NSE growth rides on strong financial and insurance arms
Transport secretary Michael Kamau (left) receives a trophy from Britam chairman Francis Muthaura (centre) and managing director Benson Wairegi during the launch the firm’s corporate bond in Nairobi June 10, 2014. Britam was one of the best-performing stocks in 2013. Photo/FILE
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Outlook on the manufacturing, construction and energy sectors, on the other hand, remains less bullish, mainly due to cost, economic and regulatory factors beyond the control of industry players.
While the expectation is that the market will continue to perform well, there are short term risks arising from heightened insecurity levels, rising inflation and uncertainty in the direction of taxes and interest rates that will affect business performance and profitability in the second half of 2014.
Financial and insurance sectors are seen as the growth segments in the Nairobi Securities Exchange, with positive investor outlook backed by expectations of higher earnings favouring share price increase.
Analysts continue to put a favourable tag on these sectors, whose shares have in the past one year been attracting heavy demand based on good financial earnings and lower risks going forward.
The outlook on the manufacturing, construction and energy sectors, on the other hand, remains less bullish, mainly due to cost, economic and regulatory factors beyond the control of industry players.
Genghis Capital research analysts Muammar Ismaily and Silha Rasugu, in an insurance sector outlook report, said that they retain an optimistic outlook on the segment, which has been one of the better performers in price appreciation.
Three of the five best performing stocks in 2013 came from the insurance sector, namely Britam, Pan Africa Insurance and Liberty Holdings. The other two top performers were investment firm Centum and Safaricom.
“We opine that the answer lies in earnings sustainability and corporate actions that have effectively created a signalling effect to the market. These corporate actions have and will continue to be: earnings announcements, acquisitions, strategic partnerships and geographical expansions,” said the analysts.
ABC Capital corporate finance manager Johnson Nderi said that apart from the banking, insurance and investments sectors, the others are bogged down by problems of competitiveness, which is particularly affecting firms in the manufacturing sector.
“Exports are reducing, and were lower in 2013 than in the previous two years. This is why we are seeing the government bringing in protective measures such as the taxes on steel and iron,” said Mr Nderi.
He added that the manufacturing sector is also under more pressure than the others from extra taxes, such as the 1.5 per cent railway levy and excise taxes on products like tobacco and alcohol, which also play a part in the future earnings levels of the affected companies.
Kenya’s exports to other African countries, which accounts for nearly half the country’s export earnings, fell to Sh231 billion in 2013, from Sh250 billion in 2012.
The total export earnings for the country also saw a decline from Sh517 billion in 2013 to Sh502 billion last year, according to the Kenya National Bureau of Statistics Economic Survey 2014.
In the energy sector, the high capital investment requirements are seen as concerns in light of the longer period it takes to enjoy returns on investment.
Mr Nderi said that apart from investment costs, the lack of control over costs in the sector combined with government controls on prices of commodities such as petrol means that investors are unable to see the true economic reflection of the value of the sector’s value.
While the expectation is that the market will continue to perform well, there are short term risks arising from heightened insecurity levels, rising inflation and uncertainty in the direction of taxes and interest rates that will affect business performance and profitability in the second half of 2014.
Rich Management chief executive officer Aly-Khan Satchu, however, sees the downside on the manufacturing sector as a medium term issue, given the promise of cheaper and more reliable energy coming online soon from the government’s 5,000 megawatt plan.
