More Earnings
An analysis of H1 2022 earnings
๐ Welcome to The Mwango Weekly by Mwango Capital, a newsletter that brings you a succinct summary of key capital markets and business news items from East Africa.This week, we cover the KES 59B mark-to-market losses by Kenyan banks, transactions approved by the Competition Authority of Kenya, and IFc's sale of its satke in Naivas.First off, enjoy our weekly business news in memes brought to you by Chumz.io:
H1 2022 Kenyan Banksโ Analysis
Analysis of H1 2022 Earnings
KES 59B Mark-to-Market Losses: Out of the 9 largest listed banks, only Stanbic Kenya bank recorded fair value gains in held financial assets amounting to KES 83.5M in H1 2022. Equity Group recorded KES 38.9B in losses, twice the KES 19.1B it earned in interest income from government securities. When Net Income across the board is adjusted for total changes in other comprehensive income for the period, Equity Group had the most significant comprehensive loss at KES 14.5B while KCB had the highest comprehensive income at KES 16.8B.
Improving RoE: Over the last 2 years, Return on Equity (RoE) for Kenyan banks has improved steadily, reflecting the subsiding effects of the pandemic and an improving operating environment. NCBA Group posted an RoE of 10% in H1 2022 (2021:6.4%, 2020: 5.2%). Equity has doubled its RoE to 15.9% in H1 2022 from 8% in H1 2020, and Absa bank posted an RoE of 11.6% (2020: 1.4%). DTB recorded the lowest RoE in H1 2022 at 5.32%.
More H1 2022 Earnings:
BK Net Income up 24%: In H1 2022, Bank of Kigaliโs Total Assets grew 16.8% year-over-year to FRw 1.6T. Loans were up 10.6% to FRw 1.1T while deposits increased by 19.6% to FRw 1T, bringing the loan-to-deposit ratio to 110%. Net income was up 24.5% to FRw 28.3B.
HF Group Returns to Profitability: Total interest income was up 2.1% year-over-year to KES 4.6B in H1 2022 while non-interest income rose 53.2% to KES 498M. Provisions through the P&L grew by 76% to KES 102.6M with gross Non-Performing Loans falling 11.1% to KES 8.3B. The Group recorded a Net Profit position of KES 49.9M (2021: KES 346.1M loss).
Family Bank H1 2022: Total Assets grew by 24.4% to reach KES 124.2B. Total interest income was up 24% to KES 6.1B, while Non-Interest Income edged 21% to KES 1.8B. Net income increased by 37.4% to KES 1.6B.
Banking News
NCBA to Recapitalise Subsidiary: According to its CEO John Gachora, Kenyaโs third-largest bank by assets NCBA Group will invest KES 2B in its Tanzanian subsidiary. The investment is geared towards recapitalizing the unit whose capital has been eroded by losses. In H1 2022, losses from Tanzania operations doubled to KES 471M.
โWe have made a Sh1 billion investment in Tanzania so far to support capital and we intend to continue with more investment and make another close to Sh1 billion by the end of the year. We had closed four branches this year. We donโt plan to open the branches but what we are doing is reconfiguring the business to go after corporates and we need to lend them more money and therefore need more capital to do so. The investment is really to support business growth in Tanzania.โ
NCBA Group CEO, John Gachora
Ethiopia to Open up Banking Sector: After opening up the telecommunications market to foreign players, the Ethiopian government has decided to open up the banking sector to foreign investors. The cabinet passed a draft resolution, and the Prime Ministerโs office has pointed that out the move will enhance links with the international market.
Earnings RoundUp
Costs Dent TotalEnergies Earnings: Despite an increase in revenue by 26.3% to KES 65.4B in H1 2022, gross profit fell by 14% to reach KES 4B. Finance costs were up 2,373% to KES 149M as net FX losses jumped by 1,599% to KES 48.3M. Net profit fell by 53.2% to KES 795.6M. The Board of Directors did not announce a dividend.
Jubilee Announces Dividend: Net Premium Revenue and Net Insurance Claims fell 7.6% and 16.2% to reach KES 10.315B and KES 10.25B in H1 2022, respectively. Net income was down by 25.3% to KES 3.4B.ย The Board of Directors announced a KES 1 interim dividend.
Express Kenya H1 2022: Revenue increased by 22% to KES 16M. The firm sank into a gross loss position of KES 24.5M with the loss for the year reducing 12.2% to KES 25.6M. Accumulated losses on the balance sheet increased by 1.7% to KES 492M. The Board did not declare a dividend.
KMRC PAT Up 41%: The Kenya Mortgage Refinance Company reported an increase of 80% in Net Income to KES 504M. Operating expenses were up by 53.1% to KES 109.4M bringing the total expenses to net sales ratio to 41.4% (2021: 39.4%). Net profit for the year grew by 41% to KES 108.2M.
Britam Net Income Jumps 77%: In H1 2022, gross earned premium and net earned premium grew by 6.2% and 5.1% year-over-year to KES 15.8B and 13B, respectively. Net insurance claims fell by 1.5% to KES 9.2B. The firm realized KES 3.5B mark-to-market losses on its financial assets. This pushed total income down 16.9% to KES 16.4B. Net income for the period was up by 77.4% to reach KES 667.5M, a net profit margin of 4%.
Longhorn Profit Up 4X: At 45.9%, the cost of sales grew faster to reach KES 1.1B, outpacing the growth of revenue for H1 2022, which was up 39.6% to KES 1.7B. Operating Expenses were up 48.2% to KES 443.7M, bringing the operating expenses to sales ratio to 25.5% from 24% in 2021. Net profit grew by 434% to KES 39.9M.
Debt Markets
Treasury Bills Market Report
Yields on the 91-day, 182-day, and 365-day papers were 8.860%, 9.576%, and 9.876%, respectively. Yields on the 91-day paper rose by 9.3 basis points, the highest across all the gilts compared to the previous auction. The average acceptance rate stood at 88.1%, an improvement from 62.5% last week.
The performance rates across the three papers were 406.56%, 112.27%, and 34.12%, respectively. The 91-day paper had the highest bid-to-cover ratio of 1.93 across the board, reflecting the prevailing investor time preferences in the market and uncertainty around longer-dated borrowing.
HELB Plans Social Education Bond: The Higher Education Loans Board is seeking advisory and lead arranger services for floating a social education bond. HELB intends to float a KES 5.5B bond to address current funding gaps and facilitate the acquisition of student laptops. The bondโs target amount is 65.5% of the KES 8.4B that is currently in default across 87,391 matured accounts.
Eurobond Market Report: Yields on all papers rose week-on-week with the KENINT 2024 increasing the most by 77.90 basis points to 14.937%. The KENINT 2027 yield rose the least by 27 basis points to 12.836%. In terms of duration, the longest-dated paper, the KENINT 2048, saw yields increase by 48.9 basis points to 8.250%. On a year-to-date basis, the KENINT 2024 is up the highest by 9.8% while the KENINT 2048 has registered the lowest gains at 3.8%.
Mergers, Deals, and Acquisitions
The Competition Authority of Kenya last week approved a series of transactions, including:
Wananchiโs Debt to Equity Conversion: The Authority has approved the proposed conversion of debt in Wananchi Group Holdings to equity. The debt was advanced by Triple HoldCo Limited, Liberty Global Europe 2 Limited, and Altice Africa S.A.R.L. Wananchi Group was Kenyaโs second largest provider of fixed data and broadband services as of Dec 2021.
M-Kopaโs Recapitalization: The Authority has approved the proposed recapitalization of M-Kopa Holdings Limitedโs share capital. The transaction will involve the foreign acquirer converting certain loan notes to equity and the amendment and recapitalization of M-Kopaโs share capital.
Jubileeโs Acquisition of Allianz: The Authority has approved the acquisition of Allianz Insurance Company Kenya Limitedโs medical insurance business by Jubilee Health Insurance Limited unconditionally. This brings the combined market share of the resultant entity to 18.71%. The post-merger shareholding will not change since the transaction involves the acquisition of the business, not share capital.
GRITโs Phase 2 Acquisition of GREA: Mauritius-based Grit Real Estate Income Group has increased its stake in Gateway Real Estate Africa Limited (GREA) to 35.01% from 26.29%. On Apr 15, 2022, Grit increased its interest to 26.29% from 19.98% in phase I of the acquisition. Grit plans to execute Phase 3 on Dec 15, 2022, bringing its ownership in GREA to 48.62%.
"We are pleased to announce today that Grit remains on track and is making strong progress on acquiring a controlling interest in GREA by December 2022. GREA is the leading development company in Africa focusing on Impact Real Estate and developing smart business solutions for multinational tenants. The completion of this transaction would provide Grit's shareholders with enhanced income and capital growth from GREA's fully funded pipeline of accretive development assets, which collectively have reached 80% completion.โ
Grit Real Estate Income Group CEO, Bronwyn Knight
Naivas Founders Sell 8.5% Stake: Naivasโ founders - represented by Gakiwawa Family Investments in the shareholding structure - have disposed off an 8.5% stake in Naivas International to a consortium of international investors for KES 3.8B. This brings their shareholding from 68.5% to 60.0%. The disposal was part of a transaction that saw the International Finance Corporation (IFC) and private equity firms Amethis and MCB Equity Fund sell a combined 40% stake in Naivas for KES 18.25B to a consortium comprising the IBL Group, Proparco, and DEG - a subsidiary of KfW Group. The IBL Group and its partners have created Mambo Retail, a Special Purpose Vehicle for the acquisition. The transaction is set to close by Sep 30, 2022.
โOn 10 August 2022, Mambo Retail acquired a 40.0% stake in Naivas International, representing (i) all shares previously held by Amethis Retail Limited and (ii) part of the shares held by Gakiwawa Family.โ
What Else Happened This Week
๐ Rising Inflation: Inflation for Aug 2022 reached 8.5%, 20 basis points higher than the 8.3% registered in Jul 2022. The Food and Non-Alcoholic Beverages index rose the most by 15.3% year-on-year while the Insurance and Financial Services index rose the least at 0.5% year-over-year. In Uganda, inflation edged up 110 basis points to reach 9% in Aug 2022. The Furnishings Index rose the most by 16.2%, while the Information and Communication Index rose the least at 1.2%.
๐งพ KRA Adjusts Prices for Inflation: The Kenya Revenue Authority has published new excise duty rates which factor in inflation for the 2021/22 financial year. Adjusted for 6.3% inflation, the new rates will take effect on Oct 1, 2022. Among the affected items include fuel oils, fruit juices, bottled water, beer, wines, spirits, cigarettes, and imported ready-to-use SIM cards.
๐ Safaricom Ethiopia Pilots Network: On Sep 1, Safaricom Ethiopia rolled out a large-scale customer pilot of its network in the Harari region as it propagates toward its national launch. The firm has availed SIM cards and offered customers incentives for testing purposes to familiarise its products with the market.
๐ Hiring Freeze in Government: The National Treasury has extended the hiring freeze in parastatals and government ministries into the new government to tame the wage bill. In the 2021/22 fiscal year, Wages and Salaries grew 5.5% year-over-year to reach KES 520B, equivalent to 27% of ordinary revenue.
๐ฐ Pending Bills: According to deliberations that involved the Petroleum Institute of East Africa, the CBK, and the Energy and Petroleum Regulatory Authority, the accumulation of arrears from the fuel subsidy reached KES 59B, representing three fuel pricing cycles. Separately, the gross pending bills of all counties reached KES 107B while the government owes millers KES 4B for the maize subsidy.
๐ Zambia Gets IMF Lifeline: Last week, the International Monetary Fund (IMF) approved a $1.3B funding package for Zambia. This strengthened the Kwacha 3.1% against the US Dollar making it the worldโs best performer on Thursday last week. Zambia became Africaโs first pandemic-era defaulter and is now seeking to restructure its foreign obligations which stood at $17.3B as of 2021, with at least $3B in Eurobonds.
Interest Rate Watch
๐ฌ๐ฒ The Gambia: In its sitting on Sep 1, 2022, the Monetary Policy Committee (MPC) of the Central Bank of The Gambia increased the Monetary Policy Rate by 100 basis points to 12%. The MPC cited a deteriorating economic environment and high inflation in its decision.
Chart of the Week
