kenya): the lowest in recent history. Ghana’s interest rate for a one year Treasury bill at the most recent auction was 13.50% (Bank of Ghana). The low interest rates in Kenya will reduce the borrowing costs of companies which should in return boost their profitability and incentivize them to invest more.

Price movements of select commodities

Tea +5.73%, Sugar -7.93%, Coffee (Arabica) -4.48%

NSE Share price movements

Gainers

Eveready +18.18%, StanChart +17.72%, NIC Bank +13.92%, Jubilee Holdings +13.79%, Centum +13.64%

Losers

Pan Africa -6.62%, Kakuzi -5.49%, Eagards -4.00%, EA Portland Cement -2.44% , Crown Berger -2.10%

Eveready

The huge price swing in this counter is largely because it was starting from a very low starting point during what has been a huge upward swing for the stock market as a whole. The share closed at only at Kshs 4.55; small changes in cent value will lead to a huge swing in price percentage change on this counter. The fundamentals of this counter are not strong considering the trend towards use of solar and grid electricity in Kenya. The battery business faces stiff competition from cheap Chinese imports.

Standard Chartered

The strong rally from the previous week persisted into this week. The movement on this counter is now more of a momentum rally with additional investors jumping onto the bandwagon of a rapidly rising stock. At the current price Stanchart is now the most expensive banking stock and thus is relatively overvalued. StanChart’s market capitalization is now Kshs 81 Billion; Kshs 23.5 Billion more than for close peers CO-OP bank and KCB (assuming full take up of rights at current prices). CO-OP and KCB have a larger branch network, more deposits and a larger loan book than StanChart. The valuation differential between StanChart and those two banks is not justifiable.

Quote of the Week:

When you see clouds gathering, prepare to catch rainwater. - African proverb Gola Tribe

Nairobi: Week ended July 29, 2010

Global and local market conditions

The developed stock markets were generally flat at the end of the week as strong corporate results were tempered by concerns about slow economic recovery. The Nikkei, S&P and FTSE indexes see-sawed in the week but finished roughly where they started at close of trade on Friday.

The Emerging Market performance was mixed with India’s Sensex falling 1.45% in the week while the Chinese and Brazilian markets rose. India’s stock exchange is more closely correlated with the West compared with the other two and has risen significantly in the year to date. Brazil is a big exporter of commodities to China and the current commodities boom has been very beneficial to its economy.

The indexes of the main Sub-Saharan Frontier stock markets: Nigeria, Kenya and Ghana all jumped over 2% in the week. Investors in the Kenyan market could be taking positions as various polls show that Kenyans will vote for a new constitution by a large margin.

Price movements of select commodities

Tea 0.00%, Sugar 4.73%, Coffee (Arabica ) 5.99%

(Sources: African Tea Brokers Ltd, Financial Times)

Arabica coffee is now trading at a 12 year high after a poor crop in Colombia (Financial Times). Arabica coffee futures are trading at 40% up in the year to date. The high coffee prices should have a positive impact on Sasini’s revenues this year.

Even after a steep fall two months ago, white sugar futures are trading at almost 5 year highs. The current high sugar prices coupled with the strong US dollar should shield Mumias Sugar from cheap imports in the medium term.

Mean Exchange Rates: Central Bank of Kenya

USD 80.23, GBP 125.30, EUR 104.87

The US Dollar weakened in the week against other convertible currencies as economic data showed that GDP growth had slowed to 2.4% in the quarter ended June 2010 compared to a 3.7% in the quarter ended March 2010 (Reuters).

NSE Movers Review

Top Gainers

Kakuzi 14.69%, Centum Investment 14.58%, Housing Finance 14.46%

Top Losers

Kapchorua Tea 3.45% Limuru Tea 3.33% Carbacid Investments 2.50%

Kakuzi Limited

Although the percentage jump in the week seems dramatic the movement is merely a recovery from recent drops in the last few weeks. Kakuzi is trading at a PE of only 4.73 at the current price which is cheap compared to the average NSE Market PE of 14.4.

Centum Investment

This share has bounced back after the heavy fall in the previous week. At the current price, the company appears fully valued and new investors should proceed with caution while purchasing this share. A continued rally in the market as a whole should push up value of Centum’s quoted investments portfolio, and if strong enough might justify a higher valuation for the share.

Quote of the week:

“Industry, thrift and self-control are not sought because they create wealth, but because they create character. “
Calvin Coolidge

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.