Absa’s Profit Up 32%

The group's total assets were up 13% to KES 503.7B

Sep 04, 2023

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This week, we conclude our half-year 2023 results coverage with earnings from banking, insurance, manufacturing, and other sectors.

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Absa’s Profit Grows 32%, Retains Dividend

KES 0.20 Dividend: Absa Bank Kenya reported a 32% rise in net income to KES 8.3B for the half year ended 30 June 2023 as EPS closed at KES 1.53. The Board has declared an interim dividend of KES 0.20 - unchanged from last year.
0.5T Balance Sheet: Group total assets closed at KES 503.7B (13% y/y) as the group’s loan book grew 22% y/y to KES 317.9B supported by KES 332.6B worth of deposits which grew 18% y/y. Absa Bank is Kenya’s fifth largest bank by total assets as per the latest half-year 2023 results.

Double-Digit Revenue Growth: Total operating income closed the half-year 2023 at KES 27.3B supported by net interest income and non-interest income which grew 33% y/y and 31% respectively. Net interest income was supported by interest income from loans which grew 51% y/y. Interest expenses remained elevated, growing faster than interest income at 50%. Non-funded income on the other hand was supported by double-digit growth in fees and commissions and FX trading incomes which grew 28% and 26% respectively.

Increased Provisioning: The Group increased its impairments by 74% to KES 5.2B in line with the bank’s principle of prudence in risk management. The resultant effect however would be a 220 basis points jump in the group’s gross NPL ratio to 9.2% from 7.0% the prior year.

Most Efficient: Despite operating expenses growing by 15%, the group’s cost-to-income ratio improved to 37% from 42% the previous year because of higher operating income. Management provided a medium-term target of c.45% owing to ongoing investments to support future growth.

Dividend Retained: An interim dividend of KES 0.20 has been declared - unchanged from the previous year. Book closure and payment are slated for 21st September 2023 and 12th October 2023 respectively. Only Absa Bank Kenya, Stanbic Holdings and NCBA Group have announced interim payouts for the half year ended 30 June 2023.

Other banks that reported during the week included; I&M Group, HF Group, and BK Group.

Insurance Sector Highlights

Jubilee Doubles Dividend: In H1 2023, Jubilee Holdings’ insurance service revenues grossed KES 9.8B, up 11.4% y/y, while insurance service expenses grew by 19.6% to KES 9.7B. The net income from insurance services was a KES 107.2M loss [2022: KES 754.3M profit]while pre-tax profits were KES 2.4B, down 46.1%. Net income was KES 2B, down by 47.8%. The firm declared an interim dividend of KES 2.0 increasing its payout from an historical payout of KES 1.0.

Britam’s Profit Grows 300%: The net insurance service result grew to KES 1.9B on account of growth in the international general insurance businesses and improved performance from the motor and life insurance businesses. Net investment income rose by 62.3% to KES 5.3B, and when combined with the net insurance result, the income was up 118.4% to KES 2.5B. Net income grew by 334.5% to KES 1.6B. The firm did not declare an interim dividend [H1 2022: Nil].

Liberty Kenya Back to Profits: The insurance service result was a profit amounting to KES 54M compared to a KES 100M loss in H1 2022. Net investment income grew by 98.3% to KES 926M, bringing the net insurance and investment income to KES 796M, up 84.3%. Profit before tax edged higher by 756.8% to KES 377M. Net income reached KES 213M as compared to a KES 40M loss in H1 2022.

Learning Point: We attended Britam Holdings’ IFRS 17 awareness training and here are the key takeaways from the session:

IFRS 17 is an International Financial Reporting Standards developed by the International Accounting Standards Board (IASB) providing new standards for reporting profit emergence from insurance contracts, coming into effect from January 2023.
The main objective is to standardise insurance accounting globally to help users of accounts make sensible comparisons between companies and their risk exposure. Shareholder’s equity impact at transition is driven by new Contractual Service Margin (CSM) liability which is amortised into future income.
The total profit expected from a contract remains unchanged under IFRS 17. The only difference is the presentation of the results and the timing of the profit emergence. Long-term stability in profit emergence is expected.
“Our strategy is not changing, our operations are not changing. What may change is how we keep the data. For an insurance group such as Britam which was already quite advanced in reporting, we reported the embedded value and so on, the data we need to provide IFRS 17 disclosure, we already captured it. But you could expect to see that other companies that were not doing it are now doing it, so as an industry we have improved. But no one is likely to change how they do business because this is a disclosure IFRS not a business IFRS.”

Other Highlights

FX losses:

Kenya Airways: In H1 2023, Kenya Airways (KQ) revenues rose by 56% year-on-year to KES 75.1B. Operating costs fell by 40% to KES 74.1B, to bring the airline back to operational profitability amounting to KES 998M from a KES 5B loss in H1 2022. Finance costs grew by 360% to KES 22.8B, mostly on the backdrop of FX losses. On a net basis, the loss accrued for the period was KES 21.7B, 2.2X from H1 2022, and the total losses over the last 10 years are KES 102.9B.
“The airline further recorded forex losses mainly because of the delayed novation of guaranteed dollar loans as part of the ongoing financial restructuring program of the airline. The total forex losses reported in the period amounts to KES 18.9B compared to KES 2.1B reported in the same period in the previous year.”

TotalEnergies: Gross sales were up 14.1% year-on-year to KES 74.6B and the gross profit grew by 24.6% to KES 5B on account of lower lag in price adjustment as compared to H1 2022. A key highlight in the set of results is the 165.9% growth in net finance costs coupled with a 9.7X increase in net FX losses. The net income for the period grew by a marginal 3.4% to KES 822.6M. No interim dividend was declared just as in H1 2022.
“The increase in foreign exchange losses to KES 468M [2022: KES 48M] is attributed to depreciation of the Kenya Shilling against the US Dollar in the period under review.”
Flame Tree returns to profit: The FMCG manufacturer recorded a net income of KES 6.8M from a KES 44.7M loss posted the prior year. Topline grew 18% to KES 2.1B translating to a 7 basis point increase in gross margin to 34% from 27% prior year. Finance costs increased by 24% owing to additional funds required to purchase raw materials and the devaluation of the local currency.
“The depreciation of the Kenya Shilling continues to be one of the main factors affecting negatively our performance, as well as the higher finance costs we are incurring this year, as we manage to bring down borrowings from banks - this will take some time, but it is a priority for the Group, so we can avail more free cash flow to other projects.”
Crown Paints net profit down 87%: Revenue from contracts with customers in H1 2023 edged lower by 6.2% year-on-year to reach KES 5.6B. Net profit for the period was down by a whopping 87.2% to KES 37M, and the EPS was KES 0.26 [H1 2022: KES 2.02]. On the cash flow statement, the net cash from operating activities was KES 1.1B as compared to a KES 595M loss in H1 2022. No interim dividend was declared [H1 2022: Nil].
“The decrease in profitability is attributed to increased cost of production due to overall increase in cost of inputs caused by general inflationary pressure and devaluation of regional currencies. In addition, the Group witnessed reduction in sales revenue as a result of slow down in the economies in the jurisdictions within which it operates.”
NSE’s marginal revenue growth: For H1 2023, total income increased by 4.5% year-on-year to KES 377.3M. At 4.4%, total expenses grew at about the same pace as total income, to reach KES 287.1M. The net result for the year was a KES 69.4M profit, up 72%, and Earnings Per Share (EPS) rose by 80% to KES 0.27. The Board of Directors did not declare an interim dividend, unchanged from H1 2022.

Other earnings during the week included; TPS Eastern Africa, Homeboyz Entertainment, Home Afrika, and Real People Kenya.

Markets Wrap

NSE: In Week 35 of 2023, Fahari I-Reit was the top-performing stock, up 49.5% to KES 9.00. HF Group was the worst-performing stock, down 9.6% to KES 4.50. The NSE 20 index rose by 1.1% to 1,538.6 points, while the NSE 25 and NASI indices fell by 0.1% and 1.2% to 2,562.8 and 98.1 points, respectively. Equity turnover was up 146.5% to KES 1.1B while bond turnover fell by 74.5% to KES 1.96B.

Treasury Bills: Yields inverted in the week with the weighted average interest rate of accepted bids for the 91-day, 182-day, and 364-day closing at 13.9851%, 13.9388%, and 14.765% respectively. The total amount on offer was KES 24B with the CBK accepting KES 23.1B of the KES 23.2B bids received, to bring the aggregate performance rate to 96.56%. The 91-day and 364-day instruments recorded 539.78% and 6.24% performance rates, respectively.

Treasury Bonds: The Central Bank of Kenya issued a prospectus seeking KES 35B through the issuance of reopened FXD1/2023/002 and FXD1/2016/01. The period of sale is between 1st September 2023 to 13th September 2023.

Eurobonds: In the week, the yields rose across the 6 outstanding papers this week.

KENINT 2024 rose the most, down by 93.4 basis points (bps) to 13.502%, while KENINT 2048 rose the least, appreciating by 8.30 bps to 11.305%. The average week-on-week change stood at 24.72 bps.
KENINT 2028 rose the most on a Year-To-Date (YTD) basis, appreciating by 126.4 bps to 11.576% while KENINT 2048 rose the least at 48.1 bps.
All prices fell week-on-week, with KENINT 2032 and KENINT 2048 falling the most at 0.7% to 83.951 and 74.806, respectively. KENINT 2027 fell the least at 0.3% to 89.074. YTD, only KENINT 2024 appreciated, by 2.8% to 95.102, while other papers recorded price losses. KENINT 2034 fell 6.3% to 72.630 while KENINT 2027 fell the least at 1.0%. The average price change week-on-week and YTD was -2.4% and -0.6%, respectively.

Market Gleanings

📉 | Inflation Retreats Further In August | Kenya’s inflation slowed to 6.7% in August 2023, from 7.3% in July. This is the second consecutive month that inflation has fallen and is now within the Central Bank of Kenya’s (CBK) target range of 2.5% to 7.5%. The main driver of inflation in August was transport, which rose by 13.1% year-on-year. The top three commodities with the highest year-on-year inflation were 50kWh of electricity (69.7%), 1 kg of sugar(61.4%) and 200 kWh of electricity (48.8%).

🧾 | New Tax Measures | Following the implementation of the first phase of taxes introduced by the Finance Act on July 1, 2023, the second phase of the new taxes is set to come into effect on September 1, 2023. The taxes are as follows:

🛠️ | ILAM FAHARI I-Reit Restructuring | ILAM Fahari Real Estate Investment Trust received regulatory approval from the Capital Markets Authority (CMA) for a strategic operational restructuring. The move involves converting its unrestricted ILAM Fahari Income Real Estate Investment Trust (IFIR) into a restricted I-REIT. The initiative valued at KES 402M will enable non-professional investors to redeem up to 36.6M units at a redemption offer price of KES 11 per unit. The restructuring will allow the REIT to offer more specialised investment opportunities to its stakeholders and increase the potential for growth. Last year the REIT’s distributable earnings increased by 39% to KES 141.9M.

🇪🇹 | Safaricom Ethiopia’s M-PESA | Safaricom Ethiopia’s Mpesa and Abay Bank have signed a partnership agreement for super agency, retail agency and mobile banking services. This will allow all M-PESA customers in Ethiopia to deposit and withdraw cash at all Abay Bank branches, while Abay Bank customers will be able to access mobile banking services through USSD and the bank’s mobile app using their Safaricom line. Abay Bank had 373 branches as of 30th June 2023. Separately, in Kenya, reports in the media indicate M-PESA is set to implement standing orders.

👨🏾‍💼 | CDSC Leadership Changes | Mr. Nkoregamba Mwebesa resigned as the CEO of the Central Depository & Settlement Corporation after serving at the helm since February 2020. Mr. Jesse Kagoma has been appointed to the position effective 1st September 2023.

🚗 | New Car Sales In July | According to data by the Kenya Motor Industry Association, car sales rose by 6.3% month-on-month to 957 units in July 2023. However, compared to the same period last year, there was a significant decline of 26.7%. In the first seven months of 2023, new car sales totalled 6,636 units, down 17.5% compared to the same period in the previous year.

🏍️ | Uber Rolls Out Electric Bikes| This week, Uber launched electric motorcycles in Kenya, its first in Africa. The new service, called Electric Boda, will see a 30-35% reduction in running costs for drivers and will initially cost 15-20% less than a regular Uber Boda trip. In July 2023, President William Ruto announced that the government is targeting to increase the production of e-motorbikes from 2K units to 200K by the end of 2024. Across the region, earlier in February this year, AlphaMundi Group invested USD 1M in Ampersand - an e-mobility company in Rwanda that assembles electric motorcycles and provides battery swap infrastructure.

📱 | Airtel Regional Developments |

Kenya Transaction Limit Up: Airtel Money Kenya has increased its per transaction limit from KES 150K to KES 250K effective September 1, 2023. The change comes after successful engagements with the Central Bank of Kenya (CBK) and is in line with the recent review of daily transaction limits from KES 300K to KES 500K. Charges for the new band will remain similar to those charged for the 70K-150K band.
Airtel Uganda IPO: The Capital Markets Authority of Uganda on 22nd of August approved the prospectus for the Airtel Uganda Initial Public Offer (IPO) of eight Billion shares to the public. ABSA Uganda was also approved as the Transaction Adviser for the Airtel IPO
Airtel-PesaPal Tanzania Integration: Pesapal and Airtel Tanzania have partnered to introduce mobile money services on Pesapal’s Point of Sale (PoS) and e-commerce platforms. This will allow merchants to accept Airtel Money payments on their Pesapal Sabi PoS devices and shoppers to pay for goods and services online using their Airtel money wallets. The partnership is expected to simplify payments for online shoppers and improve fraud management.

✅ | CMA Uganda Approvals |

The Approvals include the bonus issue by Bank of Baroda Uganda and the prospectus for the issuance of regional debt and equity Exchange Traded Funds by Tolea Securities Limited
The CMA also approved Image Registrars Uganda Limited as a registrar and Inua Impact Fund Limited as the first registered venture capital fund.
The CMA also approved three new Collective Investment Schemes (CIS): AB SICAV I, Britam Asset Managers Uganda Limited and Old Mutual Investment Group Limited.

The Mwango Weekly