Industrial stocks register slower fall as NSE opens year on a downward trend
Investment brokers on the trading floor of the Nairobi Securities Exchange. PHOTO | FILE
What you need to know:
Five of the nine actively traded manufacturing stocks have chalked up price gains since the beginning of the year.
The firms are benefiting from a more stable interest rate regime and falling inflation, which has lowered their input costs at a time they are receiving more orders for products.
Industrial stocks at the Nairobi Securities Exchange (NSE) outperformed the bearish market in January to record slower price falls.
Five of the nine actively traded manufacturing stocks have chalked up price gains since the beginning of the year, accounting for nearly half the 12 shares that have seen upward share price movement in the period out of 62 actively traded counters.
The manufacturing segment has shed 1.5 per cent this year in cumulative valuation, outperforming other segments like banking (-5.8 per cent), insurance (-7.1 per cent), commercial and services (-7.6 per cent), energy (-8.8 per cent) and construction (-5.9 per cent).
The sector attracted foreign investor demand in January. Data compiled by Standard Investment Bank shows that East Africa Breweries Ltd had net inflow of $3.02 million (Sh308 million), while BAT Kenya also saw some foreign buys at a net $401,000 (Sh41 million).
The firms are benefiting from a more stable interest rate regime and falling inflation, which according to a survey by Standard Chartered has lowered their input costs at a time they are receiving more orders for products.
“Last year, because of high interest rates and considering that these manufacturing firms have heavy loans, investors factored in this risk. This year as they continue to pay off loans and interest rates become friendlier, we may see an increase in activity on these stocks as investor confidence builds,” said Sterling capital analyst Eric Munywoki.
“They are also in line to be the big beneficiaries of the cheaper and more sustainable energy that is coming up.”
He added the foreign buying activity seen on EABL and BAT is driven by expectations of a healthy dividend pay-out. The EABL last week announced a 67 per cent rise in half year net profit to Sh7.7 billion.
All the segments at the NSE are in the red since the beginning of January, led by the agriculture segment which has shed 15.3 per cent in a sharp reversal of fortunes from last year when it led the market with a gain of 45 per cent.
Safaricom, the single stock in telcoms, is also down this year at 1.8 per cent compared to a full year gain of nine per cent in 2015.
Market capitalisation — the measure of investor wealth at the bourse — has declined by Sh80.5 billion year-to-date to stand at Sh1.966 trillion, while the benchmark NSE 20 share index is down 5.6 per cent or 225 points to 3781.
Eighteen companies have announced profit warnings since the beginning of 2015 which has contributed to some of the negative investor sentiment.
Analysts, however, feel the lower prevailing prices offer a chance for investors, especially foreign, who are expected to retain the same level of investment in 2016 from 2015 in spite of a hike in US interest rates, to buy into the market.
“The market decline so far has made the valuations attractive. Despite the bleak prospects for a recovery in corporate earnings in 2016.
“We expect Kenya to continue to attract relatively the same levels of foreign investor flows as 2015,” said Cytonn Investments in their market outlook for 2016.
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