Demand on Long End Surge on the Stock Market on Tuesday

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Tuesday, saw demand on the long end surge with longer term investors coming out strongly to buy 15-year papers. The 10-15 year tenors are currently trading at sub 13.50 percent levels which may influence the levels CBK will be willing to accept on the 7-year bond in today’s auction.

The infrastructure bonds have remained resilient despite higher bid levels the offers on the 2015 and 2016 issues remain at pre-auction announcement levels an indicator of investor confidence and high levels of liquidity in the market thereby increasing reinvestment risk.

The CBK stayed out of the market yesterday sighting a square market, while overnight lending levels continued to come off closing at 5.4 percent in volumes of 7.4 billion shillings.

Corporate News:

Standard Chartered Bank of Kenya is set to launch video banking in Kenya after it rolled out the service in Asia. The service, which was initially meant to be launched in 2016, will allow clients to speak to banking consultants over a secure connection from a location of their choice. The service will have clients accessing most services offered at branch level and will be available to clients from9:00 am to 6:00 pm on weekdays. In our view, the service will include additional convenience to customers though there will be negligible impact on earnings.

Liberty Group Holdings Ltd holds 250 million shillings locked in the Chase Bank corporate bond which effectively denied the investor to cash out or earn any interest on it. This attributed to the insurer recording a 22 percent decline in interest from corporate bonds and commercial paper (from 2015: KES 323.68MM to 2016: KES 252.44Mn). In FY16, the Investment Income was up +39.2% y/y, a contrary distinction to the majority of insurers who announced lower investment income in FY16A.

Investment income contributes 28.3% to total income, we believe the company is on track to reaching its FY12A investment income contribution of 39.5% on account of increased financial investments (2016: +14.9% y/y). With a P/E (5.1x) below industry P/E of 8.0x and P/B multiple of 0.7x (vs. the industry average of 1.01x), the counter trades at very attractive levels.

 

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