Morning Market Brief 23rd November 2018

Corporate News:
Kenya Power & Lighting Company (NSE: KPLC) FY18 results
Kenya Power & Lighting Company (NSE: KPLC) announced its FY18 results marking a 63.8% y/y decline in EPS to KES 0.98 from KES 2.71 in FY17. Operating income fell 20.9% y/y impacted by a 4.5% y/y increase in  total power purchase costs as well as a 14.1% y/y uptick in transmission and distribution costs. The increase in the latter cost item was attributed to higher debtors’ provisions, increased depreciation in line with increased capital investments as well as the rising cost of doing business. Additionally, the bottomline was affected by a 29.3% y/y rise in finance costs to KES 7.8Bn from KES 6.0Bn in FY17 with continued reliance on short-term funding by the company to counter cash-flow shortfalls.
The directors did not recommend a final dividend which comes as a surprise as KPLC has always declared a final dividend of KES 0.50. This is attributed to the low profitability in 2018 as well as cashflow constraints for the utility company.
We are currently reviewing our target price for the counter. KPLC is trading at a price of KES 3.60, -60.44% YTD.

Standard Chartered Bank Kenya Plc (NSE: SCBK) 3Q18 results
Standard Chartered Bank Kenya Plc (NSE: SCBK) released 3Q18 financial results reporting a 33.9% increase in Earnings per Share (EPS) to KES 18.0 from KES 13.5 in 3Q17. The increase was buoyed by Net Interest Income (NII) which grew 5.9% y/y to KES 14.6Bn, coupled with Non-interest Revenue (NIR) that grew 9.7% y/y to KES 7.0Bn. Consequently, operating income was up 7.1% y/y to KES 21.6Bn. Total operating expenses were muted (-7.1% y/y) at KES 12.4Bn attributed to a 0.3% y/y decline in staff costs to KES 5.1Bn in addition to Loan Loss Provisions (LLP), which declined 49.6% y/y to KES 1.9Bn. Deposits declined 8.0% y/y and, consequently, the balance sheet shrunk 7.1% y/y over the same period. The loan book remained depressed (-2.8% y/y) at KES 111.0Bn as did investment in government securities that declined 6.1% y/y. We recommend a HOLD on Standard Chartered Bank at a target price of KES 196.8. This represents an upside potential of 4.7% from the current market price of KES 188.0.

Stanbic Bank 3Q18 results
Stanbic Bank, a subsidiary of Stanbic Holdings (NSE: CFC), released 3Q18 financial results reporting a 46.7% increase in Earnings per Share (EPS) to KES 27.8 from KES 18.9 in 3Q17. The increase was buoyed by Net Interest Income (NII) which grew 9.7% y/y to KES 8.5Bn, coupled with Non-interest Revenue (NIR) that grew 19.6% y/y to KES 7.4Bn. Consequently, operating income was up 14.1% y/y to KES 15.9Bn. Total operating expenses were muted (-3.7% y/y) at KES 9.2Bn despite a 17.4% y/y rise in staff costs to KES 4.2Bn, while Loan Loss Provisions (LLP) declined 44.9% y/y to KES 1.2Bn. Deposits rose 20.3% y/y and consequently, the balance sheet grew 21.0% y/y. The loan book grew 16.3% to KES 141.1Bn as investment in government securities declined 17.6% y/y indicating a shift in strategy. We recommend a BUY on Stanbic Holdings at a target price of KES 112.2. This represents an upside potential of 22.6% from the current market price of KES 91.5.

Trading Expectation:
Turnover in the previous session was down to KES 130.76Mn which is one of the lowest this year. We expect subdued turnover level to persist in today’s session as the week comes to a close. Trading is still expected to remain on the key index counters; Safaricom, Equity and KCB. Additionally, we might see trades on Standard Chartered and KPLC which have released results this morning.

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