Centum will exclusively market the product portfolio of Beam Suntory, a $4.0 BN spirits maker based in Illinois-USA with brands such as Courvoisier and Jim Beam. Centum will join Diageo-backed EABL who recorded a 45.0% and 14.0% y-o-y growth in reserve and mainstream spirits segments in their 1H16 earnings. EABL also recorded an 8.0% and 9.0% y-o-y decline in top line of their premium and emerging spirits segments respectively. We believe the concurrent contraction in emerging and premium spirits segment with the noteworthy growth in the reserve and mainstream spirits segments to be indicative of product upselling, driven by improving consumer disposable incomes. Moreover, Centum’s brand visibility and financial strength will prop the FMCG sector and supplement Centum’s FMCG portfolio which includes 50.95% ownership of Almasi Beverages (29.0% market share of carbonated drinks segment) and a 27.6% ownership of Nairobi Bottlers Limited (48.0% market share of carbonated drinks segment).
KCB Group FY15 Results
KCB Group announced their FY15 results, recording a 12.0% increase in profit after tax to KES 19.6 BN. Its FY15 EPS stands at KES 6.49. Net interest income grew 9.0% y-o-y to KES 39.2BN in FY15 courtesy of the group’s rise in net loans and advances. Non-Funded income declined 0.7% y-o-y to KES 22.0 BN attributable to a 2.0% y-o-y decline in foreign exchange income to KES 4.1 BN and a 17.0% y-o-y decline in other income to KES 2.6 BN. The bank saw a decline in loan book quality with Gross NPL ratio up 30bps to 6.6%, higher than the average banking sector NPL ratio of about 4.3%. Its loan provisions shed 30.0% to KES 2.18 BN in 2015 as NPL coverage declined 346bps to 46.9% higher than the average banking sector NPL coverage ratio of about 40.0%. Liquidity ratio declined 130bps y-o-y to 30.0% above the statutory minimum of 20.0% due to the tightening of market liquidity in 2015. Core capital/TRWA dropped 300bps y-o-y to 14.1% while Total capital/TRWA dropped 560bps to 15.4%, above the statutory minimums of 10.5% and 14.5% respectively. The group has appointed a transaction advisor to advise on possible recapitalization in the medium term. KCB Group’s stock is trading at P/E and P/B multiples of 6.29x and 1.47x respectively, currently discounted vis-à-vis banking average of 7.1x and 1.5x. We therefore issue an overweight recommendation.
NIC Bank FY15 Results
NIC Bank released their FY15 results, recording a 9.0% increase in profit after tax to KES 4.5BN from KES 4.1BN for FY14. Its FY15 EPS stood at KES 7.01, up 9.0%. Net Interest Income increased 21.8% to KES 9.7BN y-o-y attributed to 13.7% increase in loan and advances during the period despite a 27.3% increase in interest expenses. Fees and commission income increased 20.4% to KES 1.43 BN as income from forex dealing saw a 25.3% rise to KES 1.84 BN. The bank’s assets grew by 13.7% to KES 165.8 BN in 2015 driven by 13.7% growth in loans and advances from KES 102.0 BN in 2014 to KES 116.0 BN in 2015. The bank’s capital base grew by 14.4% driven by rise in Deposits (+11.9%) to 112.4 BN. The cost to income ratio dropped to 41.6% in 2015 from 43.3% in 2014 underscoring the bank’s cost containment efforts. Final dividend announced was KES 1.00 per share after an interim dividend of KES 0.25 during the year 2015. The counter is currently trading at a P/E ratio of 5.9x, P/B of 0.98x below the industry median P/E of 7.1x and P/B of about 1.5x. The bank’s ROE stands at 17.0%, relative to the industry’s median of 20.3%, therefore partly justifying the discount. We also take note of the Bank’s NPL ratios which are significantly higher than the industry average, attracting a loan book risk premium. We therefore issue an Overweight recommendation.
CFC Stanbic Holdings FY15 Results
CFC Stanbic Holdings released their FY15 results, recording a 13.7% decrease in profit after tax to KES 4.9BN from KES 5.7BN in FY14. Its FY15 EPS stood at KES 12.41 down 13.7%. Net Interest Income recorded a 9.9% jump to KES 9.3BN from KES 8.5BN in FY14 attributed to 26.6% increase in loan and advances during the period. Non-funded income declined by 9.0% y-o-y to 7.6 BN largely due to translation losses from South Sudan’s currency devaluation. The bank’s assets grew by 15.2% from KES 180.9 BN in 2014 to KES 208.4 BN in 2015 driven by a 26.6% growth in loans and advances from KES 101.2 BN in 2014 to KES 128.1 BN in 2015. Final dividend announced was KES 5.40 per share after an interim dividend of KES 0.75 during the year 2015, bringing the total dividend to KES 6.15 per share. On a trailing basis, CFC Stanbic Holdings is trading at a P/E ratio of 7.1x, similar to the industry median, P/B of 0.8x below the industry median of 1.5x, and ROE of 13.1% relative to the industry median of 20.3%. At a market price of KES 80.00 it is also trading below its net asset value per share of KES 97.05. We therefore issue an hold recommendation.
Uchumi Supermarkets 1H16 Results
Uchumi Supermarkets released its 1H16 results, recording a loss per share of KES 2.79 from a loss per share of EKS 0.72. Turnover was down 37.6% y-o-y to KES 4.3 BN, as cost of sales declined 38.4% y-o-y to KES 3.4 BN. This saw its gross margin dip 85.9% yo-y to KES 901.6 MN in 1H16, translating to a 107 bps y-o-y increase in gross profit margin to 21.1% in 1H16. The 35.9% y-o-y decline in other income coupled with an 11.7% y-o-y increase in operating expenses saw the retailer record a loss before tax of KES 964.8 MN, from a loss of KES 202.4 MN reported in 1H15. 1H16’s trailing loss per share stands at 11.44. Cash from operating activities deteriorated to negative levels (KES 676.3 MN) in 1H16 from a cash inflow of KES 227.1 MN, while capex saw cash used in investing activities recorded at KES 24.1 MN, from an inflow of KES 45.7 MN in 1H15 courtesy of asset disposals. Cash used in financing activities declined 47.6% y-o-y due to additional long term borrowings secured during the period that saw term loans up 212.8% y-o-y to KES 832.1 MN.
Unga Group 1H16 Results.
Unga Group released their 1H16 results recording a 20.6% decline in Profit after Tax (PAT) to KES 327.2MN from KES 412.2 MN in 1H15 after its 1H15 PAT was boosted by KES 151.0 MN one off gains. Operating profit went up 20.3% to KES 492.7MN as a result of a 9.0% increase in revenue to 10.5 BN driven by growth in sales and gains in conversion efficiency. Foreign exchange losses improved to KES 32.6 MN in 1H16 from KES 52.08 MN in 1H15 attributed to the depreciation of the Kenyan and Ugandan shilling against major currencies. The company expects maize availability to remain stable though this is not expected to continue due to the El nino rains and harvesting challenges. The Group opened a sales deport in Thika town in an effort to increase its product availability in central Kenya.
KQ Sells Prime London Slot
Kenya Airways (KQ) has sold its morning slot at London’s Heathrow Airport for KES 7.5 BN to Oman Air. This is in addition to the evening slot it sold to Emirates Airways for $15.0-$25.0 MN making a total deal value of $90.0-$100.0 MN. KQ’s sale of its coveted 5:30am slot is the highest priced slot deal to have taken place at Heathrow. The airline is estimated to have earned KSH 3.0 BN from the deal that is expected to offset the company’s debt. The airline currently departs for Heathrow in the morning and returns about two hours after Heathrow arrival to minimize parking costs. It is unclear whether the KES 3.0 BN from the sale is enough to cover the possible loss of business travellers who prefer leaving Kenya in the evening in order to arrive in London in the morning.