Robust investments signal strong run for NSE this year

The Nairobi Securities Exchange (NSE) is likely to experience bullish trading this year, driven by better economic growth and major investments by listed companies, according to analysts’ reports.

Investment companies are among firms likely to see an improvement in performance as a result of aggressive investment programmes.

“Investment companies like Centum, TransCentury, Carbacid and even insurance companies like Britam have recently embarked on ambitious investments. This has led to renewed interest in investment firms because there are no easily accessible alternative ways to invest in these exciting sectors,” said Nairobi-based brokerage firm ABC Capital.

The broker said programmes in real estate, oil and gas, mining, agribusiness, tourism and infrastructure the firms are currently pursuing would drive investor interest in the companies.

ABC Capital noted Centum had a pipeline of projects including the Lamu coal power plant, a tender worth Sh174 billion awarded last year.

The firm is preparing to fundraise for the coal power plant, despite the High Court having stopped the award, and the Sh8.9 billion sale of UAP stake to Old Mutual should stand it in good stead. Centum is also seeking to buy agricultural firm Rea Vipingo.

Other companies likely to see significant growth are insurance companies whose low penetration is seen as providing opportunities. Kenya has only three per cent insurance penetration against South Africa’s 15 per cent.

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Banks such as NIC and oil firms such as KenolKobil are seen as possible good performers in 2015. KenolKobil would likely benefit from the big differential between the large fall in global oil prices and the still high local pump prices, ABC Capital said.

In its latest analysis, Citigroup Global Markets forecast the listed corporates will see strong earnings in 2014, but frontier funds had taken “underweighting” position, showing that they had underestimated the equities performance going forward.

It said Kenyan companies had “re-rated”, meaning that they had performed beyond investor expectations. The NSE all-share index rose 19.2 per cent in 2014.

“The Kenyan equity market has done well this year and re-rated , but given generally strong earnings trends coming through in 2014 for many corporates, there has been underweight positioning in Kenya among many frontier funds,” said Citibank in its report dated January 5.

The investment banking arm of the US-based bank said it had based its strong economic growth projection of 6.2 per cent for 2015 on that done by the International Monetary Fund. The growth, a rebasing of the gross domestic product (GDP), lower oil prices and the new Constitution would remain a stimulus in 2015.

“The combination of the GDP re-basement, lower oil price and the new constitution, which shifts spending from central government to counties, is likely to deliver a sizeable stimulus,” said Citi.

The rebasing made Kenya a middle-income country at Sh9,300 monthly income a person, against the international minimum standard of Sh7,800.

It confirmed the purchasing power of Kenya’s growing middle-class. Citi noted that the strong economic growth would be pushed by a fairly valued Kenya shilling.

“The currency has weakened … it is now around fair value,” said Citi.

The local unit has already hit Sh91 to the dollar, increasingly favouring exporters. Other analysts such as StanChart had forecast the shilling value this year at the same level.

Citi said the high economic growth was also an attraction to companies seeking to set up in Kenya.

“Given Kenya’s good growth performance, there is evidence that some international business groups are preparing to enter or raise their exposure to East Africa. In food retail, Carrefour and Pick n Pay are among foreign companies which could be investing more aggressively,” said Citi.