Market Summary for week Feb 13

February 16, 2009
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, NAIROBI, Kenya, Feb 14 – The results are finally here and the real test is now whether the local market can show resilience or whether we are in a never ending downward spiral.

East Africa cables set the pace with an announcement of 12 percent increase in profits and Equity Bank proved it has the muscle to weather the storm with even better results than expected to prove their business model is still reaping unprecedented benefits. The bank had an increased customer base from 1.8 million accounts to 3.1 million accounts in the period and despite a slight decrease in liquidity the Bank was still holding a 66 percent liquidity level with Sh25 Billion at their beck and call.

Interest income increased by 140 percent and non-interest income by 96 percent while operating income was up 116 percent. Profit before tax rose by 111 percent to Sh5.02 billion while after tax profit stood at Sh3.91 billion, a 107 percent increase. The directors announced a dividend of three shillings per share up from two shillings plus a one to 10 share split to boot. To be honest if I was looking for a stock that would show how strong the fundamentals at the NSE are then Equity was the top candidate. The stock which is the only bear market beater having gained in value against all odds is definitely set to scale even higher than many an investors’ wildest dreams.

The market reacted by showing a slowdown in the level of decline with the NSE index losing marginally by 7.63 points to close at 2848.24. That goes to show that it will take a lot of positive news to get investors confidence back to its former glory. The Equity stock however climbed in value by 4.97n percent to close at Sh152.20 and also had the highest turnover after the announcement. One must note that KCB stock also begun to gain value to close at Sh19.10 with an increase of 4.37 percent which is a sign that the investors were expecting the bank to come up with impressive results any time soon.

There is an air of anticipation and the signs of sophisticated investors positioning themselves are evident in the increased demand for stocks that are reputed to pay handsome dividends including EABL, Total and Barclays bank. At the moment the expectations are that investors will reward those stocks which show good performance and that management may attempt to use dividend increases by dipping into reserves as a signal to investors that all is well.

The bottom line is that at the moment the debt market is offering the best options to investors and the interest in the government infrastructure bond which has no withholding tax pegged to it and a 12.5 coupon rate is raising the stakes for banks as investors eye the prospects of diverting their savings. The bond which will also be listed is expected to increase the depth and liquidity of the fixed income market segment at the NSE which is a good turn of events as it will offer a new channel for investors. The Kengen infrastructure bond is also in the works and will also be a Pubic Bond Offer for Sh15 billion, underlining the view that 2009 may well turn out to be a year of debt.

As we go into the next week there will be hope that there will be some more positive results on the board and that the market will begin to show some signs of recovery.

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