7 June 2014

Kenya: Liquidity At NSE Might Have Hit Rock Bottom On Friday

KENYA mandated Barclays, J. P. Morgan, Standard Bank and QNB Capital to arrange a series of fixed income investor meetings in the US and UK commencing last Thursday through June 15 to market its first Eurobond.

The government team is being led by National Treasury Secretary Henry Rotich and were in San Francisco on Thursday and Los Angeles on Friday.

The sub-Saharan bond markets were a rising tide in 2012 and 2013, and it was Rwanda which sold its $400 million bond last year into the sweetest of sweet spots.

In 2014, the SSA sovereign bond market has bifurcated with the market punishing Ghana and Zambia who were seen as playing too fast and too loose. In North Africa, Egypt has seen its yields at the lowest level since December 2010.

I think not withstanding the spike in SSA issuance, demand significantly outpaces supply and it's a secular medium term allocation thing. I see Kenya looking to go one time and I think we will see a $2 billion issue. My rate range is 6.95% to 7.5% but this is a moving target.

The shilling has bounced off two and a half-year lows above 88.00 to the dollar and was last at 87.55. The Nairobi All-Share ticked 0.04 points higher to close Friday at 149.33 and is +9.279% in 2014.

The Nairobi NSE20 bounced 12.31 points higher and off a February low to close at 4847.83. Net new liquidity via the Eurobond will see the equity markets glide higher, and Friday should mark a bottom.

Big cap stocks have continued to outperform in 2014 on robust international buy side demand. Small caps have been a stand out in an interesting development in 2014. Value stocks like Kenya Airways, Mumias Sugar, Uchumi and TPS Serena have seriously underperformed of late.

Value stock valuations are egregious. Kakuzi firmed 2.74% to close at 150.00. Kakuzi has rallied +27.11% over the last 4 weeks and sits 4.45% below a record closing high of 157.00 set this week. Safaricom closed unchanged at 12.80 and traded 1.601m shares.

There were Buyers for 500% more shares than were traded during the session, at the closing bell signalling an absolute floor in the price here. With France Telecom hitting the exit button from Telkom Kenya's Orange and the imminent Virtual Mobile Operator License regime, we are witnessing a big change in the competitor landscape.

Uchumi improved 0.8% to close at 12.55 and bounce off a more than two-year closing low on Friday. Uchumi has apparently postponed its rights issue. Uchumi has a market cap of just over $36.65m and after a quite unfathomable poor run is surely a choice takeover target.

Scangroup traded 3rd at the Securities Exchange and has seen a material upscaling of volume traded of late. Scangroup closed unchanged at 47.25 and traded 2.002m shares.

With WPP now the majority shareholder, I surmise it will be running down growth more aggressively and that there will be a network effect kicker. Car and General was the biggest winner at the Exchange on Friday and traded 8,200 shares all at 40.00, +8.11%.

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