Stocks to watch out for in 2016 at the NSE

NAIROBI: Last year was challenging for the Nairobi Securities Exchange. The NSE 20 share index contracted by 21 per cent from 5,112 points in December 2014 to 4,040 points in December 2015. The All Share index similarly fell 19 per cent from 177 points in February 2015 to close at 145 points in December 2015 eroding the overall 6 per cent gain year-on-year compared to 2014.

Investors lost about Sh250 billion in paper value of their investments as 48 out of 65 actively trading counters recorded a cumulative fall in share price- from Marshals East Africa’s 2 per cent to Atlas Development’s watershed 82 per cent drop.

Kenya’s banking sector was hit by currency shocks, a tight monetary policy and a heightened risk profile following the collapse of two banks, Dubai and Imperial Banks. All the 11 listed commercial banks registered a fall in share price with a cumulative average loss of 26 per cent. Mortgage lender Housing Finance registered the largest loss of 51 per cent of its share value with Cooperative Bank posting the least, but still significant drop at 10 per cent.

Only agricultural stocks registered gains with the counters of Sasini, Kakuzi, Kapchorua, Wiliamson and Limuru tea companies recording 52, 76, 45, 54 and 40 per cent gains, respectively. Coffee firm Eaggads was the only agricultural stock that lost value with the depreciated shilling blamed for the 36 per cent drop in the stock’s share price. It was in the same year that intrigues into the sale of coffee farms to investors to pave way for Tatu City development hurt the firm’s stability.

Since its acquisition in 2009 by a consortium of investors led by New Zealander Steve Jennings and former Central Bank of Kenya Governor Nahashon Nyaga, bad blood between the directors and company’s local partners has not made it easy for the firm.

This year, stockbrokers and investors are optimistic that with the Kenya shilling regaining some modicum of stability, interest rates somewhat tamed and a poorly implemented capital gains tax repealed, 2016 will register gains for investors at the NSE with the following counters keenly followed.

As trading at the bourse opens this year, most of the shares which have touched down may be the most lucrative for buys. Shares of banking, insurance and construction are likely to be attractive. Already, Home Africa is showing good signs after featuring among top gainers list with 20.9 per cent week-on-week gain for the second week running. We sample a few stocks.

Centum

Centum in November announced that it had grown its profit after tax by almost three times over the last year representing the largest growth by a Kenyan listed firm in recent years. In addition to this, Centum has in the recent past diversified its portfolio into other key sectors like real estate, beverages and is set to make significant forays into the healthcare and education sectors.

Investments into the King Beverage Limited which has exclusive East African distributorship licence for Danish beer Carlsberg and Almasi which have since pushed the company’s stake in the fast moving consumer goods segment to Sh9.1 billion are expected to boost the firm’s earnings this year.

Two Rivers and Pearl Marina, the company’s flagship real estate development projects are at advanced stages of completion with the firm reporting that the latter is already 60 per cent booked with half of the prospective tenants being international retailers. Two Rivers, initially scheduled for opening two months ago, is set for opening in the first quarter of 2016.

“Centum has many projects in the pipeline and some of them are set for maturity this year so the stock is one that will be of keen interest to traders,” explained Mr Johnson Nderi, an advisory manager at ABC Capital.

KenGen

After the disappointing news from Uchumi, Kenya Airways and Mumias, the performance of KenGen last year was a welcome relief in the basket of government-backed stocks at the Nairobi bourse.

Three months ago KenGen reported a massive Sh11.5 billion in profit after tax in the year ending June 2015, a 400 per cent jump from the Sh2.83 billion reported in 2014. The firm stated that growth in its geothermal-power capacity (in December 2014 energy generated from geothermal sources overtook that generated by hydroelectricity sources) and a tax credit pushing revenue up by 45 per cent to Sh26.2 billion.

The firm’s management further announced a rights issue to raise Sh28 billion, a proposal that received the nod from shareholders at last month’s annual general meeting. The company’s share price, which had depreciated by more than 20 per cent last year, jumped by 33 per cent at the news of the financial results, the rights issue and Sh0.65 per share in dividend.

Equity Bank

With its acrimonious entry into the country’s lucrative mobile money sub-sector behind it, Kenya’s largest commercial bank by customer base, Equity has its sights set at the top. Industry data from the Communication Authority of Kenya indicates that Equitel, which offers users both voice, SMS and money transfer services, stood 2.9 per cent with 1.7 million subscribers as at September 2015. Running on an infrastructure sharing agreement by Bharti Airtel, Equitel provides voice calls at a standard Sh4 across all networks and Sh1 for SMSs.