Big brokers in earnings race as NSE trades Sh100bn

Renaissance Capital (RenCap) grew its share of trading volumes at the Nairobi bourse in the first six months of the year, taking the pole position for an anticipated commissions windfall in a market whose turnover touched Sh100 billion.

Data from the Nairobi Securities Exchange (NSE) shows that RenCap accounted for 16.7 per cent of the total Sh200 billion in combined sales and purchases, edging out SBG Securities and Kestrel Capital in a tight battle for market share.

SBG controlled 15.9 per cent of the turnover while Kestrel had 14.1 per cent ahead of African Alliance’s 10.5 per cent and Standard Investment Bank’s 10 per cent.

The trading volumes put stockbrokers on the road to earning huge trading commissions for a second year in a row.

The volume of shares sold at the Nairobi bourse rose 37 per cent in the first six months of the year, having stood at Sh73.3 billion for the corresponding period in 2013.

Higher operating costs, however, continued to cast a dark cloud over the brokers’ profitability.

“We expect higher turnover to help earnings, but operating and compliance costs continue to rise,” said Kestrel Capital chief executive Andre DeSimone. “I do not expect a major impact on earnings.”

Stockbrokers enjoyed up to 37 per cent income growth last year on the back of higher brokerage commissions but this was matched by a 34 per cent increase in expenses that left net profits largely flat.

READ: Stockbrokers’ earnings fall on rising expenses

Mr DeSimone said that the extra business had come from the usual clients, adding that turnover growth at a time when the market indices have slowed down does not indicate that there has been panic selling or profit taking in the market.

The NSE reports total equity turnover based on one side of a transaction only but stockbrokers earn commissions from both sales and purchases.
This means that the commissions for the six months will be calculated out of a combined sales and purchases of Sh201.4 billion.

Stockbrokers get the lion’s share of their earnings from brokerage commissions charged at a maximum of 1.78 per cent of the 2.1 per cent commission charged on stock transactions.

The commissions are, however, negotiable downwards for transactions above Sh100,000. 

The remainder of the total 2.1 per cent commission goes to the NSE, CMA and CDSC levies and the investor compensation fund.

RenCap is expected to earn up to Sh597 million based on the existing commission structure for the six months to July 2014. SBG could rake in up to Sh570 million and Kestrel Capital Sh507 million before factoring in any discounts given to clients.

In the six months to July 2013, Kestrel led the incomes list with Sh221.9 million followed by Dyer and Blair with Sh205.5 million, African Alliance (Sh188 million), SBG (Sh180 million) and RenCap (Sh159 million).

To curb rising costs, the stockbrokers in March introduced a minimum of Sh50 monthly maintenance fees for active accounts.

READ: Stockbrokers effect Sh50 monthly levy on CDS accounts

Kenya Association of Stockbrokers and Investment Banks chief executive Willy Njoroge said the fee would help cover additional customer service costs.

“There has been increased demand for more information and more correspondence. Clients want updates on market activity either by email or hard copy and detailed information on different stocks,” Mr Njoroge said, adding that meeting such demands come with costs.

Expenses rose last year as the brokers put on hold the aggressive cost-cutting measures that characterised their operations in 2012.

Staff expenses alone increased 7.5 per cent in 2013, largely from stockbrokers and investment banks that registered increased profitability by hiring additional staff to serve a larger customer base.

This year, May has stood out in terms of equity turnover, registering the highest monthly turnover of Sh23.02 billion.

That record was previously held by August 2013 when the turnover stood at Sh20.8 billion — helped by a huge one-off Sh6.1 billion block trade of Nation Media Group shares on August 14.

Market watchers expect activity to remain steady for the remainder of the year, promising the brokers earnings growth.

Risks, however, remain in the form of rising insecurity that continues to rattle investors. “We expect a similar outcome in the second half of the year, unless the wave of insecurity intensifies,” said Aly-Khan Satchu, an independent market analyst.

Foreign participation as a proportion of total equity turnover stood at 54.06 per cent in the first six months of the year compared to 48.6 per cent in 2013.

That helped stockbrokers handling larger foreign portfolios such as Kestrel and RenCap to increase their share of the traded volumes.

Market insiders say turnover was mainly boosted by increased foreign investor activity on the big cap counters, especially in the second quarter.

There has also been an increase in the number of local individual investors buying stocks in the market this year, helping to boost the performance of smaller and more affordable stocks.

Data from the CMA shows that the number of active investors stood at 1.67 million in the first quarter of the year, compared to an average of 820,000 in the previous three quarters.

The data, however, does not distinguish between jointly held accounts and individual ones.