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Weekly Market Monitor - No. 01

Weekly Market Monitor - No. 35/2012

Genghis Capital Research: Equities, Fixed Income, Currency, Commodities

Genghis Capital Research: Equities, Fixed Income, Currency, Commodities

Themes: Momentum Building, Yield Upturn, Transmission of Global Uncertainty & Risks... Equities: NSE Ends in Soft Landing Fixed Income: Yields Remain Southward Bound Currency: Bond Inflows Supports KES Commodities: Isaac Strikes with No Lasting Damage 3 8 10 11

Weekly Market Monitor - No. 35

Executive Summary Themes: Momentum Building, Yield Upturn, Transmission of Global Uncertainty & Risks... Equities: NSE Ends in Soft Landing The bourse faced some pressure towards week end but was resilient to finish on an upward trend. The NSE closed 38.87 points higher at 3865.76 while the NASI maintained its growth momentum up 0.82 points in the week to close at 84.66. The FTSE 15 & the FTSE 25 were also up 2.08 & 1.64 points respectively. Local investors continued their dominance in the week accounting for 70% with foreign investors maintaining their overall positive stance at Kes.124.55Mn albeit heavy pressure from profit taking activities. Fixed Income: Yields Remain Southward BoundThe 91, 182 and 364 Day T-Bill auctions this week showed a further decrease in yields to 8.17%, 9.85% and 10.34%. The 91 and 182 papers were oversubscribed at 251% and 111%. The 364-Day T-Bill remained undersubscribed at 65%. Currency: Bond Inflows Supports KES Continued support from Bond Inflows and Export Inflows supported the KES in the week ensuring marginal losses. These losses were recorded with the KES slipping 1.90 % vs. EURO, down 1.59 vs. UGX and -1.28% vs. GBP. Ben Bernankes speech on Friday firmed up European currencies as investors expectations of further QE were realised though no explicit signal of any imminent action was revealed. The only gain of 0.08% was recorded in the ZARKES pair. Commodities: Isaac Strikes with No Lasting Damage Oil prices remains at USD 114 a barrel with the biggest news as the upgrade of Tropical Storm Isaac to a hurricane. Hurricane Isaac struck the US luckily evading the main oil rigs and energy infrastructure though is still a variable of the escalating oil price. The fact that the energy infrastructure was spared indicates that prices should decline in mid-September.

Weekly Market Monitor - No. 35

Equities: NSE Ends in Soft Landing The bourse faced some pressure towards week end but was resilient to finish on an upward trend. The NSE closed 38.87 points higher at 3865.76 while the NASI maintained its growth momentum up 0.82 points in the week to close at 84.66. The FTSE 15 & the FTSE 25 were also up 2.08 & 1.64 points respectively. Local investors continued their dominance in the week accounting for 70% with foreign investors maintaining their overall positive stance at Kes.124.55Mn albeit heavy pressure from profit taking activities. Equity turnover ascended to Kes.2Bn while Market Capitalisation closed marginally north at Kes.1.12Tn. "All intelligent investing is value investing -- acquiring more that you are paying for. You must value the business in order to value the stock." - Charlie Munger, Business Magnate, Vice Chair Berkshire Hathaway and Investor. This weeks trading highlights are summarized below: Table 1: NSE Performance Table 2: NSE Index Performance, Turnover

NSE 20 Share Index, Equity Turnover

4,800 4,600 4,400 4,200 4,000 3,800 3,600 3,400 3,200 3,000 2,800 3-Jan-11 3-Mar-11 3-May-11 3-Jul-11 3-Sep-11 3-Nov-11 3-Jan-12 3-Mar-12 3-May-12 3-Jul-12
Equity Turnover NSE 20 Share Index

1,930,000,000 1,730,000,000 1,530,000,000 1,330,000,000 1,130,000,000 930,000,000 730,000,000 530,000,000 330,000,000 130,000,000

Chart 2: Captures the trend of the Nairobi Stock Exchange NSE 20 Share Index vs. Equity Turnover.

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Table 3: NSE Performance

Week 34 Market Cap. (Kes.Bn) Equity T/O: (Kes.Mn) Bond T/O: (Kes.Mn)
Source: NSE, Genghis Capital

Week 35 1,117.39 2,074.85 2,942.10

1,106.54 1,027.38 18,556.45

% Change 0.98% 101.96% -84.15%

Our weekly segmental analysis (Table 4) shows a neutral performance from five of the sectors gaining versus 5 sectors losing value. The market as a whole was depressed 0.19%. The Banking segment was the best performing segment this week gaining 3.64%. This performance was largely up due to CFC Stanbic Ltd (NSE: CFC) gaining 6.67% to VWAP Kes.48.00. The Telecommunication &Technology segment was at the bottom declining by 2.36%. Safaricom Ltd (NSE: SCOM) was down 2.56% to close at Kes.3.80.

NSE Segment Performance

Table 4: Weekly Segmental Price Performance Analysis

Source: NSE & Genghis Capital

Weekly Market Monitor - No. 35

NSE P/E Analysis Four sectors moved into value territory in the week. The recent improvement in accumulation activities pushed the market marginally away from value territory 0.82%.

Table 5: NSE P/E Analysis

Sector Agricultural Automobiles & Accessories Banking Commercial & Services Construction & Allied Energy & Petroleum Insurance Investment Manufacturing & Allied Telecommunication & Technology Main Market P/E
Source: NSE

Constituents 7 4 10 9 5 4 6 4 9 2 60

Sector P/E Sector P/E Week 34 Week 35 3.77 3.78 NM NM 7.76 8.01 8.68 8.72 12.59 12.18 7.53 7.63 10.81 10.67 10.30 14.32 12.16 9.71 10.24 14.50 11.85 9.79

% Change 0.27% NM 3.22% 0.46% -3.26% 1.33% -1.30% -0.58% 1.26% -2.55% 0.82%

Foreign Investor Activity Total foreign investor equity turnover as a percentage of the total NSE turnover marginally declined to 30.46% this week compared to 37.76% at the close of the previous week. Total net inflows at the end of the week stood at Kes.124.55Mn compared to Kes.14.6Mn last week.

Table 6: Weekly Foreign Equity Turnover Summary (Fig in KES)

Day Mon Tue Wed Thur Fri TOTAL Buy 42,326,670.00 65,025,060.00 56,863,877.50 32,850,395.00 48,301,495.00 245,367,497.50 Sell 20,513,800.00 8,209,317.50 31,253,700.00 26,680,955.00 34,154,822.50 120,812,595.00 Net Inflows (Outflows) 21,812,870.00 56,815,742.50 25,610,177.50 6,169,440.00 14,146,672.50 124,554,902.50 Total NSE Turnover 188,630,807.00 269,893,744.00 338,931,326.00 196,384,585.00 208,226,992.00 1,202,067,454.00 Foreign T/O (% of Total NSE (T/O) 33.31% 27.13% 26.00% 30.31% 39.60% 30.46%

Source: NSE & Genghis Capital Dealers

Foreign Turnover on the top 5 traded counters accounted for 73.73% of the total weekly foreign investor activity at the close of Week 35 compared to 88.37% in Week 34. The purchase activity on these counters accounted for 72.67% of the total foreign buying activity on the NSE this week. The most actively bought counter was Equity Bank Ltd (NSE: EQTY).

Weekly Market Monitor - No. 35

Table 7: Top 5 Foreign Traded Counters - Week 35 (Fig in KES)

Equity Equity Bank Ltd British Tobacco (K) Ltd East African Breweries Ltd Kenya Commercial Bank Ltd Bamburi Cement Ltd TOTAL
Source: NSE & Genghis Capital Dealers

Buy 54,289,112.50 60,912,500.00 34,683,950.00 24,999,650.00 0.00 174,885,212.50

Sell 31,191,425.00 40,800.00 15,828,700.00 10,428,750.00 32,229,350.00 89,719,025.00

Net Inflows (Outflows) 23,097,687.50 60,871,700.00 18,855,250.00 14,570,900.00 -32,229,350.00 85,166,187.50

Total Weekly Turnover 85,480,537.50 60,953,300.00 50,512,650.00 35,428,400.00 32,229,350.00 264,604,237.50

Trading Ideas: The table below shows the performance of selected stocks that Genghis Capital recommended so far in the year 2012.
Table 8: Equity Picks (Fig in KES)

Company Centum Investments Ltd Equity Bank Limited KenolKobil Limited NIC Bank Limited EA Cables Ltd Athi River Mining Ltd Diamond Trust Bank Ltd KCB Group Ltd Uchumi Supermarkets Ltd Kenya Power & Lighting Co. Nation Media Group Ltd British American Investments Cooperative Bank Limited Kenya Reinsurance Corp. Scangroup Ltd Portfolio Return Source: NSE & Genghis Capital

Price at Target Price Recommendation 14.55 15.80 9.80 26.50 11.80 156.00 88.50 18.50 7.20 15.85 153.00 4.00 11.55 10.05 49.25 19.55 19.90 16.90 45.50 14.55 198.50 123.40 27.10 17.25 22.00 197.70 6.25 18.50 15.35 59.60

Current Price 12.00 22.50 14.75 33.00 10.20 206.00 100.00 25.75 15.25 17.40 205.00 5.80 11.55 10.95 57.50

Upside Potential 38.62% -13.07% 12.72% 27.47% 29.90% -3.78% 18.96% 4.98% 11.59% 20.91% -3.69% 7.20% 37.57% 28.66% 3.52%

Return to Date -17.53% 42.41% 50.51% 24.53% -13.56% 32.05% 12.99% 39.19% 111.81% 9.78% 33.99% 45.00% 0.00% 8.96% 16.75% 26.46%

Recommendation

BUY HOLD HOLD BUY BUY SELL BUY BUY HOLD BUY HOLD BUY BUY BUY BUY

Weekly Market Monitor - No. 35

Genghis Index:
Table 9: Genghis Index Performance Large-Cap Index The index closed 1.74% higher in terms of price performance with market capitalization following suit to Kes. 959Bn. CFC Stanbic Ltd (NSE: CFC) was the segments best performing counter +6.67% - VWAP Kes.48.00. Bamburi Cement Ltd (NSE: BAMB) closed 5.08% lower at VWAP 168.00.

Mid-Cap Index Price performance declined 0.07% this week with market capitalization rising to Kes.129.7Bn. Pan Africa Insurance Ltd (NSE: PANFR) was the segments best performer up 6.43% - VWAP Kes.37.25. B.O.C Kenya Ltd (NSE: BOC) was the sectors worst performing stock shedding 7.27% to close with a VWAP of Kes.102.00.

Small-Cap Index Car & General (K) Ltd (NSE: C&G) was the segments best performer advancing 8.70% to VWAP Kes.25.00. CIC Insurance Group Ltd (NSE: CIC) was the worst performing stock -10.71% VWAP Kes.3.75.

Table 10: Investors Diary

Date 3rd September 4th September 5th September 6th September 6th September 7th September 7th September

Firm/Body CABL BBK CBK BOC CBK BAT NIC

Description Payment of Final Dividend Kes.0.50 Books Closure; Interim Dividend Kes.0.30 182-Day T-Bill Books Closure; Interim Dividend Kes.2.00 91-Day T-Bill Payment; Interim Dividend Kes.3.50 Last Day to trade Rights

Source: NSE & Genghis Capital

Weekly Market Monitor - No. 35

Fixed Income: Yields Remain Southward Bound Money Markets: Data from Bloomberg indicated that the average interbank rate closed the week at 7.408% lower than 8.543% at the close of the previous week. Primary Markets: The results of the 91, 182 & 364 Day T-Bill auctions this week are shown below. The 91 & 182 Day papers were oversubscribed while the government did not meet its target with the 364 Day paper. Increased liquidity and expectations of a rate cut due to reduced inflation have been pushing the yields down. The MPC is set to meet later this week.
Table 11: Week 34 Auction Results

Weighted Avg. Rate Tenor Last 91 Day 8.583% 182 Day 10.032% 364 Day 12.853%
Source: CBK, Genghis Capital

Latest 8.169% 9.848% 10.336%

Change (bps) -41.40 -18.40 -251.7

Subscription Rate 251%* 111%* 65%*

*absolute terms

Secondary Markets: Decreased activity in the bond market down 84.15% in the week to Kes.2.94Bn in turnover from last weeks close of Kes.18.6Bn. The IFBs accounted for only 26.15 of the turnover.

Table 7: Short -Term Interest Rates, Treasury Notes & CDs

Tenor 91 Day 182 Day 1 Year 2 Year 5 Year 10 Year

Kenya 8.17% 9.85% 10.34% 11.11% 11.86% 12.71%

Uganda 13.10% 18.06% 17.00% 14.84% 15.39% 15.28%

Tanzania 13.06% 13.53% 13.54% 13.81% 14.74% 14.99%

U.S 0.11% 0.13% 0.19% 0.26% 0.71% 1.16%

LIBOR (USD) 0.43% 0.72% 1.04% ----

Source: CBK, BOU, BOT, US Treasury, BBA, Genghis Capital

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Table 13: Fixed Income Gross Cash-Flows for the Month of September:

Issue No. Govies FXD 3/2007/5 FXD 1/2009/5 FXD 1/2006/10 FXD 1/2006/11 FXD 1/2007/15 FXD 3/2010/2 FXD 3/2012/1 FXD 3/2011/2 FXD 3/2008/10 FXD 1/2008/15 FXD 1/2010/15

Cash Flow C+P C C C C C C C C C C

Due Date* 17-Sep-2012 17-Sep-2012 17-Sep-2012 17-Sep-2012 17-Sep-2012 24-Sep-2012 24-Sep-2012 24-Sep-2012 24-Sep-2012 24-Sep-2012 24-Sep-2012

Issued Amount 9,188.60 9,751.41 3,451.05 4,031.40 3,654.60 12,758.12 15,038.39 10,000.00 4,151.60 7,380.90 10,419.88

Coupon (%) 9.50% 9.50% 14.00% 13.75% 14.50% 3.814% 16.432% 10.50% 10.75% 12.50% 10.25%

Gross - MM 9,625.06 463.19 241.57 277.16 264.96 243.30 1,235.55 525.00 223.15 461.31 534.02

Source: CBK, NSE, Genghis Capital Estimates

C- Coupon, P Principal

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Evolution of the Yield Curve 13/01/2012 to 31/08/2012

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15

10

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 6-Jan-12 31-Aug-12

NSE Yield Curve Emergence of a flat Yield Curve as yields on the Short Term Paper have taken a dip in recent auctions with long dated paper remaining stagnated.

Weekly Market Monitor - No. 35

Currency Bond Inflows Supports KES Performance: Continued support from Bond Inflows and Export Inflows supported the KES in the week ensuring marginal losses. These losses were recorded with the KES slipping 1.90 % vs. EURO, down 1.59 vs. UGX and -1.28% vs. GBP. Ben Bernankes speech on Friday firmed up European currencies as investors expectations of further QE were realised though no explicit signal of any imminent action was revealed. The only gain of 0.08% was recorded in the ZARKES pair.

Table 14: Spot & Select Forward Ask Rates

Outright Forward Rates (Ask)

Pair/Cross USD/KES GBP/KES EUR/KES ZAR/KES KES/UGX KES/TZS INR/KES Week 34 84.06 131.87 104.10 10.01 30.26 18.83 1.50 Week 35 84.33 133.56 106.08 10.00 29.78 18.66 1.52 Annualized Volatility* 1.80% 10.45% 7.14% 6.87% 10.83% 2.77% 2.41% 1M 84.79 134.27 106.69 2M 85.23 135.02 107.34 3M 85.68 136.10 108.24 6M 86.82 138.80 110.54 -

Source: CBK, Bloomberg, Genghis Capital Estimates

*5 Day Annualized

Technical Analysis and Outlook: The Ichimoku chart below outlines the 1-Yr performance of the EURKES currency pair. In majority of the period, the conversion line was below the Base line thus the huge pressure on the EUR. The conversion line recently broke the Base line from below indicating strengthening of the EUR against the KES.

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Weekly Market Monitor - No. 35

Commodities Isaac Strikes with No Lasting Damage Oil/Fuel: Oil prices remains at USD 114 level a barrel with the biggest news as the upgrade of Tropical Storm Isaac to a hurricane. Hurricane Isaac struck the US luckily evading the main oil rigs and energy infrastructure though is still a variable of the escalating oil price. The fact that the energy infrastructure was spared indicates that prices should decline in mid-September.

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Weekly Market Monitor - No. 35

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Contacts Report By: Moses Waireri,Research Analyst | Tel:+254 20 2774781 | Email: mwaireri@genghis-capital.com Report By: Evelyne Wanjiku, Research Analyst | Tel:+254 20 2774781 | Email: ewanjiku@genghis-capital.com Anthony Kimani, Research Analyst | Tel:+254 20 2774781 | Email: akimani@genghis-capital.com Kelvin Nyabando, Research Analyst | Tel:+25420 2774781 | Email: knyabando@genghis-capital.com George Guy,Fixed Income Dealer | Tel:+254 20 2774756| Mob: +254 727 142231 | Email: gguy@genghis-capital.com Nyawira Waithaka, Equity Dealer | Tel:+254 20 2774777 | Mob: +254 723 693481 | Email: nwaithaka@genghis-capital.com Andrew Maina, Senior Equity Dealer | Tel:+254 20 2774789 | Mob: +254 722 667936 | Email: amaina@genghis-capital.com
Disclaimer: The content provided on this document is provided as general information and does not constitute advice or recommendation by Genghis Capital Ltd and should not be relied upon for investment decisions or any other matter and that this document does not constitute a distribution recommending the purchase or sale of any security or portfolio. Please note that past performance is no indication of future results. The ideas expressed in the document are solely the opinions of the author at the time of publication and are subject to change without notice. Although the author has made every effort to provide accurate information at the date of publication all information available in this report is provided without any express or implied warranty of any kind as to its correctness. You should consult your own independent financial adviser to obtain professional advice before exercising any decisions based on the information present in this document. Any action that you take as a result of this information, analysis, or advertisement is ultimately your responsibility.

Genghis Capital Ltd, Prudential Assurance Building, Wabera Street, Nairobi.

Tel: +254 20 2774760Fax: +254 20 246334

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