Buy Equity, hold Safaricom shares

Equity Bank: Last week, Equity Bank released its annual financial results.

The bank recorded a record net profit of Sh17.2 billion making Equity the most profitable bank in Kenya. The impressive earnings were a 29 per cent jump from the Sh13.3 billion recorded in a similar period in 2013.

Despite the huge gains, the stock remained fairly flat at the Nairobi Securities Exchange, trading between Sh52 and Sh53.

Securities analyst Chambua Ogoti says this was due to Sh1.80 per share dividend payout. “There were investors who expected a higher payout relative to the recorded profits. There were other investors who saw the sale of Housing Finance to Britam as a minus.”

Nonetheless, he sees the counter as a buy for medium- to long-term investors. Investax Capital head Ndindi Nyoro agrees. “This is a stock that will make investors who look at buying value companies and are willing to buy and hold on to their investment,” he says.

Equity Bank is a buy with a target price of Sh59.41 per share, notes NIC Securities in a report. “We expect to continue seeing a strong growth in non-funded income to adequately compensate for interest margin contraction,” said NIC Securities.

Over the past one year, Equity Bank has touched a high of Sh63 and a low of Sh31 apiece.

According to Mr Ogoti, news that Equity would be launching a mobile money transfer platform, Equitel, propelled the stock to its all-time high of Sh60 last year. “This means that until the mobile business is fully launched, the share price is likely to be depressed or plateau with a small upward movement towards the closure of the counter’s books,” says Mr Ogoti.

DIVERSE INTERESTS

On Friday, the stock opened at Sh52 per share having closed at Sh52 apiece on Thursday with a high of Sh52.50 and a low of Sh51.50 from a traded volume of 3.24 million shares.

Safaricom: Safaricom has been very resilient at the NSE, trading at highs of Sh15, says Mr Nyoro.

On Friday for instance, the counter opened at Sh15.90 per share and touched a high of Sh16. It had closed the market at Sh15.95 on Thursday.

NIC Securities had recommended Safaricom as buy at around Sh14.25 with an exit at Sh15.95 a month ago. But Mr Nyoro sees otherwise. “Investors should hold. Safaricom has been growing its income streams and now its entering the set-top boxes import and distribution market.

Last week, the firm entered into a deal with KCB to offer Safaricom’s M-Pesa and KCB customers loans of up to Sh1 million,” he says.

“All these will work to bring in more revenue given that they are not Safaricom’s core line of business.”

Further, with the telco having set a new profitability record of Sh14.7 billion, net profit for the six months to September last year, the company is expected to break new records in its annual profit.

Early this year, investment analyst and Rich Management CEO Aly khan Satchu recommended the counter as a buy at the then price of around Sh14 with a target of Sh20! 

Mumias: Analysts in this column last week asked you to avoid Mumias Sugar stock. After rising to a high of Sh2.95 per share on Monday followed by an early surge to Sh3.20 on Tuesday morning, the counter finally tumbled.

By end of trading on Thursday, it was trading at Sh2.60 per share, an 18.75 per cent drop from Tuesday’s high. “The counter is still recommended as a reserve for speculators with ability to cushion instant losses as its fundamentals remain weak,” says Mr Ogoti.

On Friday, the counter opened at Sh2.70 apiece.