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Recent Topicals

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Probable Direction of Kenya Equities Market in 2017

Jan 22, 2017

In our topical “Probable Direction of Equities Market in 2016”, we analyzed the trend in the local equities market and the factors that determine the stock market performance in an effort to forecast the direction of the equities market. The Kenyan Equities market saw a year of poor performance in 2016 with NASI, NSE 20 and NSE 25 losing 8.5%, 21.1% and 15.8%, respectively. So far the market has continued with its downward trend with NASI, NSE 20 and NSE 25 having lost 7.0%, 8.5% and 8.5%, respectively on a year to date. Since the inception of the all share index in 2008, valuations, as measured by price to earnings ratio (“PE”), have peaked twice; once in August 2010 and the other in February 2015. Since the August 2010 peak of 19.6x, prices went on a downward spiral for 16-months to hit a low of 8.3x in December 2011, registering an annualized loss of 47.5% over the 16-month decline period. The market then picked up with prices rising for a period of 38-month...

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The Competition Authority of Kenya approves Kuramo Capital Management’s investment in Trans-Century

Dec 19, 2016

The Competition Authority of Kenya has approved Kuramo Capital Management’s acquisition of a 24.99% stake in Trans-Century Limited through issue of 93.8 mn new ordinary shares and 70,120 cumulative preference shares i.e. 100% of the redeemable preference shares, in TC Mauritius Holdings. This follows Kuramo Capital’s USD 20 mn convertible debt investment into the company to assist in refinancing TC Mauritius Holdings’ Limited Senior Unsecured Convertible Bond of USD 60.3 mn.This is a positive move as (i) it brings on board a key strategic partner that has the same focus as Trans-Century, and this will drive growth and investment in region, thereby maximizing shareholder value, (ii) with the introduction of Kuramo Capital into Trans-Century’s board, there will be an improvement in corporate governance structure, as a number of transactions can’t be carried out without their explicit approval, including limits on issuance of debt, and equity, and entering into any related-party...

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Kenyan Debt Sustainability

Dec 11, 2016

There has been a lot of discussion on whether Kenya as a country is able to sustain the current debt levels and as to whether the economy has the capacity to service the outstanding government debt. This week, we seek to look at the status of the debt level and what this means for the economy.Over the years, we have seen the national budget continue to grow with the total expenditures growing at an average of 15.4% to Kshs 2.0 tn in 2015/16 from 977.0 bn in 2010/11, while revenue growth (KRA Tax collections) has increased by 14.2% to Kshs 1.3 tn in 2015/16 from Kshs 670.0 bn in 2010/11 meaning that the difference has been funded through borrowing. This has led to an increase in the debt level from 40.7% debt to GDP in 2011 to the current level of 50.3%. According to the IMF, the target debt to GDP for developing countries should be at or below 50%, meaning that the current debt level in the country has surpassed the standard set by the global lender, and this may pose fiscal...

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Equator Capital Partners invests in Jamii Bora Bank

Dec 7, 2016

Equator Capital Partners, a US based private equity fund, has invested Kshs 600 mn through its ShoreCap II fund into Jamii Bora Bank, for an equity stake of 15%. The investment is by way of conversion into equity of a convertible debt Equator Capital Partners held of Jamii Bora Bank. As per our Cytonn Weekly #15, total debt was provided by Equator Capital Partners and Progression Capital Africa Limited of Kshs 1.2 bn, which was to be used to grow Jamii Bora Bank’s rural and urban network and also increase its capacity to lend to the SME sector, as part of their Kshs 5.0 bn financing plan. Jamii Bora Bank, a Tier III bank, has a customer base of 400,000 customers and a network of 26 branches, and is ranked 25th out of 41 banks in Kenya with a market share of 0.5%. Earlier in the year, the bank looked to raise Kshs 5.0 bn in a mix...

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Kenya Banking Sector Q3’2016 Report

Dec 4, 2016

Following the release of the Q3’2016 results by banks, we undertook an analysis on the Kenyan Banking sector to point out any material changes from the H1’2016 Banking Report. In our Q3’2016 Banking Report, we analyse the results of the listed banks in the past quarter so as to determine which banks are the most attractive and stable for investment from a franchise value and from a future growth opportunity perspective.The report is themed “Transition continues, to a more stable sector, in an era of increased regulation” as the issues facing the banking sector in Kenya persist. There are some key areas of transition, which will change the banking landscape in Kenya going forward: Consolidation – Consolidation in the banking sector continues to gather pace, with weaker banks being for...

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