Equities Moved Through May With Mixed Signals

During the month of May, the equities market recorded mixed performance, with NASI and NSE 20 gaining by 0.5 and 0.3 percent respectively, while NSE 25 declined by 0.1 percent.

The equities market performance was driven by gains recorded by large-cap stocks such as EABL, ABSA Bank Kenya, Equity Group, and KCB Group, which gained by 9.1, 8.0, 7.8, and 5.1 percent respectively.

The gains were however weighed down by losses recorded by stocks such as Bamburi, Diamond Trust Bank Kenya (DTB-K), and Standard Chartered Bank Kenya, which declined by 10.5, 8.0, and 3.0 percent, respectively.

During the week, the equities market recorded mixed performance, with the NSE 20 gaining by 2.5 percent, while NASI and NSE 25 declined by 1.6 and 0.6 percent, respectively, taking their YTD performance to gains of 1.9, 11.7, and 8.3 percent for NSE 20, NASI and NSE 25.

The equities market performance was mainly driven by gains recorded by large-cap stocks such as Bamburi, ABSA Bank Kenya, and NCBA Group of 9.5, 2.7, and 2.6 percent respectively.

The gains were however weighed down by losses recorded by large-cap stocks such as Safaricom which declined by 3.2 percent.

Equities turnover increased by 44.3 percent during the month to USD 131.9 mn, from USD 91.4 mn recorded in April 2021.

Foreign investors remained net sellers during the month, with a net selling position of USD 7.3 mn, compared to April’s net selling position of USD 0.3 mn.

During the week, equities turnover decreased by 53.6 percent to USD 21.5 mn, from USD 46.3 million recorded the previous week, taking the YTD turnover to USD 530.8 million.

Foreign investors turned net sellers, with a net selling position of USD 1.7 mn, from a net buying position of USD 7.2 mn recorded the previous week, taking the YTD net selling position to USD 17.5 mn.

The market is currently trading at a price-to-earnings ratio (P/E) of 14.5x, 12.0 percent above the historical average of 12.9x, and a dividend yield of 3.7 percent, 0.4 percentage points below the historical average of 4.1 percent.

Key to note, NASI’s PEG ratio currently stands at 1.6x, an indication that the market is trading at a premium to its future earnings growth. Basically, a PEG ratio greater than 1.0x indicates the market may be overvalued while a PEG ratio less than 1.0x indicates that the market is undervalued.

Excluding Safaricom, the market is trading at a P/E ratio of 12.6x and a PEG ratio of 1.4x. The current P/E valuation of 14.5x is 87.8 percent above the most recent trough valuation of 7.7x experienced in the first week of August 2020. The charts below indicate the historical P/E and dividend yields of the market.