Equities Market On A Downward Trajectory As Covid19 Bites

During the week, the equities market was on a downward trajectory, with NASI, NSE 20 and NSE 25 declining by 4.2, 5.3, and 7.1 percent respectively according to this week’s Cytonn Report.

Downward trajectory took the YTD performance to losses of 23.5, 27.8, and 26.9 percent for the NASI, NSE 20 and NSE 25, respectively.

The NSE 20 share index traded at a 17-year low, closing at 1,917.7 points compared to the previous low of 1,948.5 points recorded in 2003.

According to Cytonn Investment’s report, the YTD losses of all the three indices breach the threshold of a bear market, which is a condition in which securities prices fall by 20.0 percent or more.

During the week:

KCB Group announced that it had set aside a Kshs 30.0 bn credit facility in an effort to cushion individuals and businesses grappling with the effects of the Coronavirus pandemic.

The credit facility will be accessed through the lender’s mobile lending platform, KCB M-Pesa, and will issue loans from 50.0 shillings to 1.0 million shillings depending on the customer’s credit rating.

Equity Group was given the green light by the Committee Responsible for Initial Determination (CID), a Commission mandated to monitor and investigate possible breaches of the COMESA Competition Regulations aimed at acquiring a 66.5 percent controlling stake worth 10.9 billion shillings in Banque Commerciale du Congo (BCDC).

For earnings releases during the week, ABSA Bank Kenya, I&M Holdings and NCBA Group released their FY’2019 financial results, recording core earnings per share growths of 21.2, 26.6 and 12.4 percent respectively.

The performance of the NASI was driven by losses recorded by most large-cap stocks, with EABL, Equity, KCB Group and ABSA recording losses of 15.1, 14.8, 13.7, and 10.7 percent respectively. The losses are attributable to the ongoing Coronavirus pandemic, with investors selling out of the equities market.

Equities turnover decreased by 25.3% during the week to USD 37.3 mn, from USD 50.0 mn recorded the previous week, taking the YTD turnover to USD 428.2 mn.

Foreign investors remained net sellers for the week, with a net selling position of USD 17.6 mn, from a net selling position of USD 28.9 mn recorded the previous week. The trend reflects the global equity markets with foreign investors disposing of riskier assets in favor of safe havens.

The market is currently trading at a price to earnings ratio (P/E) of 8.4x, 36.7 percent below the historical average of 13.2x, and a dividend yield of 7.4 and 3.4 percentage points above the historical average of 4.0 percent.

With the market trading at valuations below the historical average, Cytonn Investments believes there is value in the market.

The current P/E valuation of 8.4x is 13.8 percent below the most recent trough valuation of 9.7x experienced in the first week of February 2017, and 0.7 percent above the previous trough valuation of 8.3x experienced in December 2011. The charts below indicate the historical P/E and dividend yields of the market.