March'23 Review
• FY’22 Earnings Season - During the month, we had earnings releases from; the banking sector, Kakuzi, CIC, ILAM I-REIT, NSE, Umeme, Kenya Re, and Limuru Tea. Kakuzi’s FY’22 net earnings improved 164.53% to KES 0.85Bn driven by pricing benefits in the export markets. ILAM I-REIT FY’22 results were a 104.12% increase in PAT to KES 86.16Mn after new tenants at Greenspan Mall. Umeme’s FY’22 PAT increased 6.52% to KES 148.22Mn while LIMT’s FY’22 earnings improved 218.73% to KES 11.35Mn. Others that released but without dividend payments were; Britam, Liberty, HF Group, Kenya Orchards, and Kenya Airways.
• Additional Listings – During the month, we witnessed a listing by the introduction of the Laptrust Imara I-REIT. The new listing becomes the second I-REIT listing at the NSE after Fahari I-REIT. Laptrust, the REIT sponsor, was established as a pension scheme for employees of the then Local government authorities (e.g. municipalities) who later transitioned to county governments. The REIT currently owns commercial and residential buildings in Nairobi and Eldoret. The units will be trading at KES 20.00 per unit with a minimum investment of 250,000 units translating to KES 5.00Mn. We view the listing as a positive step in providing diversification for investors as well as providing exit avenues for pension schemes. However, we find the minimum investment to be prohibitive to the participation of retail investors.
• CEO Appointments – During the month we observed several top-level changes including: 1) ABSA- The board of ABSA appointed Abdi Mohamed as the Managing Director and CEO following the exit of Jeremy Awori in Q3’22 2) Kenya Re - The board of Kenya Re appointed Dr. Hillary Wachinga as the Managing Director to replace Jaradiah Mwarania 3) Bamburi Cement - The board of Bamburi Cement appointed Mr. Mohit Kapoor as the Group CEO to replace Mr. Seddiq Hassani who has served for the last five years.
• Inflation Maintained Contrary to Expectations - The headline inflation for the month of March maintained at 9.20% similar to February. Food inflation increased to 13.40% from 13.30% in February, and the housing utilities and transport indices declined marginally to 7.50% and 12.60% y/y, respectively. Non-Food-Non-Fuel (Core Inflation) maintained at 4.40% similar to February. The CPI increased 81bps to 131.18 in March from 130.13 in February 2023. We expect headline inflation to remain under pressure and above the CBK’s upper target at least until the end of Q2’23.
• Shilling Continued Losing Streak against USD - Kenya shilling continued to depreciate further against the USD to close at KES 132.33 versus KES 126.86 at the end of February. We observed a faster decline in the month of March (-4.32%) compared to February (-1.91%). We expect the shilling to remain under pressure due to dollar demand from energy importers, reduced dollar inflows, and dollar strength against frontier currencies.
• Forex Code Introduced to Guide Interbank Forex Pricing - The Central Bank of Kenya (CBK) announced the issuance of the Kenya Foreign Exchange Code (the FX Code) to commercial banks. The Code is expected to set out standards for commercial banks and promote the integrity and effective functioning of the wholesale forex market in Kenya. We believe the circulation of the code will facilitate better functioning of a flexible foreign exchange market.
• March MPC Meeting - Central Bank’s MPC held the second meeting of 2023 where the Central Bank Rate (CBR) was increased by a further 75 bps to 9.50% from 8.75%. The committee also noted the banking sector non-performing loans increased to 14.0% in Feb’23 while private sector credit growth slowed to 11.70% from 12.70% in December 2022. Exports grew by 11.00% driven by growth in the manufacturing sector with imports growing slower by 2.10%, whilst diaspora remittances were 4.90% higher than in Feb’22. This increase will have implications for the banking sector with lenders revising their benchmark lending rate upwards further increasing the cost of credit.
What does April hold ?
FY’22 Earnings Season Continues – In the month of April, we expect further releases of FY’22 results by companies such as Bamburi Cement, and Jubilee Holdings among others. We anticipate lower profits on the back of a tough operating environment in 2022 owing to the increase in the cost of inputs, currency depreciation, and changing consumer preferences.
