Trading Activity at Nairobi Bourse Expected to Remain Subdued on Monday

Market turnover declined further on Friday to 1.79 billion shillings from 2 billion shillings, with 1 billion shillings of the trades resulting from the Infrastructure bonds that traded.

Trading activity is expected to remain subdued on Monday, as the banks approach the end of their liquidity cycle; which results in minimal activity so as to maintain their average monthly liquidity numbers.

In terms of market liquidity, the Central Bank of Kenya was in the market to mop up 5 billion shillings and was able to mop up 5.25 billion shillings at 7.048 percent interest, for a 7 day re-po, this was in a bid to ease pressure and support the shilling.

Corporate News

Kenya Electricity Generating Company

Kenya Electricity Generating Company (NSE: KEGN) eyes different sources of financing after the debt-to-equity swap, in the company’s previous rights issue, has significantly altered its gearing ratio.

The rights issue saw the government absorb 20.15 billion shillings in debt, previously recorded as on-lent loans; resulting in the listed power producer’s gearing ratio dropping to 43 percent, from a high of 94 percent in 2011.

The company has announced that it will leverage on concessional funding from bilateral and multilateral lenders, which offer favorable terms, but foreign denominated debt has previously plagued the company’s long-term outlook; thus, at an investor briefing the company mentioned an increased attention to internally generated sources.

Previously, the company stuck to a dividend policy of 30% profit before tax and 50% profit after tax, however, with more stringent approaches to cash reserves, the company has seen its self-financing ratio increase by 200bps to 61%.

Energy Regulatory Commission

Fuel cost levy has been revised up by the Energy Regulatory Commission (ERC), for the first time since January 2016.

The charge, that is linked to the amount of power generated from expensive diesel generators and passed on to consumers, is expected to translate into 16 million shillings this month. The Forex levy, which is linked to foreign currency expenses incurred by energy distributors and generators, registered a marginal decline of 0.01 shillings to 0.91 shillings; which is insufficient to offset the rise in fuel levy, with the two being adjustable every month.

The increase in electricity bills will have an adverse effect on inflation, that reached an eight-month high of 6.47 percent last month, however, a favorable effect on Kenya Power and Lighting Company Limited (NSE: KPLC) top line.

Williamson Tea Kenya and Kapchorua Tea Company

Listed agricultural firms Williamson Tea Kenya Ltd (NSE: WTK) and Kapchorua Tea Company Ltd (NSE: KAPC) have both announced pre-tax losses of 263.11 million shillings and 128.12 million shillings respectively- for the six-month period ending 30th September.

Williamson and Kapchorua recorded increased turnover to the tune of 1.73 billion shillings and 675.74 million shillings respectively; buoyed by the higher crop levels which had the impact of deflating prices to two-year lows, coupled with the rising cost of production, which reflected negatively on the bottom line.

The twin firms are both awaiting the Court of Appeal ruling that could potentially quash the Industrial Court judgement, that awarded 50 percent wage and benefit increases to its employees for years 2014 and 2015.

Trading Expectation On Monday

According to Genghis Research, there is a noted an increased interest in the Athi River Mining Company Limited (NSE: ARM) and Kenya Electricity Generating Company (NSE: KEGN) counters.

The researcher expects interest in the banking stocks to continue in the day’s trading, as Kenya Commercial Bank Limited (NSE: KCB) released its financials and Equity Group Holdings Limited (NSE: EQTY) continues to innovate; due to the rate cap, which reduced the earning potential for interest earnings.