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.
The Capital Markets Authority of Kenya formally launched the 2018 Universities Challenge at KICC in Nairobi on September 25, which aims to equip young people with investment skills and nurture a culture of financial literacy and investing and saving for the future through participation in capital markets.
The 2018 edition of the Universities Challenge, which runs from September 25 to December 31, will feature 6,015 participating students from 37 local universities. They will go through five stages of elimination through testing their financial literacy and knowledge, starting with an online exam, followed by a stage dubbed a “scavenger hunt”, then they will make presentations at universities followed by presentations to CMA staff. There will then be a grand finale event in Nairobi where twelve top students will get to pitch to investment stakeholders, CMA staff and representatives of all universities in the challenge.
Speaking at the launch, CMA CEO Paul Muthaura, said that the average age of entrants was 23 years and that this was as a result of them targeting ongoing students and make them young investors because of the long-term nature of capital markets investments. Also that the use of technology was part of the CMA’s engagement process of expanding financial literacy as well as to transform the visibility of the authority through social media. He added that the CMA was in the middle of implementing a ten-year master plan and had won several awards for being among the most innovative market regulators in Africa.
The winner of the 2018 inter-university competition will get a grand prize of a Kshs 150,000 (~$1,500) portfolio of listed securities of their choice and the university where the student comes from will get investment textbooks worth Kshs 75,000 for its library. Three other winners will get fully paid 3-day educational trips to observe a securities exchange and capital markets regulator in Africa.
What can shares worth Kshs. 150,000 do for your life? How about a trip to a foreign country? How about rewarding your university with books worth Kshs.75, 000? And what about being a guru in investing in the capital markets?
This is what is at stake for the winner of the Capital Markets Authority’s University Challenge 2018. The Challenge is open for undergraduate university students in universities that have confirmed participation. Register for this Challenge from 8th August 2018 to 22nd August 2018. Check the CMA website and social media pages for further details on the University Challenge registration process.
Comparing performance to six months ago a year ago, this portfolio is down 4% mainly due to shares sales, while the while the NSE 20 share index is down 7% from August 2017.
CIC Insurance ↓
Diamond Trust ↑
Kenya Airways ↑*
Stanbic (Uganda) ↑
Out: Bralirwa, at a 55% gain since buying in the Bralirwa IPO in 2011.edit TPSEA (Serena)
Best performer: Kenya Airways* (shares were diluted four times, price is up 235% from six months ago), Serena (up 36%), Diamond Trust 8%
Worst performer(s): Unga down 12%, CIC down 10% from six months ago)
Unexpected Events: (1) The offer by Seaboard to buy and de-list Unga (2) Kenya Airways restructuring impact on retail shareholders(3) Kenya bank shares resilience in their share prices even with concerns about their earnings growth in the era of interest rate caps.
Looking Forward to: (1) Banks expect interest rate caps to be re-assessed in 2018 (results in February 2018 (2) More infrastructure bonds from the government like M-Akiba (3) CIC developing a mixed-use project (Residential, commercial, educational, and recreational units) on 200 acres near Tatu City, Kiambu.
Kenya’s National Social Security Fund (NSSF) published their financial accounts in the newspapers last week after they were earlier gazetted.
The Kshs 174 billion statutory fund, had income in the year to June 2016 of Kshs 10.7 billion which was down from 19.3 billion the year before. The was after the fund received 12.8 billion of contributions from members (up from 11.7 billion) and paid out 3.1 billion. They had investment income of Kshs 12.8 billion, and paid administrative expenses of Kshs 5.5 billion leaving a surplus for the year of Kshs 5.2 billion, and which was down from 13.2 billion in 2015.
In terms of assets, they have quoted shares of Kshs 49 billion (down from 57 billion in 2015), treasury/infrastructure bonds of 52 billion, 8.9 billion of corporate bonds, undeveloped land of 9 billion and buildings/ land of Kshs 19.9 billion.
Top shares in the NSSF Kshs 49 billion quoted investments portfolio include 25 million EABL shares (worth 6.9 billion shillings), 320 million Safaricom shares worth 5.6B, 116 million Britam worth 5.6B, 185 million KCB shares worth 6.2 billion, 88 million Equity Bank worth 3.4 billion, 3.2 million BAT worth 2.6 billion and 56 million Bamburi Cement shares worth 9.6 billion. NSSF also owns 24 million EAPCC shares worth Kshs 868 million and 148 million National Bank (NBK) shares worth 1.4 billion.
In the 1990’s the fund was sold illiquid plots at inflated prices and in the 2000’s, it deposited some funds in shaky banks that collapsed soon after. They still have a few issues with land, and the undeveloped land assets of the NSSF include 3.2 billion worth of plots at Mavoko and a Kshs 3.5 billion plot on Kenyatta Avenue in Nairobi.
The NSSF accounts were audited, by the Office of the Auditor General of Kenya (OAG) who qualified the accounts of the fund owing to some issue including
- Unremitted contributions; A sample of 20 employers found that they had not remitted Kshs 755 million of deductions to the NSSF.
- Another 764 million of contributions were held in suspense accounts.
- Hazina Plaza/Polana Hotel Mombasa had rent owed to the NSSF of 239 million.
- Milimani Plots at Kisumu where a Kshs 178 million estate that brings no income.
Other issues flagged included:
- The stalled Hazina Trade Centre in Nairobi, which remains 38% complete with construction having been halted after Nakumatt Supermarkets who have a branch in the building had refused to give the contractor (China Jiangxi) access to the basement where they were to provide reinforcement to pillars of the building. The OAG recommended that the NSSF take legal action against Nakumatt in order to complete the Kshs 6.7 billion construction.
NSSF new rates
NSSF budgeted income for the year was Kshs 44 billion, but only 10.8 billion was raised; This was partly due to poor performance of the portfolio of shares listed at the NSE, but also due to non-implementation of changes to the NSSF act which would have seen increased contributions from members into the scheme.
- Illegal transfer of a plot of land from the NSSF to Kenya’s Judiciary, and works at Nyayo estate at Embakasi.
$1 = ~Kshs 100