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February 16, 2019

TPS Serena is a good buy at the current price

The dollar which has cratered this year predominantly undercut by the antics of President Trump who has metastasized into a lightning rod for elevated geopolitical uncertainty might be readying itself for a rebound.

The shilling was last trading at 103.35 versus the dollar and as improved off lows of 104.00 traded just ahead of the elections. I expect strong portfolio inflows post the election which will support the shilling to a 102.00 handle.

The decision by the opposition to take their challenge to the courts was uniquely positive with respect to political risk and the shilling is reacting to that. 

An index of base metals has climbed to a more-than two-year high, zinc surged above $3,000 a metric ton for the first time in almost a decade while aluminum approached a three-year high.

The Nairobi All Share corrected lower for the third consecutive session to close -0.42% lower at 166.08. The All Share is +24.555% in 2017 and this is a gentle correction in the context of a rampant bull market which kicked off in May this year.

The Nairobi NSE20 Index closed 23.45 points lower at 4045.89. The NSE20 Index is +26.98% through 2017.

After meeting with their trustees, a lot of local institutional investors are going to have to enter this market otherwise their performance will be so woeful it will be embarrassing,

equity turnover was 563.287m.

TPS Serena Hotels reported first half earnings pre-market opening where H1 sales declined -1.295% to 2.621823b,  H1 profit before exchange loss, interest, depreciation and taxation clocked 80.251m -55.658%,  they reported a sharply higher H1 exchange loss on foreign currency loans of [45.703m]  -332.425%,  H1 loss after taxation was [188.796m]  -227.617% and H1 earnings per share was [1.09] versus [0.43]. There were a number of extenuating circumstances, the flag ship ‘’Nairobi Serena has been operating only with 46% of its room inventory’’ and the coast was characterised as follows ‘’Kenya coastal region continues to record low materialisation from the foreign leisure market segment as a result of lack of charters and international scheduled flights into Mombasa from source markets.’’ Serena described the Mara and Laikipia Safari circuits as looking much healthier.  Serena added ‘’given the seasonal nature of the tourism industry in East Africa, the results for H1 2017 are not a basis for forecasting a FY result’’ and struck an optimistic closing note ‘’Management looks at H2 with much optimism and with our tested and highly successful business model’’ We knew Mombasa was soft, that Nairobi is being refurbished [they are spending some cash] but consider that the recently concluded election is now going to turn into a tail-wind and therefore, I think Serena is a buy at these levels on an H2 earnings rebound. TPS Serena firmed +1.85% to close at a 2017 high of 27.50. TPS Serena is +34.14% in 2017 and has more scope to the upside as it is emerging from a long entrenched price dislocation. 

Safaricom closed unchanged at 24.25 and traded 1.528m shares only which is signalling supply is close to being extinguished at this price point which is bullish for the price. 

Co-op Bank Kenya reported H1 2017 earnings where H1 loans and advances to customers (net) expanded +14.155% to clock 252.612566b, H1 Profit/ [Loss] after tax and exceptional items declined -10.427% to 6.637412b.  Co-op Bank in their commentary spoke of ‘’a commendable performance against the backdrop of a tight operating environment especially with the capping of interest rates, general economic slowdown in an election year, currency devaluation and hyperinflation in South Sudan’’  Co-op Bank’s cost to income ratio was at 47.9% in H1 2017 versus 52.1% in FY 2016. They spoke of having 6.53m account-holders, 8,000 banking agents 580 ATMs and 3.33m customers on their all-telco Mco-op Cash mobile wallet platform. These were better than respectable earnings in a challenging environment and they have a largely captive customer base which is a significant source of operational leverage and advantage. Co-op Bank eased -0.56% to close at 17.45 and traded 2.939m shares. Co-op Bank is +64.69% in 2017 on a total return basis, when you factor in the bonus share that shareholders received for every five held. 

Standard Chartered firmed +0.43% to close at 234.00 and was trading at session highs of 240.00 +3.00%. Supply is real thin. StanChart is +31.21% on a total return basis in 2017 and as scope to test the upside towards 250.00-260.00. 

Equity Bank ticked -1.14% lower to close at 43.25 and on good volume action of 5.106m shares worth 220.838m. 

KCB eased -1.68% to close at 44.00 and traded 1.394m shares. 

Liberty Kenya  closed unchanged at 14.00 [a 2017 closing high] and traded 5.801m shares [1.082% of its issued shares] worth 81.22m. Liberty Kenya is +6.46% in 2017 and trades on a Trading PE multiple of 11.966.

KenGen closed unchanged at 9.20 and traded 702,600 shares. PIC SA extinguished the surplus supply and to very good effect. KenGen is +58.62% in 2017. 


Aly-Khan is a financial analyst

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