CAPITAL 6th July 2020

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CAPITAL 6th July 2020

CAPITAL WEEKLY EQUITIES

Market Summary The market was on an uptrend during the week with the key indices, NASI and NSE 20, rising 1.3% and 0.4%, respectively, primarily driven by the 4.0% gain in Safaricom Plc. The daily average market turnover declined 44.7% w/w to KES 306.7mn, with SCOM, KCB, EQTY & EABL, the four top traded counters, accounting for 88.4% of total market turnover. Foreigners remained net sellers during the week (net outflows worth KES 0.5Bn), responsible for 56.9% of market activity, compared to 60.2% the previous week.

Going into the week, activity is expected to continue to be dominated by the key traded counters SCOM, KCB, EQTY, due to their liquidity traits. Market Fundamentals

Financials Daily Market Cap YTD Price to Book Return on Company Free Float Turnover Dividend Yield (KES Bn) Performance (P/B) Equity (ROE) (KES Mn) KCB 112.5 75.4% 86.3 -35.1% 0.8 19.5% 10.0% EQTY 124.0 87.0% 132.3 -38.6% 1.1 20.5% 0.0% COOP 71.6 32.4% 12.9 -25.4% 0.9 18.5% 8.2% ABSA 54.6 31.1% 8.8 -24.7% 1.3 20.5% 10.9% SCBK 58.1 24.7% 2.6 -9.5% 1.2 15.8% 7.4% Non- Financials Daily Market Cap YTD Price to Return on Company Free Float Turnover Dividend Yield (KES Bn) Performance Earnings (P/E) Equity (ROE) (KES Mn) SCOM 1,187.9 25.1% 246.4 -5.9% 15.9 51.8% 4.7% EABL 128.5 54.6% 46.1 -18.1% 8.9 81.3% 5.5% KEGN 35.0 30.0% 3.7 -7.3% 2.1 4.2% 5.3% Source: Company accounts, Bloomberg, KCB Capital

Potentially Undervalued Counters Stock Picks Counters RSI Kengen 68.47 Potentially Undervalued Counters HF Group 67.44 SCOM 53.77 I&M 50.03 Given the discounted valuations in the stock market amidst the COVID-19 SCBK 48.08 pandemic, this week we highlight oversold counters, with reference to the Re 47.70 technical indicator, Relative Strength Index (RSI).

Britam 47.67 Centum 47.60 We have marked in grey tone the counters we consider fundamentally sound and ABSA 45.77 DTB 44.90 trading at relatively low RSI, establishing good entry points for building a position. COOP 43.17 KCB 38.26 Particularly, KCB & EQTY stand out with RSI at 38.26 and 32.40, respectively, on EABL 36.79 the back of uncertainty surrounding the impact of the pandemic on profitability, BAT 33.43 and consequently, dividend payments. We anticipate future dividend payments EQTY 32.40 will exceed market expectations, as per our 2020 Banking Sector Report. Bamburi 23.81

Source: Bloomberg, KCB Capital

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CAPITAL 6th July 2020

YTD performance relative to NSE 20 'how are the key counters performing compared to the market' 25.0% 20.8% 19.3% 20.0% 17.2% 15.0% 10.0% 8.6%

5.0% 2.0% 1.3% 0.0% -5.0%

-10.0% -8.4% -15.0% -11.9% SCOM KEGN SCBK EABL ABSA COOP KCB EQTY

Source: NSE, KCB Capital

SSA Markets Performance Corporate Actions

Country Index Code W/W YTD Company Event Book Closure Kenya KNSMIDX 0.4% -26.7% NSE Plc Final Div - KES 0.08 09-Jul-20 Nigeria NGSEINDX -1.9% -9.2% Safaricom Plc Final Div - KES 1.40 31-Jul-20 Ghana GGSECI 0.8% -16.4% Centum Plc Final Div - KES 1.20 Subject to approval

Uganda UGSINDX -3.2% -21.5% Britam Holdings Final Div - KES 0.25 Subject to approval DARSDSEI -1.4% -12.2% Source: NSE, Bloomberg, KCB Capital RSEASI 0.0% 10.8%

Egypt EGX30 -1.2% -22.9%

Mauritius SEMDEX 0.2% -23.9% BRVM ICXCOMP 0.1% -15.2%

Source: NSE, Bloomberg, KCB Capital (Figures at 12pm GMT) SSA Markets YTD, Rwanda is the only market gainer under our SSA coverage universe, gaining 10.8%, while Kenya, Mauritius, Egypt and are the major losers, shedding 26.7%, 23.9%, 22.9% and 21.5%, respectively. On a week on week basis, Ghana (GGSECI) was the top gainer, rising 0.8%, supported by the 3.6% gain in Scancom Plc, while Uganda was the top loser, dropping 3.2%, attributed to price dips in Nation Media Group (UG) and Centum (UG) that shed 3.3% and 3.6%, respectively.

Key Corporate Actions Kenya Airways Plc (KQ) shares were suspended from trading for a period of 3 months, effective Friday, 3rd July. The suspension

has been effected following an application by the company, to pave way for a restructuring process and potential buyout by the government.

The book closure date for the final dividend (KES 1.40) on Safaricom Plc, representing a dividend yield of 4.7%, is approaching, st on Friday, 31 July.

The payment date for the final dividend (KES 7.50) on Standard Chartered Bank of Kenya, representing a trailing dividend yield of 7.4%, is approaching, on Friday, 24th July.

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CAPITAL 6th July 2020

CAPITAL WEEKLY

FIXED INCOME Macro-economic The Kenya Shilling (KES) depreciated 0.1% against the dollar during the week to close at 106.60, as dollar inflows from horticulture exports and diaspora remittances were more than offset by dollar demand from the energy and manufacturing sectors. The forex reserves currently stand at USD 9.72Bn (5.84 months of import cover) compared to USD 9.23Bn (5.55 months of import cover) the week prior. Data released by the Kenya National Bureau of Statistics (KNBS) indicated that the economy grew 4.9% in 1Q20 compared to 5.5% in 1Q19. The report, however, noted that the country was spared the full adverse impacts of the COVID-19 pandemic during the period, even though the uncertainty of the pandemic had slowed activity among key trading partners. Kenya’s economy is projected to contract 0.3% in 2020, impacted by the business slowdown, especially in the second and third quarters of the year.

Inflation for the month of June declined to 4.59%, compared to 5.33% in May, primarily attributed to a decline in food inflation during the period. Inflation during the month of July is projected to average 4.0%, driven by declining aggregate demand, improving supply due to favorable weather conditions, lower international oil prices and the impact of the reduction in VAT.

Currency Performance Interest Rates Notation Pair W/W YTD Key rates This Week Last Week

USDKES -0.1% -5.2% 91-day T-Bill 6.55% 6.70% USDGBP 0.9% -6.4% 182-day T-Bill 7.05% 7.40% USDCNY 0.2% -1.5% 364-day T-Bill 7.77% 8.19% USDZAR 1.2% -22.1% 2-Year 9.95% 9.71% USDNGN -0.1% -7.0% USDGHS 0.2% -2.1% 5-Year 10.91% 11.10% USDUGX 0.4% -1.5% 10-Year 12.02% 12.16%

USDTZS 0.0% -0.7% 15-Year 12.54% 12.55% USDRWF 0.5% -1.1% Average Interbank Rate 2.96% 3.93%

Source: CBK, KCB Capital Source: Bloomberg, KCB Capital (Figures at 12pm GMT)

Fixed Income T-Bills were over-subscribed for the eighth consecutive week, with a subscription rate of 317.4%, compared to an over-subscription of 245.6% the previous week. The 91 and 364-day T-Bills were the two largest subscribed, receiving subscriptions of 511.3% and 289.8%, respectively, depicting two sets of investors in the market:

i. Investors who are seeking to lock in funds for a sustained period, on the backdrop of falling yields in the primary auction (364-day paper). ii. Investors who are seeking enhanced liquidity on the short end (91-day paper).

The issuer received KES 76.2Bn worth of bids, accepting KES 43.9Bn (acceptance rate of 57.6%). Notably, yields on all three papers dropped for the fifth week in a row, weighed down by the overwhelming subscription on account of heightened liquidity. Yields on the 91, 182 and 364-day papers declined 15bps, 35bps and 43bps, respectively, during the week.

In the secondary market, the average daily bond turnover declined 55.7% w/w to KES 1.8Bn with trades across the spectrum of the yield curve.

Meanwhile, the interbank rate averaged 2.96% in the week, compared to 3.93% the previous week.

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CAPITAL 6th July 2020

Yield Curve 14.0% 13.0%

12.0% 11.0% 10.0% 9.0% 8.0%

7.0%

6.0%

1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

91-day 182-day

31/Dec/2019 26/Jun/2020

Source: NSE, KCB Capital

During the week, yields continued to drop across the spectrum of the yield curve, especially on the short end. Notably, the yield curve is edging lower than the beginning of the year curve on account of heightened liquidity in the money market as investors increase exposure in government securities.

Global Market The S&P 500 Index was on an uptrend during the week, gaining 4.0%, as the June employment report indicated the US economy regained 4.8mn jobs during the month, surpassing market expectations. Consequently, the unemployment rate fell to 11.1%, compared to 13.3% recorded in May. Consequently, gold prices eased in the closing trading session on Friday.

The labor report also saw the price of Crude Oil (WTI) rise 4.3% during the week, on the back of renewed optimism surrounding an economic revival, and consequently, increased demand. Despite this, concerns still remain that the spike in coronavirus cases in the US will weaken economic activity in the short term.

Gold against Dollar Index Crude Oil (WTI)

106 100

1800 60 102

1400 20 98

-20

94 1000 31/12/2019 29/02/2020 30/04/2020 30/06/2020 -60 Dollar Index Gold (XAU) 31/12/2019 29/02/2020 30/04/2020

Meanwhile, the FTSE 100 Index was relatively unchanged during the week as investors adopted a wait and see approach, with

reports suggesting the summer statement by the Exchequer will not be including any significant tax cuts to boost the economy.

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CAPITAL 6th July 2020

DISCLOSURES

RESEARCH CONTACTS DEALING CONTACTS

Patrick Mumu Linus Kang’ara Research Analyst Head of brokerage

[email protected] [email protected] +254 709 812 733 +254 709 812 913

Mercyline Gatebi Joshua Munene Research Analyst Trader

[email protected] [email protected]

+254 709 812 732 +254 709 812 730

Timothy Macharia Trader

[email protected] +254 709 812 677

Disclaimer This report has been prepared by KCB Capital Limited (hereinafter KCB Capital), a subsidiary of KCB Group PLC. This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. KCB Capital does not undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses.

Investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of KCB Group PLC as a result of using different assumptions and criteria.

Research will initiate, update and cease coverage solely at the discretion of KCB Capital. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information. KCB Capital is under no obligation to update or keep current the information contained herein. KCB Capital relies on information barriers to control the flow of information contained in one or more areas within KCB Capital, into other areas, units, groups or affiliates of KCB. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither KCB Capital nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.

KCB Capital is a subsidiary of KCB Group, in which the company has an interest, hence this statement represents a disclosure of this potential conflict of interest. This report has been prepared independently and represents the analyst’s sole opinion and objective analysis. Information in the public domain has been used in preparing this report.

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