Genghis Capital has launched its 2020 investment playbook with the theme “harnessing value” after a year in which the Nairobi Securities Exchange (NSE) all share-index had gained 18% compared to a loss of 18% in 2018.
Top gaining shares in 2019 were led by Sameer Africa which rose 86%, then Equity Group 53%, Longhorn Publishers 46%, KCB 44% and Safaricom 42%. Shares on the bottom side were Kenya Airways which lost 77%, then Uchumi Supermarkets -63% and Mumias Sugar -43%.
The playbook has a summary of 2019 whose gains were largely due to Safaricom and bank shares, and some of the year’s top deals which included the bank mergers of CBA & NIC and KCB & NBK. Other highlights of the year were the launch of derivative futures and the NSE Ibuka program which has uncovered some promising companies. It also notes the suspension of Mumias which joined Deacons and Athi River Mining as other shares in limbo.
Outlook for 2020: The report includes a macroeconomic outlook for the country this year during which they expect aggressive domestic borrowing by the government, and the Kenya shilling to range between 100 – 104 against the US dollar. They have also factored in the possibility of another Kenya political referendum happening during 2020.
Going forward, they expect that bank shares will do well, but that other equities will struggle this year. They look forward to the opportunity that derivatives have brought of diversification with lower trading costs but note that there is a need to have a market-maker to resolve some liquidity difficulties of trading derivatives.
They also note that the main shareholders at Unga and Express may try again to delist their company shares and take advantage of a new rule that reduces the takeover threshold requirement from being approval by 90% of shareholders to just 50%. Genghis also expect that the nationalization of Kenya Airways will be completed in 2020.
Genghis picks and recommendations:
- Momentum shares are Equity, EABL, KCB, Safaricom.
- Income Shares are KCB, Barclays, Co-op Bank, Stanchart, KenGen.
- Value shares are EABL KenGen, Kenya Re.
- Buy (expect gains of more than 15%) EABL, Kengen, Kenya Re, KCB, NCBA, and Diamond Trust.
- Hold (expect changes of between -15% to +14% over the next 12 months) Safaricom, Standard Chartered, Barclays, Equity, Cooperative, Stanbic, and I&M.
- Sell Recommendation: N/A