KenyaInvesting: July 2011

Thursday, 28 July 2011

KENYA COMMERCIAL BANK HALF YEAR 2011 ANALYSIS PROFIT BEFORE TAX UP 36.4%

Today afternoon saw the Kenya Commercial Bank Group (KCB) announce its financial results for the Half Year ending June 30^th 2010

KCB announced a Profit Before Tax of Kshs. 5.74 Billion, a 36.4% jump. Profit After Tax came in at Kshs. 4.1 Billion, this a rise of 41.6%

Speaking during the release of the bank’s half year trading results, management noted that the group will continue to rely on technology and innovation to improve returns. The KCB Chairman said that the “…transformation process is important to enhance efficiency in line with industry best practice”

The bank has already partnered 700 agents with 400 more in the pipeline. KCB aims to rival Equity Bank which has already built up a network of 2,300 agents across the country

The cost income ratio has come down from 69.6% to 66% during the period.

Group Chief Executive Officer Martin Oduor Otieno said that all subsidiaries are now in the profit zone, as opposed to the 2010 Full Year when they dug a hole of Kshs. 1.7 Billion in Profit Before Tax.

KCB had a rights issue mid last year which raised Kshs. 12.5 billion out of a targeted Kshs. 15 billion. KCB then embarked on a mission to distribute some of the money to its struggling subsidiaries to give them a boost. The move seems to be paying off.

H1 2010 vs. H1 2011 Analysis

	H1 2010 Kshs.	H1 2011 Kshs.	% CHANGE
TOTAL ASSETS	226.1 BILLION	279.7 BILLION	+31.3%
NET LOANS AND ADVANCES	130 BILLION	175.2 BILLION	+34.8%
CUSTOMER DEPOSITS	191.9 BILLION	215.7 BILLION	+12.4%
LOAN:DEPOSIT RATIO	67.7%	81.2%	+19.9%
TOTAL INTEREST INCOME	10.9 BILLION	11.8 BILLION	+7.9%
TOTAL INTEREST EXPENSE	2.2 BILLION	1.2 BILLION	-42.3%
NET INTEREST INCOME	8.8 BILLION	10.5 BILLION	+20.3%
TOTAL OPERATING INCOME	13.8 BILLION	16.9 BILLION	+21.9%

With the Kenya Shilling experiencing huge volatility against major currencies, it will come as a surprise that Forex trading income was up only a paltry 8.8% to Kshs. 1.25 Billion from Kshs. 1.36 Billion. Equity Bank saw its Forex income jump by a whopping 135.4% to Kshs. 683.4 Million. The 2 are rumoured to be part of the banks which the Central Bank of Kenya accused of manipulating the Kenya Shilling

Staff costs went up by 22.65% to Kshs. 5.4 Billion. Investors will hope that this is only as a result of the recent restructuring which led to executives receiving severance pay

The Chief Executive Officer was delighted with the growth of fees and commissions by 26%, from Kshs. 1.46 Billion to Kshs. 1.84 Billion. He noted that this segment had been a cause for concern in the past and had indeed been sluggish

Government Securities holdings decreased by 13.8% to Kshs. 3.8 Billion. Interest from Government Securities thus dropped to Kshs. 1.9 Billion from Kshs. 2.3 Billion

Customer Deposits rose by 12.4%, but this did not stop Net Loans and Advances going up by 34.8%

Q1 2011 vs. Q2 2011 (Quarter on Quarter Analysis)

	Q1 2011 Kshs.	Q2 2011 Kshs.	% CHANGE
TOTAL INTEREST INCOME	5.7 BILLION	6.1 BILLION	+6.3%
TOTAL INTEREST EXPENSE	597.4 MILLION	649.8 MILLION	+8.8%
NET INTEREST INCOME	5.1 BILLION	5.4 BILLION	+6.1%
TOTAL OPERATING INCOME	7.9 BILLION	9 BILLION	+13.3%
TOTAL OPERATING EXPENSE	5.4 BILLION	5.7 BILLION	+6.0%
COST:INCOME RATIO	68.3%	66%	-2.3%
PROFIT BEFORE TAX	2.5 BILLION	3.2 BILLION	+29%
PROFIT AFTER TAX	1.8 BILLION	2.3 BILLION	+28.7%

KCB’s Quarter on Quarter growth seems much stronger than Equity Bank’s, especially on the Profit Before Tax and Profit After Tax where it registered a Q2 vs. Q1 growth of 29% & 28.7% respectively in comparison with Equity’s 2% & 2.5% respectively. It will certainly be interesting to see the figures for the next quarter

The bank though seems to be a long way from achieving a Cost:Income ratio of below 50%

KCB is set to roll out its mortgage business in Tanzania in August and South Sudan in 2012. It has already established mortgage units in Rwanda and Uganda

At the half year point, KCB trails Equity Bank which on Monday this week announced a Profit Before Tax of Kshs. 5.84 Billion, a growth of 51.8% (See EQUITY BANK HALF YEAR 2011 ANALYSIS EARNINGS UP 57.4% BUT INFLATION START TO BITE)

The margin of difference though now stands at Kshs. 100 Million while Going by the 1^st Quarter 2011 results, it stood at Kshs. 390 Million

Away from the financial matters, the CEO announced that all board members contributed Kshs. 10,000 to the Kenyans4Kenya campaign to feed those faced with starvation

Tuesday, 26 July 2011

KENOL KOBIL HALF YEAR 2011 RESULTS

Today afternoon KenolKobil announced their results for the half-year period ending June 30^th 2011.

It was a blistering half by KenolKobil and shareholders have been rewarded by an interim dividend of 57 cents which is more than the full year dividend for 2010 full financial year which amounted to 52 cents

	HALF YEAR 2011 Kshs.	HALF YEAR 2010 Kshs.	% CHANGE
SALES	83.3 BILLION	60.3 BILLION	+38.1%
COST OF SALES	76.6 BILLION	56 BILLION	+36.5%
GROSS PROFIT	6.7 BILLION	4.3 BILLION	+58.1%
GROSS PROFIT MARGIN	8.1%	7.1%	+1%
ADMINISTRATIVE AND OPERATING COSTS	1.8 BILLION	1.3 BILLION	+33.2%
OPERATING PROFITS	4.5 BILLION	2.4 BILLION	+89.6%
PROFIT BEFORE TAX	3.2 BILLION	1.7 BILLION	+85.8%
PROFIT AFTER TAX	2.1 BILLION	1.2 BILLION	+82.9%

Retained earnings were at Kshs. 7.8 Billion, a jump of 20.4% from last year’s Kshs. 6.5 Billion

Net cash generated from operations jumped from a negative position of Kshs. 5.7 Billion to a positive position of Kshs. 4.1 Billion

The closing cash and cash equivalents was at Kshs. 10.4 Billion, a huge rise from Kshs. 3.9 Billion last year

Management was bullish about the continued contribution of subsidiaries to the bottom line.

As at today’s closing prices, the interim dividend yield is at 5.2%, much more than the full year dividends from the majority of listed companies. No doubt the company will give something greater.

With the 2^nd Half forecast to be better than last year’s, KenolKobil is set to make a Full Year Net Profit of at least Kshs. 2.87 Billion.

That will give it an Earnings Per Share of 1.95/=. At today’s closing price, this will give rise to Forward Price to Earnings ratio of 5.6.

Monday, 25 July 2011

EQUITY BANK HALF YEAR 2011 ANALYSIS: EARNINGS UP 57.4% BUT INFLATION STARTS TO BITE

Equity Bank Group today morning released its financial results for the Half Year ending June 30^th 2010

Profit After Tax was up 57.4% to stand at Kshs. 4.74 Billion. The Bank registered a Profit Before Tax of Kshs. 5.84 Billion, a growth of 51.8%

The difficult business environment which has seen inflation jump to 14.4% and forecast to get higher has begun to show as the bank registered a minimal Quarter on Quarter growth. Others would even argue that the Q2 performance was flat in comparison to Q1

A few weeks ago, I wrote on the LIKELY IMPACT OF HIGH INFLATION ON THE NSE

For its 1^st Quarter results for 2011, Equity Bank had seen Profit Before Tax shoot up by 72.77% to Kshs. 2.89 billion. Profit After Tax had increased from Kshs. 1.25 billion in 2010 Q1 to Kshs. 2.33 billion in Q1 2011, a growth of 86.4%.

With its huge retail base, consisting of clients many of whom sit at the bottom of the earning scale and have borne the brunt of inflation, Equity is expected to suffer more than the other top 5 banks, with the exception of The Co-operative Bank

The bank increased its Government Securities by 4% to Kshs 27.46 billion up from Kshs 26.39 billion.

Equity though, managed to sign up more than 1.3 million new customers, now totaling 6.3 million, representing a 28% growth.

Speaking during the release of the bank’s half year trading results, Equity Bank Group CEO Dr. James Mwangi expressed optimism that the bank is geared towards maintaining the growth momentum.

He added: “our success has been driven by prudent risk management practices, increased efficiency and innovation on the delivery channels, products and services front.”

The cost income ratio has come down from 62% to 56% during the period.

Reflecting its capital strength and liquidity, Equity Bank Group also maintained a more than 11% and 13% score above the statutory capital and liquidity requirements respectively.

Q1 2011 vs. Q2 2011 (Quarter on Quarter Analysis)

	Q1 2011 Kshs.	Q2 2011 Kshs.	% CHANGE
TOTAL INTEREST INCOME	4 BILLION	4.31 BILLION	+7.8%
TOTAL INTEREST EXPENSE	424.3 MILLION	620 MILLION	+46.1%
NET INTEREST INCOME	3.6 BILLION	3.67 BILLION	+1.8%
TOTAL OPERATING INCOME	6.5 BILLION	6.65 BILLION	+2.3%
TOTAL OPERATING EXPENSE	3.65 BILLION	3.67 BILLION	0%
COST:INCOME RATIO	56%	55.1%	-0.5%
PROFIT BEFORE TAX	2.89 BILLION	2.95 BILLION	+2%
PROFIT AFTER TAX	2.34 BILLION	2.40 BILLION	+2.5%

The Quarter on Quarter analysis shows that the bank grew by low single digits from the previous quarter.

Interest expense was up 46%

It would not be unlikely if the bank does not grow in Q3 in comparison to Q2. Despite the IMF revising the growth targets of the Kenyan economy, banks are not expected to have as rosy a year as they did in 2010.