Genghis Capital - Weekly Market Monitor - Week 40

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Weekly Market Monitor - No. 01

Genghis Capital Research: Equities, Fixed Income, Currency, Commodities

Themes: Momentum Building, Yield Upturn, Transmission of Global Uncertainty & Risks...

Equities: Foreigners Run The Show… 3

Fixed Income: Uptick in Yields to Sustain … 8

Currency: Tea Export Inflows Cushion the KES… 10

Commodities: Brent Oil Posts 2% Weekly Loss… 11

Weekly Market Monitor - No. 40/2012

Genghis Capital Research: Equities, Fixed Income, Currency, Commodities


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Executive Summary

Themes: Momentum Building, Yield Upturn, Transmission of Global Uncertainty & Risks...

Equities: Foreigners Run The Show…Despite the increased pressure on the NSE, the NSE 20 share index

managed to close 6 points higher at 3975.79. The NASI improved to 87.54 while the FTSE 15 and 25 indices closed

0.04% and 0.23% higher respectively. Foreign investors ran the trading session in the week accounting for a

mammoth 73% of total equity turnover but remaining long with a value of Kes.215Mn. Equity turnover rose 29% to

Kes.3Bn buoyed by the increased participation touching daily value of Kes.1Bn for the second time in the year.

Fixed Income: Uptick in Yields to Sustain… The 91, 182 and 364-Day papers were undersubscribed at 31%, 91% and

63% respectively. The regulator intends to raise Kes.8Bn this week as it auctions the 91 and 182-Day T-Bills.

Currency: Tea Export Inflows Cushion the KES… The KES was relatively stable in the week supported by tea

export inflows and low dollar demand. The national currency largest gain was in the ZAR/KES pair +4.77% with

further gains achieved in the GBP/KES pair +2.14% and KES/UGX +0.85%. The largest slip was recorded in the

INR/KES pair -1.58% with the sentiment echoed in the KES/TZS pair down 0.54%.

Commodities: Brent Oil Posts 2% Weekly Loss… On a volatile week, oil prices closed marginally lower (0.33%) at

USD112.02. The pressure due to a fragile global economy as the statistics amplified the situation, uncertainty

surrounding the Eurozone specifically the debt crisis and the scepticism surrounding the latest US employment

report. The US government looks set to extending further sanctions on Iran will have an effect on the oil price.


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Equities:

Foreigners Run The Show… Despite the increased pressure on the NSE, the NSE 20 share index managed to close 6 points higher at 3975.79. The NASI

improved to 87.54 while the FTSE 15 and 25 indices closed 0.04% and 0.23% higher respectively. Foreign investors ran the

trading session in the week accounting for a mammoth 73% of total equity turnover but remaining long with a value of

Kes.215Mn. Equity turnover rose 29% to Kes.3Bn buoyed by the increased participation touching daily value of Kes.1Bn for

the second time in the year. Market Capitalisation was stable at Kes.1.15Tn.

"All intelligent investing is value investing -- acquiring more that you are paying for. You must value the business in order to value the stock." - Charlie Munger, Business Magnate, Vice Chair Berkshire Hathaway and Investor.

This week’s trading highlights are summarized below:

Table 1: NSE Performance Table 2: NSE Index Performance, Turnover

NSE 20 Share Index, Equity Turnover

Chart 2: Captures the trend of the Nairobi Stock Exchange – NSE 20 Share Index vs. Equity Turnover. Equity turnover crossed the Kes.1Bn mark

in the week for the second time in the year.

130,000,000

330,000,000

530,000,000

730,000,000

930,000,000

1,130,000,000

1,330,000,000

1,530,000,000

1,730,000,000

1,930,000,000

2,800

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

3-Jan-113-Mar-113-May-11 3-Jul-11 3-Sep-11 3-Nov-11 3-Jan-12 3-Mar-123-May-12 3-Jul-12 3-Sep-12

Equity Turnover NSE 20 Share Index


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Table 3: NSE Performance

Week 39 Week 40 % Change

Market Cap. (Kes.Bn) 1,155.99 1,158.09 0.18%

Equity T/O: (Kes.Mn) 2,348.64 3,018.81 28.53%

Bond T/O: (Kes.Mn) 16,814.70 16,767.15 -0.28%

Source: NSE, Genghis Capital

Our weekly segmental analysis (Table 4) shows the effect of the distribution pressure from last week

with four sectors gaining value versus six sectors losing. The market as a whole slipped 0.58% with

these developments.

The Banking segment was the best performing segment this week gaining 1.25%. This performance

was largely up due to Diamond Trust Bank Kenya Ltd (NSE: DTK) gaining 4.50% to VWAP Kes.116.00.

The Investment segment was at the bottom declining by 4.06%. Olympia Capital Holdings Ltd (NSE:

OCH) was down 10.81% to close at Kes.3.80.

NSE Segment Performance

Table 4: Weekly Segmental Price Performance Analysis

Source: NSE & Genghis Capital


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NSE P/E Analysis

Six sectors moved into value territory in the week. The Advance/Decline ratio was relatively even at

22/24 explaining the relative flat performance in the overall market. The distribution activities slightly

edged accumulation activities though the effect of the accumulation activities informed the slight slip

in value of the overall market at 10.06.

Table 5: NSE P/E Analysis

Sector P/E Sector P/E

Week 39 Week 40

Agricultural 7 3.67 3.66 -0.27%

Automobiles & Accessories 4 NM NM NM

Banking 10 8.21 8.30 1.10%

Commercial & Services 9 8.79 8.70 -1.02%

Construction & Allied 5 12.48 12.31 -1.36%

Energy & Petroleum 4 7.25 7.28 0.41%

Insurance 6 11.09 11.05 -0.36%

Investment 4 10.20 9.98 -2.16%

Manufacturing & Allied 9 15.02 15.16 0.93%

Telecommunication & Technology 2 12.78 12.63 -1.17%

Main Market P/E 60 10.04 10.06 0.20%

Sector Constituents % Change

Source: NSE

Foreign Investor Activity

Total foreign investor equity turnover as a percentage of the total NSE turnover increased to 73.01% this

week compared to 63.52% at the close of the previous week.

Total net inflows at the end of the week stood at Kes.215.8Mn compared to Kes.308Mn last week.

Table 6: Weekly Foreign Equity Turnover Summary (Fig in KES)

Day Buy Sell Net Inflows

(Outflows)

Total NSE

Turnover

Foreign T/O (% of

Total NSE (T/O)

Mon 118,317,230.00 57,835,415.00 60,481,815.00 295,338,791.00 59.64%

Tue 238,675,690.00 122,226,715.00 116,448,975.00 577,366,452.00 62.51%

Wed 250,332,185.00 255,629,627.50 -5,297,442.50 720,291,542.00 70.24%

Thur 447,160,027.50 418,725,467.50 28,434,560.00 1,020,917,845.00 84.81%

Fri 160,211,732.50 144,528,152.50 15,683,580.00 418,217,732.00 72.87%

TOTAL 1,214,696,865.00 998,945,377.50 215,751,487.50 3,032,132,362.00 73.01%

Source: NSE & Genghis Capital Dealers

Foreign Turnover on the top 5 traded counters accounted for 69% of the total weekly foreign investor

activity at the close of Week 40 compared to 64% in Week 39.

The purchase activity on these counters accounted for 91% of the total foreign buying activity on the NSE

this week. The most actively bought counter was East African Breweries Ltd (NSE: EABL).


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Table 7: Top 5 Foreign Traded Counters - Week 39 (Fig in KES)

Equity Buy Sell Net Inflows

(Outflows)

Total Weekly

Turnover

East African Breweries Ltd 629,482,450.00 611,731,550.00 17,750,900.00 1,241,214,000.00

Kenya Commercial Bank Ltd 318,537,700.00 218,226,162.50 100,311,537.50 536,763,862.50

Equity Bank Ltd 61,635,137.50 94,266,887.50 -32,631,750.00 155,902,025.00

Safaricom Ltd 61,848,987.50 37,042,610.00 24,806,377.50 98,891,597.50

British American Tobacco Ltd 38,934,200.00 6,751,000.00 32,183,200.00 45,685,200.00

TOTAL 1,110,438,475.00 968,018,210.00 142,420,265.00 2,078,456,685.00

Source: NSE & Genghis Capital Dealers

Trading Ideas:

The table below shows the performance of selected stocks that Genghis Capital recommended so far in the year 2012.

Table 8: Equity Picks (Fig in KES)

CompanyPrice at

Recommendation

12 Month

Target PriceCurrent Price

Upside

Potential

Return to

DateRecommendation

Centum Investments Ltd 14.55 19.55 11.95 38.87% -17.87% BUY

Equity Bank Limited 15.80 19.90 23.50 -18.09% 48.73% SELL

KenolKobil Limited 9.80 16.90 15.00 11.24% 53.06% HOLD

NIC Bank Limited 26.50 45.50 35.50 21.98% 33.96% BUY

EA Cables Ltd 11.80 14.55 11.10 23.71% -5.93% BUY

Athi River Mining Ltd 156.00 198.50 223.00 -12.34% 42.95% HOLD

Diamond Trust Bank Ltd 88.50 123.40 116.00 6.00% 31.07% BUY

KCB Group Ltd 18.50 27.10 28.00 -3.32% 51.35% HOLD

Uchumi Supermarkets Ltd 7.20 17.25 18.25 -5.80% 153.47% HOLD

Kenya Power & Lighting Co. 15.85 22.00 17.95 18.41% 13.25% BUY

Nation Media Group Ltd 153.00 197.70 212.00 -7.23% 38.56% HOLD

British American Investments 4.00 6.25 6.40 -2.40% 60.00% HOLD

Bamburi Cement Ltd 168.00 201.00 167.00 16.92% -0.60% BUY

Cooperative Bank Limited 11.55 18.50 11.95 35.41% 3.46% BUY

Kenya Reinsurance Corp. 10.05 15.35 12.05 21.50% 19.90% BUY

KenGen Ltd 8.30 16.25 8.65 46.77% 4.22% BUY

Jubilee Holdings Ltd 163.00 186.00 166.00 10.75% 1.84% HOLD

Housing Finance Ltd 13.65 27.00 14.60 45.93% 6.96% BUY

Scangroup Ltd 49.25 59.60 57.50 3.52% 16.75% HOLD

Portfolio Return 29.22%



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Genghis Index:

Table 10: Investors’ Diary


Date Firm/Body Description

8th October CFC Last Day – Trading in Renounceable Rights

9th October SCBK First Day – Trading in Renounceable Rights

10th October CBK 182-Day T-bill Auction

11th October CBK 91-Day T-Bill Auction

12th October JUB Payment: Interim Dividend Kes.1.00

12th October BAMB Payment: Interim Dividend Kes.2.00

Table 9: Genghis Index Performance

Large-Cap Index

The index closed 0.38% higher in terms of price

performance with market capitalization following suit to

Kes. 998Bn.

Diamond Trust Bank Kenya Ltd (NSE: DTK) was the

segment’s best performing counter +4.50% - VWAP

Kes.116.

Mumias Sugar Co. Ltd (NSE: MSC) closed 4.65% lower at

VWAP 6.15.

Mid-Cap Index

Price performance shed 0.18% this week with market

capitalization down to Kes.140Bn.

B.O.C Kenya Ltd (NSE: BOC) was the segment’s best

performer up 9.80% - VWAP Kes.112.

E.A Portland Cement Company Ltd (NSE: PORT) was the

sector’s worst performing stock shedding 7.21% to close

with a VWAP of Kes.48.25.

Small-Cap Index

Crown Paints Kenya Ltd (NSE: BERG) was the segment’s

best performer advancing 9.35% to VWAP Kes.38.00.

Longhorn Kenya Ltd (NSE: LKL) was the worst

performing stock -18.28% VWAP Kes.11.40.


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Fixed Income:

Uptick in Yields to Sustain…

Money Markets: Data from the CBK indicated that the average interbank rate closed the week

higher at 9.0532% compared to 8.3121% at the close of the previous week.

Primary Markets: The results of the 91, 182 and 364-Day T-Bill auctions for this week are shown

below. All the papers were undersubscribed as shown below. The regulator intends to raise

Kes.8Bn this week as it auctions the 91 and 182-Day T-Bills.

Table 11: Week 39 Auction Results

Weighted Avg. Rate

Tenor Last Latest Change (bps) Subscription Rate

91 Day 8.093% 8.439% 34.60 63%*

182 Day 9.888% 10.194% 30.60 91%*

364 Day 10.336% 10.570% 23.40 63%

Source: CBK, Genghis Capital *absolute terms

Secondary Markets: A relatively flat performance in the bond market as turnover marginally

slipped 0.28% to Kes.16.77Bn in turnover from last week’s close of Kes16.81Bn. The 15-Yr bonds

accounted for 35% of the total turnover at Kes.5.80Bn in 67 trades.

Table 7: Short -Term Interest Rates, Treasury Notes & CD’s

Tenor Kenya Uganda Tanzania U.S LIBOR (USD)

91 Day 8.09% 9.67% 12.45% 0.09% 0.35%

182 Day 9.89% 10.66% 13.01% 0.13% 0.63%

1 Year 10.57% 10.69% 13.76% 0.15% 0.97%

2 Year 11.11% 14.84% 13.81% 0.23% --

5 Year 11.86% 13.91% 14.49% 0.61% --

10 Year 12.71% 15.28% 14.99% 1.62% --

Source: CBK, BOU, BOT, US Treasury, BBA, Genghis Capital


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Table 13: Fixed Income Gross Cash-Flows for the Month of October:

Source: CBK, NSE, Genghis Capital Estimates C- Coupon, P – Principal

NSE Yield Curve – Emergence of a flat Yield Curve as yields on the Short Term Paper have taken a dip in recent auctions with long dated

paper remaining stagnated.

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

6-Jan-12 31-Aug-12

Issue No. Govies

Cash Flow Due Date* Issued

Amount Coupon (%)

Gross - MM

FXD 1/2006/9 C 15-Oct-2012 3,060.25 13.50% 206.57

FXD 1/2007/10 C 22-Oct-2012 9,308.80 10.75% 500.35

FXD 1/2009/10 C 22-Oct-2012 4,966.85 10.75% 266.97

FXD 1/2010/10 C 22-Oct-2012 5,895.64 10.75% 316.89

FXD 1/2009/15 C 22-Oct-2012 9,420.45 12.50% 588.78

FXD 1/2007/6 C 22-Oct-2012 5,948.00 11.50% 342.01

FXD 2/2008/5 C 22-Oct-2012 4,095.80 9.50% 194.55

FXD 2/2011/2 C 22-Oct-2012 6,695.71 7.439% 249.05

FXD 4/2008/5 C 22-Oct-2012 10,007.50 9.50% 475.36

FXD 1/2012/2 C 29-Oct-2012 6,468.62 13.826% 447.18

FXD 2/2010/10 C 29-Oct-2012 14,462.47 9.307% 673.01

Evolution of the Yield Curve 13/01/2012 to 31/08/2012


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Currency

Tea Export Inflows Cushion the KES…

Performance: The KES was relatively stable in the week supported by tea export inflows and low dollar demand.

The national currency largest gain was in the ZAR/KES pair +4.77% with further gains achieved in the GBP/KES pair

+2.14% and KES/UGX +0.85%. The largest slip was recorded in the INR/KES pair -1.58% with the sentiment echoed in

the KES/TZS pair down 0.54%. TAD maturities coupled with a decline in tourist arrivals could pose a downside risk

for the KES. Reforms in the insurance and pension sector are a boost to the Indian economy thou opponents

against the reforms bring a sense of uncertainty posing a higher volatility risk.

Table 14: Spot & Select Forward Ask Rates

Outright Forward Rates (Ask)

Pair/Cross Week 39 Week 40 Annualized

Volatility* 1M 2M 3M 6M

USD/KES 84.01

85.00

2.94% 85.75 86.62 87.35 89.84

GBP/KES 140.67 1137.65 17.84% 138.60 140.29 140.63 144.20

EUR/KES 110.15 110.61 10.12% 111.42 112.83 113.16 116.18

ZAR/KES 10.38 9.89 2.92% - - - -

KES/UGX 29.80 30.05 5.44% - - - -

KES/TZS 18.45 18.38 8.44% - - - -

INR/KES 1.61 1.64 10.32% - - - -

Source: CBK, Bloomberg, Genghis Capital Estimates *5 Day Annualized

Technical Analysis and Outlook: The Ichimoku chart below outlines the 1-Yr performance of the EURKES

currency pair. In majority of the period, the conversion line was below the Base line thus the huge pressure

on the EUR. The conversion line recently broke the Base line from below indicating strengthening of the EUR

against the KES.


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Commodities

Brent Oil Posts 2% Weekly Loss…

Oil/Fuel: On a volatile week, oil prices closed marginally lower (0.33%) at USD112.02. The pressure due to a

fragile global economy as the statistics amplified the situation, uncertainty surrounding the Eurozone

specifically the debt crisis and the scepticism surrounding the latest US employment report. The US

government looks set to extending further sanctions on Iran will have an effect on the oil price.


12


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Contacts Report By: Moses Waireri,Research Analyst | Tel:+254 20 2774781 | Email: [email protected]

Report By: Evelyne Wanjiku, Research Analyst | Tel:+254 20 2774781 | Email: [email protected] Anthony Kimani, Research Analyst | Tel:+254 20 2774781 | Email: [email protected]

Carol Matu, Head Dealer | Tel: +254 20 2774789 | Email: [email protected] Gachanja Weru, Fixed Income Dealer| Tel:+25420 2774756 | Email: [email protected]

George Guy,Fixed Income Dealer | Tel:+254 20 2774756| Mob: +254 727 142231 | Email: [email protected] Nyawira Waithaka, Equity Dealer | Tel:+254 20 2774777 | Mob: +254 723 693481 | Email: [email protected] Andrew Maina, Senior Equity Dealer | Tel:+254 20 2774789 | Mob: +254 722 667936 | Email: [email protected]

Disclaimer: The content provided on this document is provided as general information and does not constitute advice or recommendation by Genghis Capital

Ltd and should not be relied upon for investment decisions or any other matter and that this document does not constitute a distribution recommending the

purchase or sale of any security or portfolio. Please note that past performance is no indication of future results. The ideas expressed in the document are

solely the opinions of the author at the time of publication and are subject to change without notice. Although the author has made every effort to provide

accurate information at the date of publication all information available in this report is provided without any express or implied warranty of any kind as to

its correctness. You should consult your own independent financial adviser to obtain professional advice before exercising any decisions based on the

information present in this document. Any action that you take as a result of this information, analysis, or advertisement is ultimately your responsibility.

Genghis Capital Ltd, Prudential Assurance Building, Wabera Street, Nairobi. Tel: +254 20 2774760Fax: +254 20 246334

mailto:[email protected]

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Genghis Capital - Weekly Market Monitor - Week 40