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Weekly Market Monitor - No. 01

Weekly Market Monitor - No. 36/2012

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 Hits New High Fixed Income: Yields Remain Depressed Currency: Uncertainty Pressures KES Commodities: Europe Depresses Oil Prices 3 8 10 11

Weekly Market Monitor - No. 36

Executive Summary Themes: Momentum Building, Yield Upturn, Transmission of Global Uncertainty & Risks... Equities: NSE Hits New High The bourse bounced back in the week despite intense pressure surrounding the MPC decision. The NSE 20 Share closed 33.86 points higher at 3,899 points. The NASI gained 1.24 points in the week at 85.90 as the FTSE 15 and 25 indices limped 0.19% and 0.39% respectively. Local investors dominated the week at 52% of total turnover despite improved foreign participation. Foreigners maintained their long positions on most counters at Kes.174Mn; 40% higher than last weeks close of Kes.124Mn. Fixed Income: Yields Remain DepressedThe 91 and 182 Day T-Bill auctions this week showed a further decrease in yields to 7.81% and 9.35%. The 182 paper was oversubscribed at 171% while the 91-Day paper was undersubscribed at 81%. Currency: Uncertainty Pressures KES Uncertainty surrounding the MPC decision saw increased volatility with the local currency. The currency weakened against all but one of the pairs listed in Table 14. The largest losses were 2.70% against the ZAR and 0.92% in the INR/KES pair. The only gain was 0.06% against the USD where the shilling was seen to hold stable despite importers and banks increasing their long position exposures. Commodities: Europe Depresses Oil Prices Oil prices fell to near USD 95 levels boosted by the latest developments in Europe with the ECB initiating its latest move of bond-buying to help lower borrowing costs for Euro nations struggling with Debt and thus control the crisis. A drop in US unemployment benefit applications also buoyed the recent drop in oil prices. Hurricane Isaac interrupted oil imports deliveries and refinery activity in the Gulf Coast affected oil price.

Weekly Market Monitor - No. 36

Equities: NSE Hits New High The bourse bounced back in the week despite intense pressure surrounding the MPC decision. The NSE 20 Share closed 33.86 points higher at 3,899 points. The NASI gained 1.24 points in the week at 85.90 as the FTSE 15 and 25 indices limped 0.19% and 0.39% respectively. Local investors dominated the week at 52% of total turnover despite improved foreign participation. Foreigners maintained their long positions on most counters at Kes.174Mn; 40% higher than w=last weeks close of Kes.124Mn. Equity turnover slipped to Kes.1.7Bn while Market Capitalisation closed marginally north at Kes.1.13Tn. "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 9-Sep-10 9-Nov-10 9-Jan-11 9-Mar-11-May-119-Jul-119-Sep-11 9 9-Nov-11 9-Jan-12 9-Mar-12-May-129-Jul-12 9 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

Equity Turnover

NSE 20 Share Index

Chart 2: Captures the trend of the Nairobi Stock Exchange NSE 20 Share Index vs. Equity Turnover. The NSE 20 Share Index hits a new high in the year this week.

Weekly Market Monitor - No. 36

Table 3: NSE Performance

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 27,528.40

Week 36 1,133.73 1,768.88 24,089.90

% Change 1.46% -14.75% -12.49%

Our weekly segmental analysis (Table 4) shows a dominant performance with eight sectors gaining versus two sectors losing value. The market as a whole was buoyed 1.65% with these developments. The Investment segment was the best performing segment this week gaining 7.46%. This performance was largely up due to City Trust Ltd (NSE: CITY) gaining 20.69% to VWAP Kes.350.00. The Agriculture segment was at the bottom declining by 1.76%. Williamson Tea Kenya Ltd (NSE: WTK) was down 5.78% to close at Kes.212.00.

NSE Segment Performance

Table 4: Weekly Segmental Price Performance Analysis

Source: NSE & Genghis Capital

Weekly Market Monitor - No. 36

NSE P/E Analysis Two sectors moved into value territory in the week. The recent improvement in accumulation activities pushed the market marginally away from value territory 1.53%.

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 35 Week 36 3.78 3.68 NM NM 8.01 8.04 8.72 8.73 12.18 12.53 7.63 7.52 10.67 11.12 10.24 14.50 11.85 9.79 10.65 14.68 12.47 9.94

% Change -2.65% NM 0.37% 0.11% 2.87% -1.44% 4.22% 4.00% 1.24% 5.23% 1.53%

Foreign Investor Activity Total foreign investor equity turnover as a percentage of the total NSE turnover increased to 42.41% this week compared to 30.46% at the close of the previous week. Total net inflows at the end of the week stood at Kes.174.71Mn compared to Kes.124.55Mn last week.

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

Day Mon Tue Wed Thur Fri TOTAL

Buy 131,283,857.50 25,810,680.00 222,567,247.50 59,714,702.50 29,337,730.00 468,714,217.50

Sell 49,249,325.00 25,689,950.00 139,980,370.00 76,530,662.50 2,552,485.00 294,002,792.50

Net Inflows (Outflows) 82,034,532.50 120,730.00 82,586,877.50 -16,815,960.00 26,785,245.00 174,711,425.00

Total NSE Turnover 484,352,802.00 148,099,819.00 556,667,138.00 424,245,612.00 185,122,171.00 1,798,487,542.00

Foreign T/O (% of Total NSE (T/O) 37.27% 34.77% 65.13% 32.11% 17.23% 42.41%

Source: NSE & Genghis Capital Dealers

Foreign Turnover on the top 5 traded counters accounted for 87% of the total weekly foreign investor activity at the close of Week 36 compared to 73.73% in Week 35. The purchase activity on these counters accounted for 87.04% of the total foreign buying activity on the NSE this week. The most actively bought counter was East African Breweries Ltd (NSE: EABL).

Weekly Market Monitor - No. 36

Table 7: Top 5 Foreign Traded Counters - Week 36 (Fig in KES)

Equity East African Breweries Ltd Kenya Commercial Bank Ltd Athi River Mining Ltd Scan Group Ltd Equity Bank Ltd TOTAL
Source: NSE & Genghis Capital Dealers

Buy 170,050,150.00 134,154,300.00 69,770,000.00 1,678,000.00 32,329,300.00 407,981,750.00

Sell 137,938,800.00 80,875.00 16,011,000.00 77,453,200.00 22,133,112.50 253,616,987.50

Net Inflows (Outflows) 32,111,350.00 134,073,425.00 53,759,000.00 -75,775,200.00 10,196,187.50 154,364,762.50

Total Weekly Turnover 307,988,950.00 134,235,175.00 85,781,000.00 79,131,200.00 54,462,412.50 661,598,737.50

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 Bamburi Cement Ltd Cooperative Bank Limited Kenya Reinsurance Corp. Scangroup Ltd Portfolio Return
Source: NSE & Genghis Capital

Price at Recommendation 14.55 15.80 9.80 26.50 11.80 156.00 88.50 18.50 7.20 15.85 153.00 4.00 168.00 11.55 10.05 49.25

Target Price Current Price 19.55 19.90 16.90 45.50 14.55 198.50 123.40 27.10 17.25 22.00 197.70 6.25 201.00 18.50 15.35 59.60 12.55 22.25 15.10 35.25 10.05 208.00 100.00 26.25 16.00 16.60 205.00 5.85 174.00 11.60 11.85 56.50

Upside Potential 35.81% -11.81% 10.65% 22.53% 30.93% -4.79% 18.96% 3.14% 7.25% 24.55% -3.69% 6.40% 13.43% 37.30% 22.80% 5.20%

Return to Date -13.75% 40.82% 54.08% 33.02% -14.83% 33.33% 12.99% 41.89% 122.22% 4.73% 33.99% 46.25% 3.57% 0.43% 17.91% 14.72% 26.96%

Recommendation

BUY HOLD HOLD BUY BUY HOLD BUY HOLD HOLD BUY HOLD HOLD HOLD BUY BUY HOLD

Weekly Market Monitor - No. 36

Genghis Index:
Table 9: Genghis Index Performance Large-Cap Index The index closed 0.84% higher in terms of price performance with market capitalization following suit to Kes. 972Bn. NIC Bank Ltd (NSE: NIC) was the segments best performing counter +6.82% - VWAP Kes.35.25. Kenya Power & Lighting Ltd (NSE: KPLC) closed 4.60% lower at VWAP 16.60.

Mid-Cap Index Price performance bounced back 1.69% this week with market capitalization rising to Kes.140Bn. Pan Africa Insurance Ltd (NSE: PANFR) was the segments best performer up 12.08% - VWAP Kes.41.75. Standard Group Ltd (NSE: SGL) was the sectors worst performing stock shedding 5.56% to close with a VWAP of Kes.21.25.

Small-Cap Index City Trust Ltd (NSE: CITY) was the segments best performer advancing 20.69% to VWAP Kes.350.00. Williamson Tea Kenya Ltd (NSE: WTK) was the worst performing stock -5.78% VWAP Kes.212.00.

Table 10: Investors Diary

Date 12th September 12th September 12th September 13th September 13th September 13th September 14th September

Firm/Body CBK DTBK CFC CBK CFC SCOM NIC

Description 182-Day T-Bill Commencement of trading in new shares Commencement of Rights Issue ratio 4:9 at Kes.33 91-Day T-Bill Books Closure; Interim Dividend Kes.0.73 Books Closure; Dividend Kes.0.22 Closing Date of Rights Issue

Source: NSE & Genghis Capital

Weekly Market Monitor - No. 36

Fixed Income: Yields Remain Depressed Money Markets: Data from Bloomberg indicated that the average interbank rate closed the week lower at 6.956% compared to 7.408% at the close of the previous week. Primary Markets: The results of the 91 & 182-Day T-Bill auctions for this week are shown below. The 182-Day paper was oversubscribed while the government did not meet its target with the 91-Day paper. The newly issued 15-yr bond is still on offer until 18th September with the auction being done on 19th September. The bond has a fixed coupon of 11% pa. Uganda will offer a 3-yr TBond worth USD 39.76Mn in the coming week at a fixed rate of 10.25%.
Table 11: Week 36 Auction Results

Weighted Avg. Rate Tenor Last 91 Day 8.169% 182 Day 9.848%
Source: CBK, Genghis Capital

Latest 7.808% 9.351%

Change (bps) -31.10 -49.70

Subscription Rate 81%* 171%*

*absolute terms

Secondary Markets: Decreased activity in the bond market down 12.49% in the week to Kes.24.09Bn in turnover from last weeks close of Kes.27.53Bn. The IFBs accounted for 35.21% of the total turnover at Kes.8.43Bn.

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

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

Kenya 7.81% 9.35% 10.34% 11.11% 11.86% 12.71%

Uganda 12.94% 12.43% 12.01% 14.84% 15.39% 15.28%

Tanzania 13.06% 13.53% 13.54% 13.81% 14.49% 14.99%

U.S 0.10% 0.11% 0.18% 0.27% 0.68% 1.68%

LIBOR (USD) 0.41% 0.70% 1.03% ----

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

Weekly Market Monitor - No. 36

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. 36

Currency Uncertainty Pressures KES Performance: Uncertainty surrounding the MPC decision saw increased volatility with the local currency. The currency weakened against all but one of the pairs listed in Table 14. The largest losses were 2.70% against the ZAR and 0.92% in the INR/KES pair. The only gain was 0.06% against the USD where the shilling was seen to hold stable despite importers and banks increasing their long position exposures.
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 35 84.33 133.56 106.08 10.00 29.78 18.66 1.52 Week 36 84.28 133.96 106.99 10.27 29.73 18.62 1.53 Annualized Volatility* 5.81% 6.87% 12.54% 15.21% 10.85% 10.05% 13.91% 1M 84.68 134.78 107.69 2M 85.07 135.70 108.47 3M 85.48 136.52 109.16 6M 87.35 139.19 111.45 -

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. 36

Commodities Europe Depresses Oil Prices Oil/Fuel: Oil prices fell to near USD 95 levels boosted by the latest developments in Europe with the ECB initiating its latest move of bond-buying to help lower borrowing costs for Euro nations struggling with Debt and thus control the crisis. A drop in US unemployment benefit applications also buoyed the recent drop in oil prices. Hurricane Isaac interrupted oil imports deliveries and refinery activity in the Gulf Coast affected oil price. Looking ahead, the oil market is patiently waiting for the US jobs release figures for August to aid in gauging the health of the USA.

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Weekly Market Monitor - No. 36

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Weekly Market Monitor - No. 36

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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