Kenya Commercial Bank branch along Kenyatta Avenue in Nairobi. Investors are expecting that banks will report good results from next week. File
Optimism that the bank results that will start streaming in a week’s time will be good has renewed interest in financial stocks with selected counters at the Nairobi Stock Exchange showing price gains.
KCB, NIC and Equity Bank shares have been on the rise behind the shares of firms such as Safaricom and Mumias Sugar Company which have been ahead of the pack in the price surge at the bourse.
Since November last year when banks started reporting financial results, their prices have been climbing. Equity has risen by 19 per cent from an average of Sh14.50 to Sh17.30 by yesterday. During the same period KCB and NIC have risen by 19 per cent to close at Sh23 and 34 respectively. In Equity’s case, Johnson Nderi an analyst with Suntra Investment Bank says that some investors are hoping that the restructuring of the bank will enable it to become more efficient and the savings accrued will be reflected in its books in months to come.
“Equity will be announcing the results for the last three months and the savings from the restructuring will not be reflected in those results,” said the Suntra analyst. The third quarter results are the latest and Equity Bank reported a Sh4.3 billion pre-tax profit. During the same time, costs rose by 31 per cent due to expansion the bank had undertaken in the course of the year. This was a 0.2 per cent decline attributed to expansion in a difficult year. But the chief executive, James Mwangi, said that most branches had started becoming profitable in the final quarter of the year.
KCB on the other hand had posted a Sh5.3 billion pre-tax profit which represented an 18 per cent increase in a year most analysts say was tough. Barclays Bank recorded a 4.7 per cent growth to post Sh6.6 billion which was the highest reported profit. Standard Chartered Bank recorded a 44 per cent growth in its pre-tax profit to Sh5.2 billion the highest among listed banks.
Since January 4, the first day of trading at the NSE, Equity and KCB share prices have risen by an average of 11 per cent but the fastest rising among the creepers in the financials is NIC which closed the day at Sh37.75.
“It is the earnings season and there are positive sentiments,” an analyst from Co-operative Bank said. This is what has seen the sudden surge by local investors.
Mr Nderi also agrees that there has been an increase in activity compared with a similar period last year, buoyed by expectations that last year’s results will be better than 2008’s.
“It is earnings season and investors are expecting that banks will report good results,” says Johnson Nderi from Suntra Investment Bank.
Other creepers that have slowly been rising include Barclays, Standard Chartered and the Co-operative Bank. Analysts are watching these stocks as the earnings season edges closer.
Eric Musau from Renaissance Capital says that it is normal that in anticipation of results being released, some position taking becomes the norm but says that in the current situation it may be going beyond the norm.
“The market may be getting a bit ahead of itself because there isn’t anything driving the market,” he says.
The NSE 20 share index has risen by 500 points since the beginning of the year to surpass the 3,500 mark and the tide has lifted other shares say analysts.
This can be attributed to the recent charge in Safaricom’s share price, which constitutes 20 per cent of the NSE 20 share index. The price of the share has risen by 26 per cent since the January 4 but analysts doubt how long this is tenable.
“When the price of Safaricom starts to come down we can expect the market to adjust accordingly and this will affect other shares,” says the Co-operative bank analyst.
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Mr Musau concurs saying that there may be a problem if investors are rushing to buy shares in these companies without thoroughly scrutinising the fundamentals.
The danger, he adds, is that should the results not be as expected, the market will adjust accordingly.In a reversal of fortunes, last year’s winners which were stocks listed in the agriculture segment of the NSE have taken a plunge. Williamson Tea which opened at a Sh149 price on the first day of trading has dropped by 16 per cent. Despite some of these stock prices catapulting, lack of liquidity of some of these shares is making their trading difficult, analysts say.
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