Energy Regulatory Commission Approves Centum’s AMU Power Plant

Macro Economic

Kenya National Bureau of Statistics is expected to release the February 2017 inflation y/y number in the day. Energy Regulatory Commission reviewed upwards its fuel pump prices in its mid-February review that will directly impact on the fuel component and indirectly affect the food segment. The dry spell that had engulfed the nation has been broken by intermittent rainfall in the past month but we are likely to see trickle down in the March inflation number. (For now, hold up toasting the champagne glasses). We do not expect a flare up in the inflation print beyond the 7.50% upper bound range.

Standard Chartered MNI Business Sentiment Indicator will be released in the day. The indicator is a monthly survey of 200 business executives, including from listed firms, and provides a unique data to gauge the economic strength. The January figure came in at 59.60 –down from 62.40 in December – highlighting the detrimental impact of the private credit slowdown which has been on a downtrend to 4.30% in December.

Fixed Income

The central bank has announced the tap sale this morning and they will be looking to sell KES 24Bn at the average accepted rate of 13.555%. The offer is open from 28^th February 2017 to 2^nd March 2017. Secondary market turnover stayed flat yesterday at KES 491Mn and we expect turnover to remain subdued going forward. The Central Bank came in to the market to mop up 20Bn in a bid to support the local currency.

Corporate News

Centum Investments Ltd’s Amu Power Company has obtained the go-ahead by the Energy Regulatory Commission (ERC) to implement its coal power generation project that has been facing opposition from a local community-based organization. The government has announced it is addressing the matters raised regarding adequate compensation and resettlement which has stalled the programme since last year. The power project will be implemented through a consortium of investors including Centum, Gulf Energy and other Chinese investors with Gulf Energy as the lead developer of the project. On completion, the power project will help diversify the country’s energy mix by adding approximately 1,050MW to the grid. The Company has already signed a 25-year power purchase agreement with Kenya Power for KES 7.71/unit, which is relatively cheaper than thermal power (KES 20.00/unit) that currently contributes about 18% of the energy mix.

Limuru Tea Company Ltd (NSE: LIMT) has issued a profit warning expecting their FY16 earnings to decline by more than 25% y/y. The anticipated weaker results are attributed to increased cost of production as well as change in valuation of their biological assets, which classifies Bearer Plants as depreciating assets. The counter is currently trading at KES. 501.00, a little over its 52-week low of KES. 490.00

Trading Expectation

Market turnover was subdued at KES 114Mn levels. We noted foreign flows out of Safaricom Ltd (NSE: SCOM) in the day. KCB Group Ltd (NSE: KCB) had 100% local participation while foreigners were on both sides of East African Breweries Ltd (NSE: EABL). We expect the market to continue seeing foreigners showing interest in Safaricom Ltd (NSE: SCOM) although the VIX index did have an increase indicating reduced risk appetite.

With four companies having released their financial results, below is our summarized view;

• Kenya Power (NSE: KPLC) is attractive to value investors based  on a trading multiple P/E 1.7x (vs. Umeme Ltd.’s P/E 7.7x)
• Stanbic Holdings Plc (NSE: CFC) is trading at a P/B of 0.86x which is attractive to investors.  
• British American Tobacco Kenya (NSE: BAT) high dividend pay-out should be positive to long term and dividend investors.
• Barclays Bank of Kenya Ltd (NSE: BBK) counter remains attractive at current P/B of 1.2x.

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