Buy HF for medium-long term, observe Liberty

Tuesday September 27 2016

Nairobi Securities Exchange board displaying trading data. PHOTO | FILE

Nairobi Securities Exchange board displaying trading data. PHOTO | FILE 

By SIMON MBURU

NSE Indices: The Nairobi Securities Exchange indices remained largely unchanged last week. The NSE 20 Share Index closed the week at 3,174.15 points while the NSE 25 Share Index ended the week at 3,537.61 points. In the same vein, the NSE All Share Index ended the week at 134.12 points.

In our last column, we looked at the NSE 25 Share Index. This week we take a look at the NSE 20 Share Index. The NSE 20 Share Index is recognized as the main index in the market. It measures the performance of 20 blue-chip listed companies which have strong fundamentals and which have consistently returned good financial results. It mainly concentrates on the price changes of these 20 blue-chip firms. Next week, this column will explain the NSE All Share Index.

HF Group: Last week, HF Group (formerly Housing Finance) announced that it will be embarking on a Sh5 billion project that will see it set up 1,520 two bedroom and three bedroom apartments on Thika Road, Nairobi. According to the company, the project will sit on 24.5 acres and will involve three phases. The first phase will have 560 apartments, while the second and third phases will have 480 apartments. However, this is not the only project being undertaken by HF Group. Currently, it has similar projects in Komarock 5A and Komarock 5B, Komarock Heights, Precious Gardens in Riruta, Richland Apartments along Kamiti Road, and K Mall.

According to a market report by Cytonn Investments, HF Group is currently discounted at the NSE with an upside potential of 33 per cent. The counter has been recommended as a Buy with a target price of 19.8 per share. It currently has a dividend yield of 9.2 per cent. Interestingly, in the half year ended June, HF Group posted a 26.2 per cent growth in net profit from Sh485.1 million to Sh612.5 million. The mortgage lender subsequently offered an interim dividend of Sh0.65 sper share. On Friday last week, HF Group closed the market at an average trading price of Sh15.85 per share after falling by 0.31 per cent from Thursday’s closing price of Sh15.90 per share. Over the past one year, HF Group has traded at a low of Sh11.70 and a high of Sh25.25.

Liberty Holdings: Shareholders may have been disappointed following the firm’s half-year results for the six months ended. The results betrayed a 15.3 per cent dip in net profit to Sh355.4 million from Sh419.8 million. This dip came with a 15.4 per cent fall in core earnings per share to Sh0.7 from Sh0.8 in the same period the previous year. Mr Norman Ogutu, a Nairobi-based financial markets analyst, the fall in earnings was fuelled by a ballooning of total expenses which accelerated faster than the total income.

Notably, Liberty’s claims made by policy-holders grew by 41.5 per cent to Sh2.3 billion during the period. Following the dip in profits, the counter has plunged from a high of Sh16.9 per share recorded prior to the announcement to the current average price of around Sh14 per share.

However, head of Investax Capital Ltd Ndindi Nyoro, says investors should hold on Liberty. “Investors shouldn’t be too quick to sell. Nearly all listed insurance companies are taking a hit from the bear run, but they’ll recover,” he says. Mr. Nyoro adds that insurance companies have been forced to book value loss on investments made at the NSE, which has been pulling down their earnings further. Interestingly, Liberty investment in fixed income markets paid off despite the current downturn in the stocks market. This led to a 56 per cent income bounce of Sh500 million to Sh1.5 billion.

Mr Nyoro’s sentiments are echoed by a market report by Cytonn Investments, which notes that as the market prepares to face the general election period, there may be a window of earnings for insurance firms. “As we approach the elections, we expect faster growth in political and terrorism covers, which could further drive top line growth,” says the report. Additionally, according to a report on the state of insurance in Kenya by Cytonn released last week, Liberty was ranked third ahead of Britam, CIC Insurance, and Sanlam Kenya. On Friday, Liberty closed the market at Sh. 14 per share, after gaining 6.46 per cent from Sh13.15 per share price recorded on Thursday.