Market turnover remained elevated yesterday with a turnover of KES 4.5Bn over yesterday’s KES 4.0Bn. However, activity was slowed down by the announced tap sale which is expected to fill and close today. Rebound on activity is expected in the market today with focus still on IFB bonds and the long to medium term end of the yield curve. The local unit came under pressure yesterday to close at 102.90 as end month corporate demand peaked. The interbank market remained relatively range bound with liquidity still well spread within the market.
Kakuzi Ltd (NSE: KUKZ) released its rather impressive FY16 results yesterday; EPS was up 18.6% y/y to KES 27.8 owing to favourable market demand for the core crop products (avocado and macadamia). Additionally, the board of directors recommend a dividend of KES 6.00(+20.0% y/y) per ordinary share.
We noted the below drivers of the firm’s profitability:
- Kakuzi is the only avocado producer among the listed companies, which accounts for exporting approximately 45% of the total volume from Kenya. Kakuzi continues to focus on producing a quality product and has extended its orchard footprint by another 58 hectares, totaling 483 hectares. The intention is to have a total planted area of 640 hectares by 2020.
- Construction of the macadamia cracking facility which is complete will continue to improve volume growth going forward. Kakuzi currently has 953 hectares of macadamia orchard, which was up by 97 hectares from last year. The company plans to have a total of 1,030 hectares by 2020.
- Strong Cashflow.
- Has a wealth of assets and the company has no leverage.
However, the risks are:
- Earnings vulnerable to external factors.
- Foreign exchange risks.
Having considered the above, we recommend a buy on the counter.
Market turnover clocked slightly above KES 500Mn with Safaricom Ltd (NSE: SCOM) holding firm as the highest traded counter though losing 3.0% in yesterday’s session. With the book closure dates around the corner for most banking counters, we expect continued exuberance in the banking sector.