Genghis Stock Picks for 2019

Nairobi-based investment bank Genghis Capital launched their 2019 “investor playbook” with the theme of embracing value. 2018 was a challenging year for the Kenyan economy and capital markets and that is expected to continue in 2019, but this also presents opportunities for investors.

Kenya has a relatively small number of stocks (65) on the Nairobi Stock Exchange (NSE) – and Genghis chose nine stocks as their 2019 financial (banking & insurance) and non-financial picks for investors, in three categories:

  • Momentum stocks: Equity Bank, East African Breweries, KCB Group, Safaricom.
  • Income stocks: Stanbic, Barclays Kenya, Standard Chartered, KCB. 
  • Value stocks: Kenya Reinsurance, KCB, Bamburi Cement. 

They cited that Safaricom scored positively in every category while KCB and Equity banks had embraced digitization, high asset quality and low cost structures.

Other points from the playbook launch presentation:

  • They do not expect a repeal of interest rate caps this year, even though its impact has been negative on the economy.
  • Funds raised for infrastructure bonds are not all being used for that; some are going to retire other debts and they should be properly used
  • Public-private partnerships are not coming to fruition; paperwork for the Nairobi-Nakuru highway was submitted in April 2018 but there has been no decision.
  • To a question – “what is the regulator doing to increase the confidence of investors amid fraud incidents?” – the CMA can only do so much and the onus is still on the company directors. International markets have graver penalties than Kenya and perhaps it is time the Director of Public Prosecutions started looking at some cases here and following through on enforcement. 
  • While Kenya Re is a pick in the playbook, they generally don’t cover the insurance sector – it has challenges including fraud, price under-cutting, and low penetration levels (3%) and a lot has to happen to unlock value and growth in the insurance mass market. Kenya Re is there because it is under-valued (owing to lack of clear strategy and proper management) but would be desirable to other insurance investors if the government decided to sell its shareholding.
  • They expect one main listing and others on the smaller NSE boards this year. But while a number of planned privatizations have been mentioned  – Consolidated and Development banks, Kenya Pipeline, Kenya Ports they face numerous hurdles while others like sugar companies in Western Kenya have been on the pipeline since 2011. 

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