2022 Week 33: Market Cap Training Summary

Equity Market

• The all-inclusive NASI share price index decreased by 1.67% from 148.81 to 146.32 during the week ending August 19.
• The NSE 20 share price index decreased by 0.95% from 1796.20 to 1779.19 during the week ending August 19. 
• The NSE 25 share price index decreased marginally by 2.08% from 3,454.51 to 3,382.52 during the week ending   August 19.
• Market capitalization increased from KES 2.289 trillion to KES Sh2.281 trillion in the week ended August 19.This was in line with NASI index that tracks the performance of the whole market. It is worthy to note that Safaricom Plc market capitalization (Ksh 1.252 trillion) currently accounts for 54.52% of NSE market capitalization.
• Volume of shares traded decreased by 12.61% to close the week at 39.50 million, compared 45.10 million recorded in the previous week.
• Equity turnover decreased by 0.92 percent to Kshs 1.08 billion for week ended August 19 compared to KES 1.09 billion in the preceding week. Year to date shares worth Kshs 61.78 billion have been traded in the Nairobi Securities Exchange. It’s worthy to note that the NSE Plc makes 0.24% of equity turnover as equity trading fees which accounts for over 58% of its total income.

CORPORATE ANNOUNCEMENTS AND KEY EVENTS FOR THE LAST WEEK AND CURRENT WEEK

•  In the Treasury bills auction of August 18, the government sought to raise KSh 24 billion but received bids totalling Ksh 19.72 billion representing a performance of 82.15% percent. There is a preference by investors for the short term 91-Day Treasury bill paper which registered a performance of 294.25% which is indicative of an expectation of an increase in interest rates. Interest rate on 91-Day Treasury bill, 182-Day Treasury Bill and 364-Day Treasury bill was 8.669%, 9.492% and 9.909% respectively.
• The bond market reported decreased activity with bonds worth KES 9.64Bn transacted compared to KES 10.92Bn registered the previous week.
•   The National Treasury has raised KES 38.5 Billion from auction of three reopened bonds on 17 August 2022. The bids made totalled KES 49.1 billion representing a 98.3 percent performance rate unlike July’s 26.4 percent subscription rate. The weighted average rate for accepted bids for the reopened papers FXD1/2022/03; FXD2/2019/10 and FXD1/2021/20 was 12.445%; 13.884% and 13.963% respectively.
•     India is Kenya Reinsurance Corporation (KNRE) second largest source of business contributing 32 percent of its gross premiums behind Kenya’s 38 percent as per South African rating firm Global Credit Rating (GCR). Kenya continues though being the primarily market for KNRE due to the mandatory 20% premium from primary underwriters. KNRE operates in 80 other countries.
•  Jubilee Insurance Holdings will receive KES 270 million from sale of Mauritius Unit. This will see its stake reducing from 88.15% to 34.00% after the sale. The deal is expected to close in September 2022. 
•   The Judiciary Fund now has been activated giving courts financial independence. Treasury has loaded KES 9 billion into the fund half-year budget. The Judiciary fund act was passed in 2016 but the executive delayed its activation for over six years (Business Daily).
•    Kakuzi PLC reported a 15.47% growth in turnover to KES 1.03 billion for the period ended 30 June 2022 compared to KES 888.95 million for period ended 30 June 2021. Profit after tax for the 6 months of the year was KES 341.27 million which is over 75.34% higher than KES 194.64 million during the same period previous year. Its earnings per share increased from KES 9.93 for period ended 30 June 2021 to KES 17.41 for period ended 30 June 2022. Its book value per share decreased from KES 282.62 for period ended 31 December 2021 to KES 278.04 for period ended 30 June 2022. Return on average equity for the company increased from 5.76% in 2021FY to 12.42% in 2022H1. Given the above the justifiable valuation for each share of Kakuzi is KES 420 per share. 
•   Nation Media Group PLC reported a 0.65% decline in turnover to KES 3.70 billion for the period ended 30 June 2022 compared to KES 3.72 billion for period ended 30 June 2021. Profit after tax for the 6 months of the year was KES 247.80 million which is over 13.11% lower than KES 285.2 million after tax profit recorded during the same period previous year. Its earnings per share decreased from KES 1.40 for period ended 30 June 2021 to KES 1.10 for period ended 30 June 2022. Its book value per share increased from KES 38.64 for period ended 31 December 2021 to KES 39.70 for period ended 30 June 2022. Its working capital per share increased from KES 19.39 as at 30 June 2021 to KES 20.89 as at 30 June 2022. Return on average equity for the company decreased from 6.15% in 2021FY to 6.04% in 2022H1. Given the above the justifiable valuation for each share of Nation Media Group is KES 20.89 per share. 
•     WPP Scangroup reported a 6.09% decline in gross profit to KES 1.04 billion for the period ended 30 June 2022 compared to KES 1.11 billion for period ended 30 June 2021. Loss for the 6 months of the year was KES 47.07 million which is over 149.81% lower than KES 31.42 million after tax profit recorded during the same period previous year. Its earnings per share decreased from KES 0.10 for period ended 30 June 2021 to KES (0.11) for period ended 30 June 2022. Its book value per share increased from KES 12.21 for period ended 31 December 2021 to KES 11.85 for period ended 30 June 2022. Its net working capital per share decreased from KES 10.03 as at 30 June 2021 to KES 9.79 as at 30 June 2022. Return on average equity for the company decreased from -0.72% in 2021FY to -1.81% in 2022H1. Given the above the justifiable valuation for each share of WPP Scangroup is KES 9.79 per share. 
•     I&M Group reported a 14.37% growth in turnover to KES 12.07 billion for the period ended 30 June 2022 compared to KES 10.56 billion for period ended 30 June 2021. Profit after tax for the 6 months of the year was KES 4.03 billion which is over 25.83% higher than KES 3.20 billion during the same period previous year. Its earnings per share increased from KES 1.94 for period ended 30 June 2021 to KES 2.44 for period ended 30 June 2022. Its book value per share decreased from KES 29.95 for period ended 30 June 2021 to KES 28.86 for period ended 30 June 2022. Return on average equity for the company increased from 12.21% in 2021FY to 16.23% in 2022H1. Given the above the justifiable valuation for each share of I&M Group is KES 21.00 per share. 
•    Standard Chartered Bank reported a 10.23% growth in turnover to KES 15.56 billion for the period ended 30 June 2022 compared to KES 14.11 billion for period ended 30 June 2021. Profit after tax for the 6 months of the year was KES 5.41 billion which is over 10.89% higher than KES 4.88 billion during the same period previous year. Its earnings per share increased from KES 12.69 for period ended 30 June 2021 to KES 13.87 for period ended 30 June 2022. Its book value per share increased from KES 136.84 for period ended 30 June 2021 to KES 149.34 for period ended 30 June 2022. Return on average equity for the company increased from 10.16% in 2021FY to 19.31% in 2022H1. Given the above the justifiable valuation for each share of Standard Chartered Bank of Kenya share is KES 128.00 per share.
•    Stanbic holdings reported a 22.77% growth in turnover to KES 15.20 billion for the period ended 30 June 2022 compared to KES 12.38 billion for period ended 30 June 2021. Profit after tax for the 6 months of the year was KES 4.80 billion which is over 36.94% higher than KES 3.50 billion during the same period previous year. Its earnings per share increased from KES 8.86 for period ended 30 June 2021 to KES 12.13 for period ended 30 June 2022. Its book value per share increased from KES 142.80 for period ended 31 December 2021 to KES 147.20 for period ended 30 June 2022. Return on average equity for the company increased from 13.33% in 2021FY to 16.74% in 2022H1. Given the above the justifiable valuation for each share of Stanbic Holdings is KES 112.00 per share.
•    Berkshire Hathaway has received permission to accumulate up to 50% stake in Occidental Petroleum from the Federal Regulatory Energy Regulatory Commission (Seeking Alpha). Berkshire currently owns over 20% stake in the company with warrant to buy an extra 5% stake in the company for USD 10 billion.
•     Kenyan banks are eyeing regional growth in East Africa by targeting the region with short-term mobile credit facilities. I&M Tanzania subsidiary has launched Kamilisha, while NCBA has 7 digital lending products in 5 countries.
•    AEA Ltd, a subsidiary of TransCentury has inked a deal to build a KES 29.8B ($250M) housing project in the Democratic Republic of Congo.
•    Britam, CIC and Jubilee have formed a consortium to jointly make an application for the Teacher Service Commission comprehensive health cover for teachers.
•   Visa has announced plans to establish local business operations in the DRC as it seeks to expand digital payments in the country. Currently DRC has 95 million people with only 25% of them accessing banking services.
•    Gold exploration activities in West Kenya by Shanta Gold returned a loss of $7.32 Million in the 2021 fiscal year compared to a $974K full year loss in the previous year.
•   Shares in Zimbabwe have fallen by 50% since the end of April after authorities increased taxes on equity transactions and took other steps to support a collapsing local currency and tame triple-digit inflation.
•   KCB Group has appointed Ms. Anija Pandit has an independent non-executive director with effect from 16 August 2022. She has over two decades banking experience and previously she had worked in Citibank as vice president in their Fixed Income, Currencies and Commodities sales.

KEY ECONOMIC INDICATORS

•   The Federal Reserve Bank USA hiked its benchmark rate by 0.75% in 21 July 2022. This is negative for shares as it leads to the contraction of multiples by which they had been trading previously. Its benchmark rate now lies between 2.25% to 2.50%. Next FOMC meeting will be on 20/21 September 2022.
•   The European Central Bank, hiked its key refinancing rate by 0.5% against the expected 0.25% hike to 0%. This was an attempt to cool inflation in the European Union and also to try to play catch up with other Central Banks that have hiked their key rates by a larger margin. This is likely to see the strengthening of the Euro against other currencies like the US dollar. However, it risks pushing the EU economy into a recession at a time when the EU is facing the Ukrainian versus Russian war.
•  The Central Bank of Kenya held steady its Central Bank Rate at 7.5% in 27 July 2022. This was unexpected given the increasing inflationary pressure in the country and the global trend of Central Banks hiking interest rates. This means that the Kenyan shilling will depreciate further against major currencies like the US dollar.
•  Inflation in the United States increased by 9.1% for the month of June 2022 as compared to 7.8% inflation rate reported for the month of May 2022. This is the largest increase in inflation reported in the last forty one years. This inevitably means that the Fed will have to hike rates aggressively to stem the increase in inflation moving forward. 
•     July 2022 inflation came in at 8.30% compared to 7.90% in June 2022. (KNBS). This is the second time inflation has exceeded the upper target limit of 7.5% for inflation. Moving forward, you’d expect the Central Bank to take action to tame inflation by hiking interest rates to slow down aggregate demand and thus cool down inflation.
•  The Kenyan GDP grew at a rate of 6.8 percent in the first quarter of 2022 compared to a growth of 2.7 percent in the first quarter of 2021. Growth was supported mainly by a significant recovery in sectors like Transportation and storage (8.1%), Accommodation and Food Serving services (56.2%), Professional, Administrative and Support Services (14.9%) and other service activities (11.1%). Only the agricultural sector, recorded a contraction of economic activities in the first quarter of 2022. 

Inflation eased from an average of 5.79 percent in first quarter of 2021 to 5.34% in the first quarter of 2022. The Central Bank Rate was retained constant at 7% for the first quarter of 2022.

•    Foreign Remittance flows in June 2022 totalled USD 326.1 million compared to USD 305.9 million in June 2021, a 6.6 percent increase. The cumulative inflows for the 12 months to June 2022 totalled USD 4,012 million compared to USD 3,383 million in the same period in 2021, an increase of 18.6 percent. The strong remittance inflows continue to support the current account and the stability of the exchange rate. The US remains the largest source of remittances into Kenya, accounting for 59 percent in June 2022.

MARKET SUMMARY FOR WEEK ENDED 19 AUGUST 2022

KEY EVENTS FOR WEEK ENDING 26 AUGUST 2022