Kenyan Equity Market is on Positive Track on Declining Pricing to Earnings Ratio, Cytonn

A derivative is an instrument that derives value from its underlying asset(s) which can be bonds, shares, currencies, or market indices.

Image I Courtesy NSE

The Kenyan equity market is on a positive track for investors due to the declining Price to Earnings Ratio (P/E) to below its historical average.

Analysts from Cytonn Investments say the market is currently trading at a price to earnings ratio (P/E) of 11.4x, 14.3% below the historical average of 13.3x, and a dividend yield of 6.2%, above the historical average of 3.9%.

“With the market trading at valuations below the historical average, we believe there is value in the market,” they note.

As a result, they expect increased market activity, and possibly increased inflows from foreign investors, as they take advantage of the attractive valuations, to support the positive performance.

“The current P/E valuation of 11.4x is 17.4% above the most recent trough valuation of 9.7x experienced in the first week of February 2017, and 37.2% above the previous trough valuation of 8.3x experienced in December 2011,” analysts at Cytonn Investments report.

The Kenyan stock market closed in the green territory last week attributed to gains in the Banking sector with NCBA Group, Equity Group, and KCB Group of 5.2%, 5.1%, and 2.0%, respectively. The counters are showing high activity following the President’s rejection of the Finance Bill 2019 proposing the removal of the rate caps.

The NSE All-Share Index (NASI), NSE 20 and NSE 25 gained by 1.2%, 1.2%, and 1.5%, respectively, taking their Year To Date (YTD) performance to gains/losses of 6.9%, (12.1%) and 1.5%, for NASI, NSE 20 and NSE 25, respectively.

Foreign investors accounted for 64.8% of the week’s total activity, compared to 50.5% in the previous week. Foreign investors were net sellers for the third consecutive week, logging net outflows of KSh 266.4Mn
compared to a net outflow of Ksh 239.9Mn in the previous week.

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