Category Archives: bank shares

Nairobi investment tips from Genghis for 2020

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

See last year’s picks by Genghis.

EDIT : On June 4, 2020, Genghis Capital announced a partnership with EGM Securities, to offer investors a wider range of alternative asset classes including online currencies, commodities, precious metals, oil, and biotech company stocks.

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. 

Interest Cap Impact and Bank Resilience

The end of August marks the deadline for Kenyan banks to publish their unaudited half-year results (January to June 2017). Those of most banks are done and there are some trends, some concerns and some resilience areas seen in what’s been a challenging year for the sector that has for a long time been seen as one that earns super-profits for its shareholders.
The interest rate capping bill was signed last August, and while its initial impact was not fully seen in the 2016 results, one year later these can now be interpreted. The law has had far-reaching impacts on different banks, their performance, operations and strategic directions. Overall, there has been a decline in bank results due to a mix of interest rate caps and digitization, as phones have taken over from branches as the main point for the bulk of customer transactions.
Some observations: 
  • Less traditional banking: there has been a decline in assets as more banks have turned to digitization to cut costs, and increase efficiency. At Equity, deposits were flat between March and June, which also marked the third straight quarter of overall loan declines
  • Lower interest income: e.g. 45% down at Family Bank, plunging it to a half-year loss
  • A buildup of government debt: Equity now has Kshs 105 billion, KCB 100 billion, and Diamond Trust 83 billion.
  • More closure of branches e.g. Barclays, Standard Chartered, Bank of Africa and Ecobank. But it’s not all gloom as some banks like Cooperative and Diamond Trust have announced plans to open new branches.
  • Job cuts have been announced at KCB, Standard Chartered, Barclays, Family Bank, National Bank of Kenya, NIC Bank, Ecobank, Bank of Africa, First Community Bank and Sidian Bank.
  • With nowhere to go, banks are giving money back to shareholders. Some banks have reduced capital, while KCB with profit flat at the half-year will pay a rare interim dividend confirming analysts’ view that some banks will return more capital to shareholders at a time when they have curtailed lending to riskier customers. 
  • Big banks are okay, small ones, not so much:

  • Losses, not profits. E.g. Family and Sidian, went into the red at the half year, despite layoffs and closures, while Ecobank managed to stay above water. These have mainly been attributed to reduced interest income.
  • Declines in loans and deposits at tier ii banks, and T1 equity
  • Mortgage declines: Buy Rent Kenya said that there has been a major drop in the number of mortgage applications over the past year and that those that the cap was meant for are currently the biggest losers as banks are skeptical to give credit to most individuals as they now have numerous terms and conditions that are not easy to meet.
  • Local banks converting debt to equity at Kenya Airways: This has been a reluctant move, with three banks delaying the Ksh 23 billion conversion that will see a consortium of Kenyan banks become the second largest shareholder at the airline.
  • Equity announced they will no longer lend unsecured loans to salaried Kenyans, cutting off a product feature that has brought them great popularity.
  • New business lines:  Banks have looked to other sources of income this year. Co-operative Bank which has net interest income and pre-tax profit that was down 10% in the half-year, received regulatory approval from the Central Bank of Kenya to enter into a joint venture with Super Group, a leading South African leasing company and together they will target major infrastructure projects, government vehicle leasing, oil & gas exploration, and other leasing opportunities. Elsewhere, National Bank entered a partnership with World Remit to allow remittances to be paid directly into bank accounts at NBK, Barclays is funding solar mini-grids in Turkana while Standard Chartered bucked the trend on Equity and will step up unsecured lending. 
  • Non performing loans (NPA’s) are up: At NBK, they are up to 29 billion, half the 57 billion loan book. NBK is awaiting a Kshs 2.9 billion NSSF (shareholder) loan to shore up capital.
  • NPA’s have also gone along with increased provisions e.g. 1.8 billion at Stanbic at the half-year.

Sidian Bank is Born

Last week saw the rebranding of K-Rep bank into Sidian Bank. This followed the acquisition of acquiring a majority 66% in K-Rep bank by NSE-listed investment firm, Centum Investments (through Bakki Holdco), for about Kshs 2.3 billion, in November 2014.

As Sidian, the 32-year-old bank will take on a new direction with a focus on entrepreneurs, and with the tagline #OwnTomorrow that’s rolling out at it’s 37 branches.

Managing Director, Titus Karanja, explained that the name Sidian, was inspired by the Obsidian rock, which was one of the first commodities used in barter trade – by the Mayans in middle America.

Centum now has 16 subsidiaries.

$1 = Kshs 90 in November 2014.

Edit August 2024.

In January 2023 a deal by Access Bank to buy Sidian from Centum lapsed and was terminated.

Thereafter, in October 2023, other shareholders exercised preemptive rights and acquired 38.91% of Sidian.

In August 2024, Sidian’s six shareholders are Bakki Holdco (i.e. Centum) with 40.03%, Pioneer General Insurance (24.80%), Wizpro Enterprises (18.27%), Afram (7.91%), Telesec Africa (4.50%) and Pioneer Life Investments with 4.49%.

Centum disclosed that it has realised Kshs 3.2 billion from the partial sale of the bank.

Diamond Trust: Fourth Rights

Diamond Trust Bank is back for a fourth rights issue in recent years from its 11,136 shareholders at a rate of (Kshs 165) $1.95 per share, with each shareholder entitled to buy 1 share for every 10 held. This follows others done in 2006, 2007,  2012  and now this one.
Contrasting the four issues 
Year – Nov-06 ; Nov-07 ;  Jul-12 : Jul-14
Target (Kshs M) – 735 ; 1,600 ; 1,809 : 3,631
New shares (M) – 15.5 ; 23.3 ; 24.4 : 22.0
Price (Kshs)  – 50 ; 70 ; 74 ; 165
Ratio  –  1:8 ; 1;6 ; 1;8 : 1:10
Budget (Kshs M) 41.6 ;  54.7 ; 57.6: 100.1
  • The IFC remains as a principal funder and shareholder for the bank.
  • Diversification has paid off with the bank having 30% of assets and 19% of profits from outside Kenya. While 77% of Diamond Trust’s $61 million after-tax profit is from Kenya, the Tanzania and Uganda operations contributed about $7 million each of profit with Burundi trailing at ~$150,000 
  • They have extended traditional banking services in the mobile and card age by having M-Pesa at all their ATM machines. They also issue prepaid cards  for NationHela, NakumattGlobal and MiCard and handle remittances/money transfer for WesternUnion, MoneyGram and XpressMoney
  • Other institutions that may need to have rights issues or raise capital this year include ABC, Commercial Bank of Africa, Consolidated and Equatorial banks.