Test – Morning Market Brief 25th July

Macro-economics:

The High Court has suspended the enforcement of tax measures in the Finance Bill 2018 before parliamentary approval and presidential assent. Treasury had issued an order under Section 2 of the Provisional Collection of Taxes and Duties Act to effect Finance Bill 2018 as already passed into law. The Finance Bill 2018 sough to amend various sections of Income Tax Act Value Added Tax, 2013 and Excuse Duty Act, 2015 with an aim of raising FY2018/19 revenue to KES 1.95Bn, 17.5% y/y growth. Separately and similarly, the Kenya Bankers Association were granted orders to suspend the collection of 0.05% tax on transactions worth KES 500,000 and above. The bankers lobby group had moved to court seeking clarity on ‘money transfer’ as proposed in Section 31 b) (ii) of Finance Bill 2018.

Fixed Income:

Demand in the market still remains on the infrastructure bonds and short-to-medium term papers. Today is the auction for the 20-year with our expectation on subdued uptake of the paper. We expect average yields to range 13.30% – 13.39%. The regulator came in to the market to inject liquidity via reverse repo transaction worth KES 20Bn at an average 9.50%.

Corporate News:

The Central Bank (CBK) and Kenya Deposit Insurance Corporation (KDIC) have announced receipt of a revised proposal from KCB Group for the acquisition of Imperial Bank (IBLR), as part of the expression of interest (EOI) process which had been announced in October last year.  CBK and KDIC noted that they are now engaging KCB Group in extensive discussions and shall be providing additional details to stakeholders in due time. We believe these discussions, and the probable acquisition of Imperial Bank, will provide reprieve to depositors, and further instil confidence in the sector, which has been plagued by the collapse of a couple of banks in the recent past. For investors, the deal will provide KCB Group with value, as the bank will most likely be allowed to select attractive assets (as in the case of Chase Bank and SBM), cut down on inefficiencies, whilst increasing its asset base and cementing its place as the country’s largest lender.

Trading Expectation:

Activity is still expected to be in the main traded counters; Safaricom, KCB, Equity and EABL with occasional movement in price based on increased demand and supply on the counters. Equity breached the KES 50 level in the previous session and we expect the price to continue ticking upwards due to existing increased foreign demand on the counter. KCB remains unchanged, oscillating between KES 47.24 and KES 48. We do not expect prices to breach that range. On EABL, we saw trades at KES 225 with true demand being observed at KES 215 and below.

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by Gerald Muriuki

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