I&M Holdings Releases Cautionary Announcement

During the week the market was on an upward trend. NASI and NSE 20 gained by 1.7% and 1.8%, respectively, on the back of gains in large cap stocks, with BAT, EABL and Equity Holdings gaining 12.4%, 7.9% and 7.2%, respectively. The equities market was driven by active foreign participation on the buy side, at Kshs. 24.9 mn, the highest in 2015, highlighted by BAT with net inflows of Kshs 19.2 mn. Foreign participation remained high in the market at 60.7%, compared to last week’s 65.1%. Since their February peak, NASI and NSE are down 17.5% and 23.4%, respectively, and 10.1% and 17.7%, respectively, on a YTD basis.

I&M Holdings released a cautionary announcement for the proposed acquisition of Giro Commercial Bank, stating that they had come to an agreement with the shareholders of Giro Commercial Bank to purchase 100% of their issued share capital. The proposed acquisition will have a significant change in the share value and further details will be made available later. Giro bank as at H1’2015 had an asset base of Kshs. 16.2 bn and the PAT grew by 0.9% y/y to Kshs. 237.9 mn.

Flame Tree Group announced its intention to acquire 4 brands from Beauty Plus Trading East Africa. The management stated that the acquisition of the 4 hair care and cosmetics brands is based on increased consumer expenditure on hair care products. Consumer spending has been on the rise due to

• increased knowledge and product awareness in the market, and
• increase in the affordable products range manufactured locally.

This comes after the acquisition of four food and snack brands from Chirag Kenya in March 2015, which provided Flame Tree with an entry into the food space. In their H1’ 2015 results, FTGH recorded a growth in revenues of 43.1% y/y to Kshs. 1.1 bn while the PAT grew by 3.8% y/y to close at Kshs. 81.2 mn. These acquisitions are in line with the company’s strategy of creating a diversified FMCG business model. Following the news the stock price rose 7.7%.

Kenya Airways is once again on the bad side of publicity, this time being under investigation by Liberian Government on account of hiking fares between the capital Monrovia and Accra, Ghana. According to the Ministry of Transport in Liberia, investigations are currently underway targeting airlines that have increased fares and Kenya Airways stood out as being one.

The Ministry of Transport and the Liberian Civil Aviation Authority (LCAA) are spearheading this investigation and has already asked Kenya Airways to provide technical data and justification for the price increase. This investigation comes after Kenya Airways resumed flights to the nation after the Ebola outbreak led to suspended flights.

We remain neutral with a negative bias on equities given the low earnings growth prospects for this year. The market is now purely a stock pickers’ market, with few pockets of value.

An excerpt of the Cytonn Report