KCB on track for higher returns

KCB Group #ticker:KCB is on track to achieve a targeted return on shareholders funds of 21.1 percent after attaining a 22.8 percent target in the nine months to end of September, Standard Investment Bank (SIB) says.

The analysts said with company’s potential to get higher revenues and profit, the current stock price is at a discount to the market. A higher return to the funds or on average equity (ROaE) would depend on both interest and non-interest income.

The banking group is currently more reliant on net interest income (NII) than other revenue streams but still carries a substantial upside in terms of the price of the share. As of yesterday, the stock price stood at Sh39.50 a share.

“Management is on-track to accomplish its financial year 2018 ROaE target of 21.1 percent, having achieved an ROE of 22.8 percent in 3Q18. Notwithstanding NII [net interest income] reliance, we believe that the stock still carries significant upside at the current trading price,” said SIB.

The analysts expect a better mix in terms of revenue streams though.

“We would have liked to see a better expansion of [income] streams to offset the current [lending] reliance – especially with NIMs [net interest margins] shrinking 50 basis points quarter-on-quarter to 8.3 percent. We expect to see traction once a Huawei mobile platform is launched (initial launch date was September),” said SIB.

The analysts noted the company is increasingly targeting digital revenues.

“KCB plans to shore up the number of transactions carried out via mobile to at least 80 percent (from 42 percent) in the near term, upon rollout of the platform; creating an ecosystem that increasingly enables its customers to transact mostly digital,” said SIB.

The investment bank, however, noted that KCB is yet to get more income from fees or non-interest revenues.