Nairobi Securities Exchange Key Index in Free Fall as Large Stocks Decline

Bourse Trading Floor Nairobi Resumes Trading After Bearish Performance 

Image I Courtesy NSE

The value of stocks listed on the Nairobi Securities Exchange stood at KSh2 trillion on Friday as a result of the  NASI, NSE-20, and NSE-25 plunging 14.4%, 11.5%, and 13.9%, respectively, week on week. 

 As a result, their YTD performance of the NASI, NSE-20, and NSE-25 declined to 19.7%, 20.0%, and 18.6%, for the NASI, NSE 20 and NSE 25, respectively.

 “The YTD loss recorded by NSE 20 breach the threshold of a bear market, which is a condition in which securities prices fall by 20.0% or more.  The performance in NASI was driven by losses recorded by all large-cap stocks across all sectors with Safaricom, BAT, KCB, and Equity Bank recording losses of 17.5%, 16.5%, 15.1% and 14.6%, respectively,” Cytonn Investments comments.

 The losses are attributable to the ongoing Coronavirus pandemic, with Kenya confirming its first case, which triggered a panic sell-off by investors across the market. 

The bourse plunged hard with the NSE 20 dropping 5.3 percent to close at 2124.78 points, necessitating trading to be put to a halt.

 Turnover rose 41.5% during the week to Ksh5.4 billion compared to a turnover of Ksh 3.8 billion in the prior week. 

Foreign investors accounted for 53.8% of the week’s total activity compared to 55.8% in the previous week.

Foreign investors were net sellers for the fifth subsequent week posting net outflows of Ksh 2.9 billion compared to outflows of Ksh 1.7 billion in the previous week. 

Net buying activity was on WPP Scan group while net selling was on the rest of the counters. 

value investing opportunities

Deep-value stocks are those that are deeply discounted, and because of that discount have high margins of safety.

On the other hand, Genghis Capital observes that as the impact of the ongoing Coronavirus pandemic continues to be witnessed, “It is opening up value investing opportunities rarely seen.”

According to Genghis Capital, Carbacid Investments Plc, a deep value stock trading below its net cash position (NCP) per share. 

“Basically, a stock trading below its NCP/share means the business has been discounted as a going concern, disregarding the contribution of its fixed capital (PPE) and working capital (inventory, receivables, payables). 

At current market prices (Ksh 7.90), Carbacid trades below its net cash position (NCP) per share, estimated at Ksh 8.04. 

The NCP includes cash balance, government bonds, corporate bonds and equity securities, less its total debt inclusive of accounts payables. 

The business side has been consistently generating an average free cash flow per share (FCF/share) above Ksh 1.17 over the last 4 years (Ksh 0.70 in 1H20 to Jan 2020). 

This FCFgeneration will cushion the investment portfolio against major downside market moves. 

The fundamentals are also intact and do not warrant the common risks associated with deep discount stocks; stable growth in operating earnings and low cash burn (usually a major risk of deep value stocks). 

“Of worth to note is that deep value stocks could take some time to crystalize in value. This is a stock for long-term value chasers,” Genghis Capital says.

Sources: Cytonn Investments, NSE, Genghis Capital.