As the week kicks, Genghis Capital is recommending a buy in the East African Breweries Limited (EABL). The EABL share is currently retailing at 160 shillings.
“We updated our valuation as, despite the expected decline in FY20 results, we still see an upside of 26.0 percent. Attractive P/E ratio of 13.4x against peer average of 15.6x despite its expected above sector ROE of 61.7,” said Genghis.
On the fixed income, Genghis says that 34.2 billion shillings were rejected in last week’s re-opened 10-year paper. The analysts are of the view that the positioning bids (investors eyeing that tenor on their portfolios) can look at the FXD4/2019/10 paper as an alternative.
Monetary policy will be the focus in the week as closer home, the CBK Monetary Policy Committee (MPC) convenes while the US Federal Open Market Committee meeting sticks out in the developed world. Undoubtedly, monetary policy has picked up the slack against the backdrop of COVID-19 shock.
To be sure, the CBK MPC has knocked off 125bps from the benchmark Central Bank Rate (CBR) and lowered the Cash Reserve Ratio (CRR) by 100bps to stimulate demand in the pandemic environment.
The record-low interest rates in the US coupled with the massive liquidity injections is seen anchoring flows back to assets in emerging and frontier markets.
“Overall, we view the current monetary policy stance will be maintained by the respective central banks in the week,” said Genghis.
The Central Bank’s Monetary Policy Committee meeting is scheduled for this Wednesday. The meeting comes in the wake of rising confirmed COVID-19 cases in the country with a daily average of 601 in the 7-day period ending Friday 24th July.
The upsurge in the COVID-19 cases has mounted speculation of stricter containment measures during today’s meeting between the President and the Governors.
That said, COVID-19 fallout has been a drag in the economy and enhanced containment measures will further exacerbate the fragile situation.
“We would like to think of the 20.6% y/y drop in tax collections in the second quarter period as a leading indicator of anemic growth in the review quarter,” added Genghis.
The pandemic has worsened consumption with reduced aggregate income and business investment has been weighed by the knock-on confidence.