A member of staff at the Nairobi Securities Exchange (NSE) monitors online trading. PHOTO | SALATON NJAU | NATION
What you need to know:
Insurance and bank stocks are expected to maintain momentum that has seen them dominate the top performers’ list at the Nairobi Securities Exchange this year.
Bank and insurance stocks have significant space for growth in the second half of the year, stockbroker Kestrel Capital has projected.
The broker’s second-half macroeconomic and stock market update forecasts Equity Bank, KCB and Diamond Trust Bank, alongside Safaricom, will retain growth potential in spite of current elevated prices compared to a year ago. Insurance and bank stocks are expected to maintain momentum that has seen them dominate the top performers’ list at the Nairobi Securities Exchange this year. The insurance sector on average has recorded a capitalisation gain of 50 per cent year-to-date, with banks up 23 per cent. “We believe the counters are poised for growth over the medium and long term due to strong fundamentals and we, therefore, expect their current high valuation – relative to peers – to ease off as the companies continue to record sturdy year-on-year growth,” said Kestrel analyst Linet Muriungi. Kenya Re, Jubilee Holdings and CfC Stanbic are seen as value stocks with a current valuation that is below that of competitors, trading at significant discounts. Kenya Re is currently trading at price to book ratio of 0.7, Jubilee is trading at 2.1 while CfC Stanbic is trading at 1.4. This is compared to insurance sector averages of 2.3 and banking averages at 2.4.
Equity Bank, Ms Muriungi says, has gained sufficient headroom for aggressive loan book growth from the capital boost on sale of a 23.4 per cent stake in Housing Finance. Coupled with the highest net interest margin in the market, the bank has potential for strong interest income growth. KCB headroom is likely to be informed by higher non-interest income, driven by banc assurance business, forex trading especially in South Sudan, mobile and internet banking fees and commissions. Banc assurance is targeted to account for 30 per cent of the bank’s total non-funded income in the next three years. According to Kestrel, DTB which last month concluded a Sh3.6 billion rights issue, will gain value in light of its low non-performing loan ratio at 1.4 per cent against sector average of 4.4 per cent, besides earnings growth from regional subsidiaries where it is directing resources for expansion. Investors also have an opportunity to pick up discounted shares of Standard Chartered Bank, National Bank and KenGen, which are due to issue rights. The bigger counters have benefitted from increased trading activity in the equity market this year, especially by foreigners. The market remains bullish, with the NSE All Share Index up 16.9 per cent in 2014 to 159 points while the NSE 20 Share Index has ridden on gains recorded in August to stand 5.3 per cent higher in the year-to-date at 5,170 points.
