Don’t panic over bank stocks’ woes

Tuesday August 30 2016

The Nairobi Securities Exchange. Old Mutual Securities notes that Barclays Bank is currently undervalued. “Our model suggests a fair value of Sh17.79 per share in comparison to the current low price of around Sh15 per share.” PHOTO | FILE

Banking stocks: The last two days of last week’s trading were a blood bath for banking stocks on the Nairobi Securities Exchange. PHOTO | FILE NATION MEDIA GROUP

By SIMON MBURU mburusymonn@gmail.com

Banking stocks: The last two days of last week’s trading were a blood bath for banking stocks on the Nairobi Securities Exchange. On Thursday, Diamond Trust Bank led the losing pack after shedding 10.69 per cent to settle at an average trading price of 142 per share.

I&M bank was the second biggest banking loser with a fall of 9.81 per cent at Sh96.50 per share while Co-operative Bank and Equity Bank completed the day’s top losers after shedding 9.81 per cent and 9.03 per cent to settle at Sh11.95 and Sh32.75 per share respectively.

Strikingly, Equity Bank had a market supply of up to 54.8 million shares against a demand of only 3,000 shares. During the day, the NSE All Share Index (NASI) fell by 5.01 per cent to 139.14 points while the NSE 20 Share Index fell by 4.41 per cent to 3,309.76 points. The NSE 25 Share Index settled at 3,704.68 points.

Strikingly, the mega fall on Thursday by DTB came shortly after the bank announced its half year net results. The results showed that the bank had posted a net profit of Sh3.62 billion compared to Sh3.25 billion posted in the same period the previous year.

This was a jump of 21.9 per cent. At the close of market on Thursday, investors had lost Sh106 billion, with the banking sector registering a loss of up to Sh47 billion in market value.

The vicious blood bath continued on Friday with the NSE 20 Share Index falling further to 3,216.62 points while the NSE All Share Index fell to 134.97 points. The NSE 25 Share Index crashed to 3,551.80 points which was a loss of 152.88 points.

In the banking segment, though, DTB appeared to bottom out and only lost an average of 1.41 per cent to close the day at Sh140 per share from Thursday’s Sh142 per share price.

KCB popped to the top

However, KCB popped to the top of the day’s losers after shedding 10 per cent to close the day at Sh27 per share from the previous day’s Sh30 per share. Equity Bank lost Sh3.25 per share to close the week at a discounted Sh29.50 per share. This was loss of 9.92 per cent.

I&M continued its losing streak after cutting off 9.84 per cent to stand at Sh87 per share. Between Thursday and Friday, the counter lost 19.65 per cent in market value, with Sh9.50 lost during Friday’s session alone. HF Group and Co-op Bank lost 9.71 per cent and 9.62 per cent to trade at Sh13.95 per share and Sh10.80 per share respectively.

Strikingly, on Friday, CFC Stanbic and National Bank of Kenya (NBK) were the only stocks that gained on Friday. CFC rose by 2.04 per cent to trade at Sh75 per share from 73.50 recorded on Thursday. NBK climbed by 1.43 per cent to settle at Sh7.10 per share from the previous day’s Sh7 per share price.

Despite the large supply volumes, the current major fall in banking stocks will be temporary. According to investment analyst Robert Ochieng’, investors of fundamentally strong banking counters should not panic.

“Any bank that is trading below its book value is a buy. Nothing has fundamentally changed,” he says.

Britam: Insurance firm Britam announced a return to profitability last week for the first six months of the year. The bank’s net profit increased by 184 per cent to Sh1.8 billion from the Sh624.6 million recorded in the same period the previous year.

The group’s gross written premium income grew by 3 per cent to Sh10.5 billion while investment income increased by 16 per cent to Sh2.7 billion from Sh2.4 billion.

Asset management revenue jumped by 21 per cent from Sh439.4 million to Sh529.4 million while net claims declined by 29 per cent to Sh3.6 billion from Sh5.1 billion. With the share trading on Friday at Sh11.55 per share, Nairobi-based investment analyst Edward Kuromba reckons that the stock is still largely discounted.

“However, investors should note that the profit came about following a change in the firm’s accounting methodology, failure to which it would still fall behind in profitability,” he says.