Kenya | NSE

Recovery was mapped out by a pick-up in economic growth, having averaged 6.9% for the first three quarters of 2021. Despite the prevailing uncertainties occasioned by the vicious cycle of new variants and waves of infection, we expect an increase in economic activity. Global supply chain bottlenecks, rising oil prices and elevated inflation are expected to negatively affect the local economy and will likely be a pain point for some sectors. However, we do not expect any new restrictive measures to be introduced providing relief for sectors such as transport and storage, education and accommodation and food services.

KNBS released 3Q 2021 economic growth figures which continued to reflect economic recovery. Real GDP grew by 9.9% compared to a contraction of 2.1% recorded in the same quarter of 2020.The performance was driven by a significant rebound in the; Manufacturing, Education, Transportation and Storage, Accommodation and Food Serving. Contrary to the growth recorded in most of the sectors, Agricultural sector contracted by 1.8% compared to 4.2% growth in 3Q 2020 owing to continued drought and poor weather conditions that reduced farm produce.

We issue a BUY recommendation on B.A.T Kenya with a target price of KES 503.25 representing an upside of 15.69 % on the current price of KES 435.00 as of Friday 17th December 2021. Our valuation is brought about by the expectation of tobacco consumption patterns to tend back to pre-covid levels and increase the domestic sales volume for B.A.T. Additionally, the company has shown resilience during the 2020 period given its strategy to expand its customer base to other countries. We furthermore expect its new product lyft to increase the company's revenue and allow B.A.T to tap into a new market given the products ability to overcome major risks associated with traditional tobacco consumption.

During the month, listed commercial banks released their 3Q21 financial results. The results indicated continued recovery in the sector as banks’ asset quality improved. Most lenders registering an increase in non-funded income driven by higher fees and commissions and foreign exchange income. However, concern remains over the marginal growth in the loan books which signaled a reduction in private sector credit growth. Click here for an analysis of the sector’s 3Q21 numbers.

Following the release of the banks’ 3Q21 results, we analyze the financials of the listed banking sector which seem to indicate a recovery in economic activity. Data from KNBS indicated that the Kenyan economy recorded an impressive 10.1% growth in 2Q21 compared to a 4.7% decline over the similar period in 2020. From our estimates the 3Q21 economic figures are likely to be in line with the 1H21 growth, as the continued vaccine rollout has brought a renewed increase in economic activity.

Stanbic Bank 3Q21 EPS edged up 43.19% to KES 29.97 higher than our expectations of KES 27.42. PAT edged up 43.22% y/y to KES 5.11Bn driven by a 8.64% y/y increase in Total operating income to KES 17.48Bn supported by interest income from Government securities and reduced cost on deposits. Customer deposits reduced 5.82% (slower than our forecast of a 17.02% decrease) to KES 212.81Bn while the loan book grew 11.18% to KES 205.55Bn (better than our expectation of a 12% decline).