July'23 Review
• Carbacid BOC Buyout Dispute – The month of July saw the commencement of hearing of disputed cases by the CMA tribunal. The tribunal has been hearing the case involving the take over of BOC by Carbacid whose deal had been filled for objection. We expect resolution of the tribunal case to have a positive impact on BOC’s share price in the near term.
• Nation Media Share Buyback - The month of July saw the commencement of Nation Media Group’s share buyback which opened on 3rd July 2023 and will close on 2nd July 2024. The proposed buyback is 10% of ordinary issued shares totaling 19.03Mn ordinary shares at KES 20.00 per share.
• Corporate Profit Warning – The month of July saw the announcement of an expectation of greater than 25% decline in the prior year’s net earnings from CTUM. The decline was attributed to impairment provisions relating to the business operations of its majority owned subsidiary, Two Rivers Development Limited (TRDL).
• Earnings Season - During the month, we had FY’23 earnings release from East African Breweries, Centum, Nairobi Business Ventures and HY’23 earnings from British American Tobacco (k). EABL reported a 20.87% decline in PAT to KES 12.32Bn and a final dividend of KES 1.75 per share, bringing the total dividend to KES 5.50. Centum reported a 248.51% increased loss to KES 7.31Bn and a final dividend of KES 0.60 per share. NBV reported an 82.97% decline in PAT to KES 8.63Mn while BAT reported a 3.52% decline in PAT to KES 2.82Bn and an interim dividend of KES 5.00 per share.
• Local Pump Prices Marginally Decrease with Higher VAT - EPRA announced the marginal decrease in local pump prices with the maintenance of implemented 16.00% VAT despite the previous suspension of the Finance Act 2023. Petrol will retail at KES 194.68/litre (-KES 0.85), diesel at KES 179.67/litre and kerosene at KES 169.48/litre (+KES 3.96). We expect that fuel prices will remain heightened despite the decrease in global oil prices. The reduction of the railway development levy and the import declaration levy will have minimal impact on pump prices reduction.
• Inflation Decreases below CBK Target-The headline inflation for the month of July decreased to 7.30% from 7.90% in June, the lowest over a 14-month period, on the back of a decline food commodities prices. Inflation is now within CBK’s target rage of 2.50% -7.50%. Food inflation decreased to 8.60% from 10.30% in June. Housing utilities decreased to 7.80% y/y with transport increasing to 13.00% y/y . Non-Food-Non-Fuel (Core Inflation) decreased to 3.80% from 4.10% in June. The CPI increased 10bps to 134.15 from 134.01 in June 2023. We expect headline inflation to remain under pressure and within the CBK’s upper target at least until the end of Q3’23.
• Shilling Continued Losing Streak Against USD - Kenya shilling continued to depreciate further against the USD to close at KES 142.36 versus KES 140.52 at the end of June. We observed a slower decline in the month of July (-1.29%) compared to June (-1.52%). We expect the shilling to remain under pressure due to the increased dollar demand from importers on the back of prevailing high global commodity prices, reduced dollar inflows and dollar strength against frontier currencies.
What does August hold ?
• August MPC Meeting - The next meeting of the Monetary Policy Committee (MPC) will be held on 09th August 2023.We foresee the MPC maintaining the CBR rate at 10.50% with the committee considering the impact of the previous hike as well as the prevailing macro factors (moreso the lower July inflation).
• HY’23EarningsSeason-We expect the release of HY’23 results from the banking sector and insurance sector, where we anticipate a strong performance from banks, driven by an increase in Interest income and Non-Funded Income. We anticipate an increase in NPLs largely attributable to lending to trade and manufacturing sectors as well as sectors lagging in recovery post pandemic such as Real estate and hospitality. We anticipate lower underwriting profits in the insurance sector on the back of a tough operating environment in 2023.
