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January 17, 2019

Michael Joseph can turnaround Kenya Airways

Third Dreamliner for kenya airways./FILE
Third Dreamliner for kenya airways./FILE

Crude oil in New York is back below $50.00 a barrel.

The International Monetary Fund released their flag-ship Sub-Saharan Africa economic update on Tuesday which was hard-hitting.

We learnt that growth in Sub-Saharan Africa looks set to slow to its lowest level in more than 20 years. Average growth in the region is foreseen to decelerate sharply to 1.5 per cent this year—well below population growth.

Countries such as Côte d’Ivoire, Ethiopia, Kenya, and Senegal are foreseen to continue to grow at more than six per cent and were cited as stand-outs. The policy response in many of the hardest-hit countries has been slow and piecemeal.

The World Bank has ranked Kenya the third most reformed country in the world in the area of starting a business. The Doing Business 2017 report indicated Kenya rose to position 92 out of the 190 surveyed economies. This was 21 positions up from last year's ranking, which placed it at 113.

The Nairobi All Share closed 0.06 points lower to close at 136.58. The Nairobi NSE20 which is in a bear market (its fallen just over 20 per cent in 2016) eked out a +0.69 point gain to close at 3204.69.

Safaricom was the most actively traded share at the Nairobi Securities Exchange and closed unchanged at Sh20.00 with 8.903 million shares worth Sh178.064 million. Safaricom will release earnings in the first week of November. Safaricom reported a full year EBITDA acceleration of +16.681 per cent and investors will be watching the tilt versus that FY trajectory.

Kenya Airways will be reporting half-year earnings tomorrow morning. This earnings release is already in the public domain and it is expected that Kenya Airways will report a loss but half of that reported in the previous H1. Kenya Airways formally announced today that the chairman Ambassador Awori will be stepping down and would be replaced by Michael Joseph. MJ has the gravitas and the track record to perform what is a complex turnaround. I estimate Kenya Airways needs up to $1 billion and serious leadership is required in order to persuade owners of capital to pony it up. Gulf carriers like Qatar Airways are surely in pole position. What is also clear is that the government does not have the resource envelope to fund this. Kenya Airways which had rallied +91.3 per cent since September 20 (when it closed at a 2016 and multi-year low) through yesterday when it closed at a 14 month high of Sh6.60, finally met some profit taking. Kenya Airways, however, firmed +2.272 per cent to close at a fresh 2016 high of Sh6.75 and traded a brisk 1.993 million shares. Kenya Airways traded a wide range of 6.05-7.20 and was trading at Sh6.45 at the closing bell.

Kenya Commercial Bank announced this morning that it has lent $120 million through mobile channel, without collateral, using data analytics for screening, which increasingly looks like the future. KCB closed unchanged at Sh27.25 and traded 1.101 million shares.

StanChart PLC firmed +1.08 per cent to close at Sh187.00 and traded just 2,100 shares. There were buyers showing for 2,000 per cent more shares than were traded, signaling StanChart is pointed higher notwithstanding posting a +17 per cent return year to date.

The NSE retreated -3.115 per cent to close at Sh15.55 and traded 1.633 million. The NSE is correlated to trading volumes and the share price has softened in line with a slow-down in turnover.

I attended the KenGen investor briefing this morning. Kenyan reported a +29 per cent year-on-year increase in headline revenue which is an outlier when set aside other utility type peers. Investors were disappointed with the dividend pass which snapped a 10 year dividend pay out track record. The managing director Albert Mugo explained: "Dividend policy of 30 per cent of profit after tax is unchanged but we are in a growth spurt hence the need to pass''

There was an explanation around ''compensating tax'' and I suspect investors will be satisfied that they have forgone dividends for faster growth which will pay better dividends in the future. Mugo also confirmed that KenGen is ''the largest geothermal producer in Africa".

Kenyan firmed +1.709 per cent to close at Sh5.95 and traded 305,600 shares but in an interesting development buyers outpaced sellers by a factor of seven to one.

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