Banking counters at the Nairobi Securities Exchange offer the most attractive buys this year, according to analysts at Genghis Capital.
In a report dubbed Playbook 2019, analysts found that an investor looking to generate income should consider purchasing stocks in KCB Bank, Standard Chartered, Barclays Bank and Stanbic.
According to the report, these lenders posted high dividend yield with Standard Chartered at 8.7 per cent, Barclays’ 8.5 per cent, Stanbic’s 8.3 per cent and KCB’s 7.4 per cent, a better revenue source than interest offered on bank deposits.
The Finance Act 2018 scrapped the floor that mandated lenders to pay at least 70 per cent of Central Bank of Kenya’s base rate on customer deposits, putting the minimum saving rates at 6.3 per cent.
“The removal of the floor has not had the desired impact,” Genghis Capital CEO Geoffrey Gangla said during the release of the report.
Investors, especially high-net worth had been enjoying attractive returns on bank deposits since the introduction of rate caps in September 2016.
“Domestic banks Return-On-Equities are about 15 per cent. Equity and KCB’s ROE is about 25 per cent making them our picks in 2019,” Gangla said.
He said a lot of banks were trading at below book value, with most having to adopt different strategies to grow their business.
Although corporate earnings growth was constrained last year, the report shows valuations are now very attractive presenting a lucrative entry point for investors.
“Investors looking to take advantage of momentum swings should consider Safaricom, EABL, KCB Bank and Equity Bank while those looking for value are advised to purchase KCB Bank, Bamburi and Kenya Re,” the report stated.
Investor outflows in 2018 saw the NSE 20 share index ease 23.5 per cent to close at 2,833 points and the Nairobi All Share Index (NASI) decline 16.6 per cent to 86.47 points with foreign outflows valued at $292 million (Sh29.2 billion). According to the report, insurance counters at the Nairobi bourse are expected to have a below average with penetration levels still low.