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Weekly Market Monitor - No. 01

Weekly Market Monitor - No. 34/2012

Genghis Capital Research: Equities, Fixed Income, Currency, Commodities

Genghis Capital Research: Equities, Fixed Income, Currency, Commodities

Themes: Momentum Building, Yield Upturn, Transmission of Global Uncertainty & Risks... Equities: NSE Building Up to Propel? Fixed Income: Oversubscription Depresses Yields Currency: KES Echoes Last Weeks Performance Commodities: Oil Price Rebounds on Tropical Storms 3 8 10 11

Weekly Market Monitor - No. 34

Executive Summary Themes: Momentum Building, Yield Upturn, Transmission of Global Uncertainty & Risks... Equities: NSE Building Up to Propel? Pressure extended even further into the week but the NSE was resilient closing 12.79 points higher at 3826. The NASI maintained its growth momentum up 0.17 points in the week. The other indices were relatively flat with the FTSE 15 shedding 0.27 points but the FTSE 25 closed 0.47 points higher. Equity turnover was largely flat at just over Kes.1Bn while Market Capitalisation closed marginally north of Kes.1Tn. Fixed Income: Oversubscription Depresses YieldsThe 91 and 182 Day T-Bill auctions this week showed a further decrease in yields to 8.58% and 10.03%. Both papers were oversubscribed with the 91-Day T-Bill at 242% and the 182-Day at 125%. Currency: KES Echoes Last Weeks Performance Support from Bond Inflows and Export Inflows supported the KES in the week ensuring marginal losses. These losses were recorded in the majors with the KES slipping 0.88% vs. EURO, down 0.35 vs. USD and -0.15% vs. GBP. The highest gain of 2.43% was recorded in the KESUGX pair, +1.76% in the ZARKES pair with marginal gains of 0.34% in both the KESTZS and INRKES pairs. Commodities: Oil Price Rebounds on Tropical Storms Not only are geopolitical tensions pushing up oil prices but the brewing storm along the US Gulf Coast poses further threat to Black Golds prices. Reduced supply caused by the Iran sanctions only compounds to the problem. Investors have turned to profit taking to take advantage of the price disparity.

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Equities: NSE Building Up to Propel? Pressure extended even further into the week but the NSE was resilient closing 12.79 points higher at 3826. The NASI maintained its growth momentum up 0.17 points in the week. The other indices were relatively flat with the FTSE 15 shedding 0.27 points but the FTSE 25 closed 0.47 points higher. Local investors dominated trades in the week accounting for 62% with foreign investors maintaining their overall positive stance at Kes.14Mn albeit heavy pressure from profit taking activities. Equity turnover was largely flat at just over Kes.1Bn while Market Capitalisation closed marginally north of Kes.1Tn. "All intelligent investing is value investing -- acquiring more that you are paying for. You must value the business in order to value the stock." - Charlie Munger, Business Magnate, Vice Chair Berkshire Hathaway and Investor. This weeks trading highlights are summarized below: Table 1: NSE Performance Table 2: NSE Index Performance, Turnover

NSE 20 Share Index, Equity Turnover

4,800 4,600 4,400 4,200 4,000 3,800 3,600 3,400 3,200 3,000 2,800 3-Jan-11 3-Mar-11 3-May-11 3-Jul-11 3-Sep-11 3-Nov-11 3-Jan-12 3-Mar-12 3-May-12 3-Jul-12
Equity Turnover NSE 20 Share Index

1,930,000,000 1,730,000,000 1,530,000,000 1,330,000,000 1,130,000,000 930,000,000 730,000,000 530,000,000 330,000,000 130,000,000

Chart 2: Captures the trend of the Nairobi Stock Exchange NSE 20 Share Index vs. Equity Turnover.

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Table 3: NSE Performance

Market Cap. (Kes.Bn) Equity T/O: (Kes.Mn) Bond T/O: (Kes.Mn)

Source: NSE, Genghis Capital

Week 33 1,104.29 1,031.89 11,157.80

Week 34 1,106.54 1,027.38 18,556.45

% Change 0.20% -0.44% 66.31%

Our weekly segmental analysis (Table 4) shows a bearish performance from majority of the sectors slipping versus 4 sectors gaining value. The market as a whole was depressed 0.16%. The Commercial & Services segment was the best performing segment this week gaining 2.47%. This performance was largely down to TPS Eastern Africa Ltd (NSE: TPSE) +7.89% to VWAP Kes. 41.00. The Agricultural segment was at the bottom declining by 2.20%. Williamson Tea Kenya Ltd (NSE: WTK) was down 7.35% to close at Kes.227.

NSE Segment Performance

Table 4: Weekly Segmental Price Performance Analysis

Source: NSE & Genghis Capital

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NSE P/E Analysis Three segments moved into value territory in the week. The market maintained its march into value territory down a further 2.71%. The pressure from distribution activity extended in the week though there are indications of abating downside heaviness.

Table 5: NSE P/E Analysis

Sector Agricultural Automobiles & Accessories Banking Commercial & Services Construction & Allied Energy & Petroleum Insurance Investment Manufacturing & Allied Telecommunication & Technology Main Market P/E
Source: NSE

Constituents 7 4 10 9 5 4 6 4 9 2 59

Sector P/E Sector P/E Week 33 Week 34 3.86 3.77 NM NM 7.74 7.76 8.49 8.68 12.37 12.59 7.41 7.53 10.79 10.81 10.49 18.62 11.70 9.98 10.30 14.32 12.16 9.71

% Change -2.33% NM 0.26% 2.24% 1.78% 1.62% 0.19% -1.81% -23.09% 3.93% -2.71%

Foreign Investor Activity Total foreign investor equity turnover as a percentage of the total NSE turnover declined to 37.76% this week compared to 56.15% at the close of the previous week. Total net inflows at the end of the week stood at Kes.14.6Mn compared to Kes.105.8Mn last week.

Table 6: Weekly Foreign Equity Turnover Summary (Fig in KES)

Day Mon Tue Wed Thur Fri TOTAL

Buy 0.00 11,240,297.50 40,236,535.00 69,737,362.50 32,743,790.00 153,957,985.00

Sell 0.00 12,772,387.50 29,655,370.00 59,432,962.50 37,450,315.00 139,311,035.00

Net Inflows (Outflows) 0.00 -1,532,090.00 10,581,165.00 10,304,400.00 -4,706,525.00 14,646,950.00

Total NSE Turnover 0.00 85,409,219.00 162,034,088.00 327,585,995.00 201,651,681.00 776,680,983.00

Foreign T/O (% of Total NSE (T/O) #DIV/0! 28.11% 43.13% 39.43% 34.81% 37.76%

Source: NSE & Genghis Capital Dealers

Foreign Turnover on the top 5 traded counters accounted for 73.73% of the total weekly foreign investor activity at the close of Week 34 compared to 88.37% in Week 33. The purchase activity on these counters accounted for 72.67% of the total foreign buying activity on the NSE this week. The most actively bought counter was East African Breweries Ltd (NSE: EABL).

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Table 7: Top 5 Foreign Traded Counters - Week 34 (Fig in KES)

Equity East Africa Breweries Ltd Athi River Mining Ltd Equity Bank Ltd Kenya Power & Lighting Co. Ltd Kenya Commercial Bank Ltd TOTAL
Source: NSE & Genghis Capital Dealers

Buy 56,920,950.00 19,452,800.00 20,497,095.00 3,625,980.00 11,383,885.00 111,880,710.00

Sell 58,141,050.00 15,375,000.00 12,057,625.00 14,973,597.50 3,786,075.00 104,333,347.50

Net Inflows (Outflows) -1,220,100.00 4,077,800.00 8,439,470.00 -11,347,617.50 7,597,810.00 7,547,362.50

Total Weekly Turnover 115,062,000.00 34,827,800.00 32,554,720.00 18,599,577.50 15,169,960.00 216,214,057.50

Trading Ideas: The table below shows the performance of selected stocks that Genghis Capital recommended so far in the year 2012.
Table 8: Equity Picks (Fig in KES)

Company Centum Investments Ltd Equity Bank Limited KenolKobil Limited NIC Bank Limited EA Cables Ltd Athi River Mining Ltd Diamond Trust Bank Ltd KCB Group Ltd Uchumi Supermarkets Ltd Kenya Power & Lighting Co. Nation Media Group Ltd British American Investments Cooperative Bank Limited Kenya Reinsurance Corp. Scangroup Ltd Portfolio Return
Source: NSE & Genghis Capital

Price at Recommendation 14.55 15.80 9.80 26.50 11.80 156.00 88.50 18.50 7.20 15.85 153.00 4.00 11.55 10.05 49.25

Target Price Current Price 19.55 19.90 16.90 45.50 14.55 198.50 123.40 27.10 17.25 22.00 197.70 6.25 18.50 15.35 59.60 11.45 21.50 14.50 32.00 10.45 203.00 100.00 25.50 15.20 16.95 204.00 5.65 11.00 10.50 56.50

Upside Potential 41.43% -8.04% 14.20% 29.67% 28.18% -2.27% 18.96% 5.90% 11.88% 22.95% -3.19% 9.60% 40.54% 31.60% 5.20%

Return to Date -21.31% 36.08% 47.96% 20.75% -11.44% 30.13% 12.99% 37.84% 111.11% 6.94% 33.33% 41.25% -4.76% 4.48% 14.72% 24.00%

Recommendation

BUY HOLD HOLD BUY BUY SELL BUY BUY HOLD BUY HOLD BUY BUY BUY BUY

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Genghis Index:
Table 9: Genghis Index Performance Large-Cap Index The index closed 0.32% higher in terms of price performance with market capitalization following suit to Kes. 948Bn. Nation Media Group Ltd (NSE: NMG) was the segments best performing counter +8.51% - VWAP Kes. 204.00. Mumias Sugar Co. Ltd (NSE: MSC) closed 6.62% lower at VWAP 6.35.

Mid-Cap Index Price performance declined 10.52% this week with market capitalization dipped to Kes.128Bn. TPS EA Ltd (NSE: TPSE) was the segments best performer up +7.89% - VWAP 41. Housing Finance Co. Kenya Ltd (NSE: HFCK) was the sectors worst performing stock shedding 10.44% to close with a VWAP of 14.15.

Small-Cap Index Express Kenya Ltd (NSE: XPRS) was the segments best performer advancing 6.94% to VWAP 3.85. Williamson Tea Kenya Ltd (NSE: WTK) was the worst performing stock -7.35% VWAP Kes.227.00.

Table 10: Investors Diary

Date 27th August 29th August 30th August 30th August 31st August 31st August

Firm/Body NIC CBK CBK CfC BAMB NMG

Description Commencement of Rights Issue 1:4 at Kes.21 182-Day and 364-Day T-Bills 91-Day T-Bill Record Date; Rights Issue 4:9 at Kes.33 Books Closure; Interim Dividend Kes.2 Books Closure; Interim Dividend Kes.2.50

Source: NSE & Genghis Capital

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Fixed Income: Oversubscription Depresses Yields Money Markets: Data from the Central Bank indicated that the average interbank rate closed the week at 8.543% higher than 7.836% at the close of the previous week. Primary Markets: The results of the 91 and 182 Day T-Bill auctions this week are shown below. Both papers were oversubscribed in a week that saw an influx of participation particularly from the commercial banks attracted by the higher rates. Interestingly interbank rates have increased in the week due to the levels the papers are currently trading at.
Table 11: Week 34 Auction Results

Weighted Avg. Rate Tenor Last 91 Day 10.267% 182 Day 11.366%
Source: CBK, Genghis Capital

Latest 8.583% 10.032%

Change (bps) -168.40 -133.40

Subscription Rate 242%* 125%*

*absolute terms

Secondary Markets: Improved activity in the bond market jumped 66% in the week to Kes.18.6Bn in turnover from last weeks close of Kes.11.1Bn. The IFBs were the dominant ones in the week generating 90 trades valued at Kes.8Bn; of particular note the main driver was the IFB 1/2011/12Yr paper that generated Kes.7.1Bn.

Table 7: Short -Term Interest Rates, Treasury Notes & CDs

Tenor 91 Day 182 Day 1 Year 2 Year 5 Year 10 Year

Kenya 8.58% 10.03% 12.85% 11.11% 11.86% 12.71%

Uganda 13.10% 18.06% 17.00% 14.84% 15.39% 15.28%

Tanzania 13.06% 13.53% 13.54% 13.81% 14.74% 14.99%

U.S 0.11% 0.13% 0.19% 0.26% 0.71% 1.16%

LIBOR (USD) 0.43% 0.72% 1.04% ----

Source: CBK, BOU, BOT, US Treasury, BBA, Genghis Capital

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Table 13: Fixed Income Gross Cash-Flows for the Month of August:

Issue No. Govies FXD 2/2003/10 FXD 2/2007/05 FXD 3/2008/5 FXD 1/2007/8 FXD 1/2008/10 FXD 1/2006/12 IFB 1/2009/12Yr FXD 1/2011/2 FXD 1/2011/1 SDB 1/2011/30 IFB 1/2010/8Yr IFB 2/2010/9Yr

Cash Flow C C+P C C C C C C C C C C

Due Date* 13-Aug-2012 20-Aug-2012 20-Aug-2012 20-Aug-2012 20-Aug-2012 20-Aug-2012 20-Aug-2012 27-Aug-2012 27-Aug-2012 27-Aug-2012 27-Aug-2012 27-Aug-2012

Issued Amount 8,162.19 4,575.55 14,809.15 2,656.90 2,992.75 3,900.95 19,726.85 14,269.92 11,104.21 10,041.55 16,908.05 30,590.12

Coupon (%) 9.50% 9.50% 9.50% 12.75% 10.75% 14.00% 12.50% 5.28% 21.408% 12.00% 9.75% 6.00%

Gross - MM 8,549.89 4,792.89 703.43 169.38 160.86 273.07 1,232.93 376.73 1,188.59 602.49 824.27 917.70

Source: CBK, NSE, Genghis Capital Estimates

C- Coupon, P Principal

24 22 20 18 16 14 12 10

Evolution of the Yield Curve 13/01/2012 to 03/08/2012

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 6-Jan-12 3-Aug-12

NSE Yield Curve Emergence of a flat Yield Curve as yields on the Short Term Paper have taken a dip in recent auctions with long dated paper remaining stagnated.

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Currency KES Echoes Last Weeks Performance Performance: Support from Bond Inflows and Export Inflows supported the KES in the week ensuring marginal losses. These losses were recorded in the majors with the KES slipping 0.88% vs. EURO, down 0.35 vs. USD and 0.15% vs. GBP. News and investor expectation of further QE in the US buoyed the European currencies with positive assertions from the Feds representatives about the same supported the USD. The highest gain of 2.43% was recorded in the KESUGX pair, +1.76% in the ZARKES pair with marginal gains of 0.34% in both the KESTZS and INRKES pairs. The high volatility in the ZARKES and INRKES pairs should be of concern but the regulator seems to have the majors in check.

Table 14: Spot & Select Forward Ask Rates

Outright Forward Rates (Ask)

Pair/Cross USD/KES GBP/KES EUR/KES ZAR/KES KES/UGX KES/TZS INR/KES Week 33 83.77 131.67 103.19 10.19 29.54 18.76 1.51 Week 34 84.06 131.87 104.10 10.01 30.26 18.83 1.50 Annualized Volatility* 1.99% 7.12% 9.42% 17.39% 5.29% 8.20% 11.87% 1M 84.60 132.68 104.78 2M 85.29 133.67 105.62 3M 85.68 134.84 106.60 6M 88.22 138.10 109.35 -

Source: CBK, Bloomberg, Genghis Capital Estimates

*5 Day Annualized

Technical Analysis and Outlook: The Ichimoku chart below outlines the 1-Yr performance of the EURKES currency pair. In majority of the period, the conversion line was below the Base line thus the huge pressure on the EUR. The conversion line recently broke the Base line from below indicating strengthening of the EUR against the KES. The 26-Day lead lines indicate the EURKES pair trading between 104.07 and 105.64 in the coming month.

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Weekly Market Monitor - No. 34

Commodities Oil Price Rebounds on Tropical Storms Oil/Fuel: Not only are geopolitical tensions pushing up oil prices but the brewing storm along the US Gulf Coast poses further threat to Black Golds prices. Reduced supply caused by the Iran sanctions only compounds to the problem. Investors have turned to profit taking to take advantage of the price disparity. Rumours have been circling the investment community that there will be increased flow from reserves of about or more than 60 million barrels. This should depress prices if true thus justifying some investors action of adopting profit taking mechanisms.

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Contacts Report By: Moses Waireri,Research Analyst | Tel:+254 20 2774781 | Email: [email protected] Report By: Evelyne Wanjiku, Research Analyst | Tel:+254 20 2774781 | Email: [email protected] Anthony Kimani, Research Analyst | Tel:+254 20 2774781 | Email: [email protected] Kelvin Nyabando, Research Analyst | Tel:+25420 2774781 | Email: [email protected] George Guy,Fixed Income Dealer | Tel:+254 20 2774756| Mob: +254 727 142231 | Email: [email protected] Nyawira Waithaka, Equity Dealer | Tel:+254 20 2774777 | Mob: +254 723 693481 | Email: [email protected] Andrew Maina, Senior Equity Dealer | Tel:+254 20 2774789 | Mob: +254 722 667936 | Email: [email protected]
Disclaimer: The content provided on this document is provided as general information and does not constitute advice or recommendation by Genghis Capital Ltd and should not be relied upon for investment decisions or any other matter and that this document does not constitute a distribution recommending the purchase or sale of any security or portfolio. Please note that past performance is no indication of future results. The ideas expressed in the document are solely the opinions of the author at the time of publication and are subject to change without notice. Although the author has made every effort to provide accurate information at the date of publication all information available in this report is provided without any express or implied warranty of any kind as to its correctness. You should consult your own independent financial adviser to obtain professional advice before exercising any decisions based on the information present in this document. Any action that you take as a result of this information, analysis, or advertisement is ultimately your responsibility.

Genghis Capital Ltd, Prudential Assurance Building, Wabera Street, Nairobi.

Tel: +254 20 2774760Fax: +254 20 246334

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