nairobi stock exchange (nse) sector and benchmark index performance (2010)

8/3/2019 Nairobi Stock Exchange (NSE) Sector and Benchmark Index Performance (2010)

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- 1 - © 2011 PK Mwangi Global Consulting

M acro-environment (20 10 )

The Kenya economy grew marginally by 2.6 per cent in Gross Domestic Product (GDP) terms in 2009 against a

performance of 1.6 per cent in 2008 reflecting recovery from the effects of the post election violence of 2008. It

continued to grow in 2010 posting a real GDP growth of 5.6 per cent and nearing levels reached prior to the post-

election violence in 2008. Growth was boosted by implementation of the Government’s stimulus package which

ncreased public spending on key infrastructural projects. The overall 12 month inflation eased from 6.7 per cent in

September 2009 to 3.2 per cent in September 2010. These stable macro-economic conditions benefited most sectors

within the economy including financial services, manufacturing, ICT, agriculture and construction among others.

Growing optimism over the recovery of Kenya’s economy also helped corporate Kenya announce double and triple

digit profits, a departure from the flat earnings witnessed in 2008 and 2009. Stocks of blue chip companies were

generally up for the year on the back of strong foreign buying. Interest was generated as a result of the strong

corporate earnings and attractive stock valuations following the global economic crisis and the political uncertainty

that had gripped the country in the preceding two years. Strong offloading of shares by retail investors (most of

whom had seen a fall in the value of their holdings following the collapse of a number of investment firms and theunhealthy political climate) further contributed to the attractive valuations.

Further strong foreign buying was precipitated by a weak shilling with foreign investors believing that a return in the

strength of the shilling would provide them a decent return. Central Bank of Kenya’s purchases of euros and dollars

n 2010 also kept the shilling under pressure with the combination of strong corporate demand for foreign currencies

and a thin forex market contributing to continued weakness of the Kenya shilling.

As in previous years the month of December saw the Nairobi bourse particularly sluggish as retail investors sought to

raid the bourse for Christmas spending cash. However, both the two benchmark indices on the NSE- the NSE-20




ndex and the NSE-All share index- managed to close the year in positive territory gaining 37 per cent and 35 per

cent respectively.

Over all per for mance

NSE sector and benchmark index performance (2010)

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i n d e x p e r f o r m

a n c e

Agriculture Industrials Financials Oil & Gas (Energy)

Telecommunications Automobiles Consumer Goods Consumer Serv ices

Transport Utilities NSE All-share index NSE-20 index

Agriculture, Financials and Consumer Services were the leading sectors for the year finishing up 68 per cent, 56 per

cent and 48 per cent respectively and outperforming both the NSE-20 index and the NSE All-share index for the

year. Energy, Telecommunications and Automobiles were the laggards for the year with Energy the worst performing

sector to finish 36 per cent in negative territory.

Agriculture was the top performer in 2010 while Financials returned to positive territory following a two year

negative performance in 2008 and 2009. Revenues and profits were up for most players within the sector on the

back of a rising GDP figure and increased borrowing from customers (interest rates remained relatively low in 2010).

Consumer Services also returned to positive territory having declined 14 per cent in 2009. However, Energy

continued its dismal performance to finish in negative territory in 2010 following an equally dismal performance in

2009 where it also finished the year in the red.




Agriculture

Severe drought in 2009 had a major impact on agricultural production volumes and quality in Kenya and although

agricultural production was also lower during the early part of 2010 the year overall saw an increase in tea

production (due to increased rainfall in tea growing areas) compared to the same period of the previous year as well

as an improvement in both tea and coffee prices. Better growing and production conditions in the second half of

2010 also saw sisal fibre volumes higher as well as an increase in sisal fibre prices.

The agricultural sector at large, however, continued to experience the negative effects of high costs of farm inputs,

energy and labour as well as unpredictable weather patterns and a fluctuating exchange rate involving the Kenya

shilling. This notwithstanding, on the NSE, Agriculture continued to outperform in 2010 as it had done in 2009

beating both the NSE-20 index and NSE All-share index.

The sector was the top performer in 2010 despite mixed performances among the sector’s key players. Sasini Tea &

Coffee Ltd. saw pre-tax profit for the financial year ending 30 September 2010 jump 82 per cent to KES 1.4 billion on

the back of favourable international commodity prices and a weak Kenyan shilling with the stock finishing 81 per

cent higher for the year. Revenue for Kakuzi Ltd. was up 5.3 per cent from KES 2.01 billion in 2009 to KES 2.11

billion for the financial year ending 31 December 2010. However, profit before tax fell marginally to KES 553.9

million from KES 558.9 million a year earlier largely due to a 31 per cent rise in distribution costs although this

decline was mitigated by a 98 per cent decline in finance costs. The stock, however, closed an impressive 155 per cent

higher for the year reflecting investor confidence in the company’s fortunes going forward.

Rea Vipingo Ltd. also saw a rise in revenue at 5 per cent to KES 1.44 billion in the financial year ending 30September 2010 from KES 1.37 billion the previous year but pre-tax profits fell 51 per cent to KES 103.9 million from

KES 214 million in 2009. This was due to higher operating costs in particular new wage agreements in both Kenya

and Tanzania as well as increases in fuel prices. Despite the headwind the stock remained buoyant returning 52 per

cent for the year.

Pre-tax profits for tea growers Kapchorua Tea Co. Ltd. and Williamson Tea Co. Ltd (both have the same directors)

also grew in 2010. Williamson Tea Co. Ltd. pre-tax figure rose to KES 1.22 billion from KES 145.34 million in the

year ago period while pre-tax profit for Kapchorua Tea co. Ltd. doubled to KES 199.54 million for the same period.

Despite the relatively strong numbers stocks for the two companies closed only marginally higher- at 24 per cent and

16 per cent higher respectively- underperforming most of their peers as well as the benchmark indices.




Industrials

Industrials and benchmark index performance

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i n d e x p e r f o r m a n c e

Building & Construction Beverages Food Processors Other Industrials

Industr ials NSE All-share index NSE-20 index

Food Processors, Beverages and ‘Other Industrials’ were the better performing sub-sectors within the broader

Industrials sector in 2010 finishing the year 40 per cent, 39 per cent and 39 per cent up respectively. Winners

ncluded Sameer Africa Ltd., British American Tobacco Kenya Ltd., Crown Berger Kenya Ltd., Mumias Sugar

Company Ltd. and East African Breweries Ltd., all which outperformed the two NSE benchmark indices.

Top performers included those from ‘other Industrials’ with both British American Tobacco Kenya Ltd. and Crown

Berger Kenya Ltd. reporting growth in both their top- and bottom-line figures. Their stocks rose 52 per cent and 50

per cent respectively in 2010. Sameer Africa Ltd., however, saw a 72 per cent drop in pre-tax profits largely due to

runaway prices of its raw materials (which saw natural rubber prices hit historic highs) but the company’s stock

managed to close the year 54 per cent higher. East Africa Cables Ltd. finished the year 20 per cent in the red despite

higher revenue reflecting investor concerns about increasing competition from international manufacturers and

supplies issues as well as volatile prices on the international market.

Food Processors and Beverages sub-sectors also managed to outperform the benchmarks with Mumias Sugar

Company Ltd. and East Africa Breweries Ltd. in particular trading higher for the year to outperform the key indices

on the back of improved revenue and profitability numbers. Mumias Sugar Company Ltd. reported net revenue at

KES 15.6 billion (2009: KES 11.8 billion) – a 32 per cent jump and an 83 per cent rise in pre-tax profits to KES 2.18




billion attributed to better sugar selling prices and the sale of power from its co-generation plant which generated an

additional revenue of KES 359 million. On the back of this tailwind the stock closed 42 per cent higher.

Building & Construction sub-sector was the laggard among the broader Industrials sector finishing 25 per cent

higher and underperforming the benchmark indices. Bamburi Cement Ltd. and East African Portland Cement Ltd.,

saw a fall in profitability due mainly to an inability to manage costs with the latter posting a net loss of KES 292

million for the year from a KES 1.8 billion net profit in 2009. Bamburi Cement Ltd. saw its net profits drop 24 percent in 2010 citing slower sales and higher electricity prices as the main causes.

Their main rival Athi River Mining Ltd., however, was able to grow both its revenue and net profit on the back of

ncreased capacity which came on stream in October 2009 and a 44 per cent increase in fertilizer volumes and sales.

Only Athi River Mining Ltd., within the broader Building & Construction sector, was able to outperform the

benchmarks finishing 65 per cent higher for the year with East African Portland Cement Ltd. trading sideways to

finish flat for the year to become one of the sector laggards. The sub-sector continued to be particularly challenging

n light of slowed economic growth leading up to 2010, a weakening Kenya shilling (putting pressure on input costs),

an unreliable power supply and the entrance of new market players notably CATIC of China, Uganda's Tororo

Cement, and Devji Steel Limited.

Financials

Financials and benchmark index performance (2010)

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Banks Insurance other Financials Financials NSE All-share index NSE-20 index




Revenue and profits were up across the board for most players within the Financials sector following two years of

declines (2008 and 2009) in the wake of the global financial crisis which particularly hit the sector. Most bank

revenues and profits were up in 2010 as the macro-economic environment improved on rising GDP and low interest

rates which spurred more Kenyans to take out loans, open accounts and demand other financial services. Most banks

also saw strategic moves to expand regionally bear fruit. According to the Central Bank of Kenya the banking

ndustry’s combined pre-tax profit surged 46 per cent to KES 66 billion in the eleven months through November

2010 on loan growth and higher income from fees and commissions alone. The Central Bank also reported a 22 percent increase in bank assets from KES 1.35 trillion in 2009 to KES 1.69 trillion in 2010. The insurers were not left far

behind with some of them also recording higher top and bottom-line figures for 2010.

The best performing stocks were Co-operative Bank of Kenya Ltd. and Centum Investment Company Ltd. which

closed 112 per cent and 104 per cent in positive territory for the year respectively on the back of a turnaround in their

fortunes. Previous years had seen both firms struggle to achieve profitability and were particularly hit by the

financial crisis as banks took on more bad loans on their books and investments made by financial firms fell in value.

Banks and ‘Other Financials’ were the outperformers within the broader Financials sector finishing 57 per cent and

78 per cent higher respectively for the year. Within the Banks sub-sector, top performers included Co-operative Bank

of Kenya Ltd., Diamond Trust Bank of Kenya Ltd., Equity Bank Ltd., CFC Stanbic Bank Ltd., and Standard Chartered

Bank Kenya Ltd. which finished the year 112 per cent, 93 per cent, 86 per cent, 68 per cent and 60 per cent higher

respectively. Co-operative Bank of Kenya Ltd., Diamond Trust Bank of Kenya Ltd. and Equity Bank Ltd., in

particular, saw impressive growth in their pre-tax numbers (in excess of 50 per cent) with CFC Stanbic Bank Ltd.

returning to profitability in 2010 as rising equity prices and yields realised from tradable bonds in the secondary

debt market led to a jump in the company’s investment income.

Kenya Commercial Bank Ltd., however, grew a dismal 6 per cent in 2010 despite strong earnings to underperform

the broader Financials sector index at 56 per cent as concerns grew regarding its high operational costs (cost to

ncome ratio stood at 63 per cent in 2010) and its need for a massive cash call to fund expansion. National Bank of

Kenya Ltd. was the only decliner amongst the banks- down 1 per cent- on investor concerns about both falling

profitability and market share.

Insurers saw a mixed picture in 2010 with the sub-sector witnessing both risers and decliners for the year. JubileeHoldings Ltd. led the risers with a 60 per cent rise in its stock value. Pan-Africa Insurance Co. Ltd. saw a massive

324 per cent increase in net profit with the stock closing 46 per cent up for the year. Despite reporting a 14 per cent

ncrease in pre-tax profits for 2010 at KES 1.66 billion Kenya Reinsurance Corporation Ltd. finished down 6 per

cent- an indication that the cost of acquiring the new Enterprise Resource Platform as well as a falling dividend had

spooked investors. At 26 per cent higher for the year the sub-sector was the worst performer within the broader

Financials sector lagging both Banks and ‘other Financials’.

Other Financials’ rose 78 per cent in 2010 with all sub-sector players, with the exception of Olympia Holdings Ltd.,returning decent underlying numbers. Housing Finance Company Ltd. registered a 60 per cent rise in 2010 pre-tax

profit to KES 561 million while Centum Investment Company Ltd. returned to profitability in the financial year




ending 31 March 2010 following a dismal performance in the previous financial year when the company recorded

historic losses of KES 1.5 billion. In the six months to September 2010 alone Centum Investment Company Ltd. saw

a 712 per cent jump in pre-tax profits to KES 926 million compared to the same period in 2009. Both stocks

outperformed both the benchmark indices closing the year 47 per cent and 104 per cent higher respectively with

Centum Investments Company Ltd. stock managing to break its two year losing streak.

Despite a 647 per cent rise in profit after tax in 2010 (for the financial year ending February 2011) to KES 35 millionfrom a net loss of KES 6.4 million in 2009 some of Olympia Capital Holdings Ltd.’s South African units were yet to

breakeven in 2010 suggesting that the company was not out of the woods yet. The stock declined 8 per cent to close

at KES 5.95 for the year.

Ener gy ( Oil & Gas)

The sector saw mixed results with the energy companies KenolKobil Ltd. and Total Kenya Ltd. enjoying higher

revenue and pre-tax profit figures while BOC Kenya Ltd. saw a decline in both the top- and bottom-line. Revenue for

BOC Kenya Ltd. fell 10 per cent for the year ending 31 December 2010 to stand at KES 1.16 billion from KES 1.29

billion a year earlier while operating profit fell dramatically by 58 per cent from KES 198.8 million in 2009 to KES

83.5 million in 2010. This was largely due to a 296 per cent increase in the company’s impairment charge. Weighed

down by the weak numbers the stock declined to close the year 12 per cent lower.

By contrast KenolKobil Ltd. posted a 40 per cent jump in pre-tax profits to stand at KES 2.7 billion due largely to its

region-wide operations in seven other countries outside Kenya as well as growth in its niche markets of liquefiedpetroleum gas and fuel oil. This, however, did not stop investors dumping the stock which fell a massive 80 per cent

to become the worst performing stock on the NSE in 2010. This share performance reflected investor concerns that

the company still had unresolved issues with the country’s sole refinery- The Kenya Petroleum Refinery Limited over

unpaid supplies arrears as well as the prospect that the firm could lose its operating licence due to this impasse.

Pre-tax profits were also up for Total Kenya Ltd. - at 89 per cent- from KES 734 million to KES 1.39 billion thanks in

the main to increased sales volumes in network, aviation, LPG, and general trade channels as well as an increase in

world fuel prices. However, the stock also fell to close 3 per cent lower for the year reflecting lack of visibility for

nvestors regarding regulation of the sector. (This included both a government directive aimed at preventing the

creation of monopolies as well as increased Government involvement in determining consumer prices). The stock,

however, outperformed that of its major industry rival- KenolKobil Ltd. but underperformed both the benchmark

ndices.

Kenyan carbon dioxide-maker Carbacid Investments Ltd. continued to face a challenging year with pre-tax profits

declining as a result of reduced demand for its product from the non-beverage sector and rising energy and input

costs. The stock, however, backed the trend within the Energy sector to become the only stock to finish the year in

positive territory closing 36 per cent higher. The Energy sector, however, was the worst performing in 2010 closing

the year 36 per cent lower.




Telecommunications

Total revenue for Safaricom Ltd. increased by 19 per cent to KES 84 billion for the financial year ending 31 March

2010 from KES 70.5 billion a year earlier as the non-voice segment continued to expand in line with the company’s

strategy to grow its data business and diversify its revenue source. Pre-tax profits rose 37 per cent to stand at KES 21

billion during the same period. In the six months to 30 September 2010 revenue again rose 15.9 percent to KES 47.1

billion while pre-tax profits rose to KES 10.44 billion compared to a figure of KES 9.13 billion in the first half of

2009- a 14.3 per cent increase. Total operating costs rose 14.6 per cent to KES 21.6 billion during the same six

months due largely due to commissions, the cost of value-added services, licence fees and acquisition of new

customers.

The company, however, continues to face fierce competition on mobile voice calls from the country's second-biggest

player- Zain, owned by India's Bharti Airtel. Despite this and other stiff competition from new entrants to the

market, Safaricom Ltd. maintained its position as the country’s number one telecommunications player in 2010. It

also managed to increase its subscribers’ base adding 2.2 million customers from a year earlier to take the total to

16.7 million. A mobile banking service called M-Kesho that it runs with Equity Bank Ltd. as well as its position as the

only company with a 3G network also helped enhance its position as market leader holding a market share of 77

percent as at the end of 2010.

Despite the relatively strong earnings numbers the stock and sector (Safaricom Ltd. is the sole constituent of the

sector) only managed a dismal 3 per cent rise for the year reflecting investor concerns about competitive pressures

within the industry and cost pressures on the firm’s business. Closing the year 3 per cent higher Telecommunications

was one of the laggards on the NSE in 2010 widely trailing both the NSE-20 index and NSE-All share index.

Automobiles

The sector saw mixed corporate results for the key players with Car & General (Kenya) Ltd. enjoying a 20 per cent

rise in net profits from KES 197.9 million in 2009 to KES 238.2 million in 2010 buoyed by increased demand for

motorcycles and three-wheelers as commuters continued to seek faster transport means to evade traffic jams.

Finance costs fell 17 per cent during the same period. On the back of this performance the stock closed the year 34

per cent higher.

On the other hand both Marshalls E.A Ltd and CMC Holdings Ltd. recorded declining profitability in 2010.

Marshalls E.A Ltd. made a net loss of KES 93.1 million in the six months to September 2010 worsening a net loss of

KES 3.8 million during the same period in 2009. This was largely due to its thin product line which included an

outdated product range of Peugeot, Kia and Tata brands accounting for 90 per cent of the company’s unit sales.

Boardroom wrangles and high staff turnover added to the company’s woes. The car dealer had been making losses

since 2008 which peaked at KES 344 million in 2009. The stock closed sharply down at KES 14.10- 35 per cent lower

to become the second worst performing stock on the NSE in 2010.




CMC Holdings Ltd. saw its pre-tax profits for the year fall 28 per cent from a year before to KES 585 million. Net

profit also fell to KES 406.7 million as the cost of sales increased by 9.7 percent. Despite the fall in net profits the

stock rallied to close marginally higher at 8 per cent.

Competition within the sector continued to stiffen especially from the non-listed companies with motor dealers like

DT Dobie Ltd., Simba Colt Ltd. and Subaru Kenya Ltd. introducing new models in a bid to increase their market

share. Despite a flat lining of car sales during the year the luxury and commercial trucks market segments remainedbuoyant. According to the Kenya Motor Industry Association sales of motor vehicles in the country increased to

11,050 units in the 12 months through December 2010 from 10,264 a year earlier. The sector, however, rose a

meagre 9 per cent to become one of the laggards for the year.

Consumer Goods

Shares of the both sector players- Uchumi Supermarkets Ltd. and Hutchings Biemer Ltd. remained suspended from

trading on the bourse throughout 2010. Those of Uchumi Supermarkets Ltd. remained suspended since the end of

May 2006 after a poorly funded expansion plan left it with a KES 1.2 billion loss and debts of more than KES 2

billion owed to suppliers, Kenya Commercial Bank Ltd. and Preferential Trade Area (PTA) Bank. Hutchings Biemer

Ltd. stock remained suspended by the regulator due to its poor financial health.




Consumer Services

Consumer Services and benchmark index performance

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Media & Advertising Leisure, Entertainment & Hotels Technology

Consumer Services NSE All-share index NSE-20 index

The sub-sectors Media & Advertising and Leisure, Entertainment & Hotels were the winners within the broaderConsumer Services sector finishing the year 61 per cent and 52 per cent higher respectively to outperform both the

benchmark indices. Technology, however, was down 33 per cent.

Within the Media & Advertising sub-sector all constituent firms finished the year in positive territory. Nation Media

Group Ltd. and ScanGroup Ltd. were the big movers finishing 42 per cent and 141 per cent on the upside respectively

with Standard Group Ltd. playing catch-up to close the year 20 per cent higher. Revenue was up 17 per cent up for

Nation Media Group Ltd. to stand at KES 9.6 billion (2009: KES 8.2 billion) while pre-tax profits were up 33 per

cent at KES 2.15 billion (2009: KES 1.62 billion). The decent performance was down to gains in market share andncreased savings on newsprint as the use of the internet by service users expanded.

ScanGroup Ltd. saw revenues grow 44 per cent to KES 2.3 billion in the year ending 31 December 2010 from KES 1.6

billion a year earlier. Profit before tax jumped 54 per cent to KES 838.4 million from KES 544.1 million in 2009

driven by a surge in the value of advertising placed through the firm with billings to client firms leaping 92 per cent

to KES 11.38 billion. The Company’s basic earnings per share grew by 43 per cent to KES 2.58.

TPS Serena Ltd., the sole constituent of the Leisure, Entertainment & Hotels sub-sector, also saw its stock on agrowth trajectory as the company sought both a bonus (17 million bonus shares were issued) and rights issue in

2010. The rights issue was aimed at raising KES 1.2 billion to part finance the capitalisation of Jaja Ltd. (a special




purpose vehicle used by the company for the development of properties in the country) as well as finance further

acquisitions within the region. The stock closed 52 per cent higher at KES 68.50 on 31 December 2010 to outperform

both the benchmark indices and become the second-best performing stock within the broader Consumer Services

sector.

The Technology sub-sector and its only constituent firm- Access Kenya Ltd., however, traded lower for the year both

falling 33 per cent with Access Kenya Ltd. the worst performing stock and Technology the worst performing sub-sector within the broader Consumer Services sector. Revenue for Access Kenya Ltd. slid to KES 1.7 billion for the

year ended 31 December 2010 from KES 2 billion a year earlier- a decline of 15 per cent- with finance costs soaring to

KES 91.6 million from KES 9 million in 2009. Foreign exchange losses jumped to KES 43 million from KES 3

million in 2009. On the back of the rising interest costs, foreign exchange losses and increasing competition the

company registered a pre-tax loss of KES 5.35 million after a pre-tax profit of KES 182 million a year earlier.

Earnings per share dropped to KES -0.04 from KES 0.76 a year earlier- a fall of 105 per cent. The company did not

pay any dividend for the year.

Following on the positive stock performance of the larger caps within the sector- notably Nation Media Group Ltd.

and ScanGroup Ltd. - Consumer Services managed to outperform the benchmarks and at 48 per cent higher for the

year was one of the top performing sectors on the NSE in 2010.

Transport

The Transport sector saw mixed results for the two constituent firms with Kenya Airways Ltd. stock finishing 29 per

cent higher following a stellar performance in 2010 while Express Ltd. stock retreated to close the year down 3 per

cent. The sector, however, was up 28 per cent to marginally underperform both benchmarks. Revenue for Kenya

Airways Ltd. was up throughout 2010 rising marginally at 1.5 per cent to KES 70.7 billion for the year ending 31

March 2010 and moving 21 per cent higher to KES 85.8 billion for the financial year ending 31 March 2011. Pre-tax

profits rose 147 per cent and 87 per cent respectively in the two periods buoyed by route expansion and rising

passenger volumes as a result of South Africa hosting the 2010 World Cup. This gave positive momentum to the

company stock contributing to its performance.

Express Kenya Ltd. registered a net loss of KES 28 million for 2010 on the back of a 4 per cent fall in revenue to KES

857 million from KES 893 million the previous year and a 49 per cent increase in finance costs. Loss per share stood

at KES -0.15 per share falling 200 per cent from KES 0.15 in 2009 while no dividend was paid for the year. Outlook

for the stock continued to look bearish beyond 2010 as the price of fuel continued to escalate not to mention stiff

competition from other major international players and motor industry production defects which had an adverse

effect on operations. A stressed balance sheet saw the company stock continue its losing streak to close another year

n negative territory- down 3 per cent.




Utilities

Kenya continued to be plagued in 2010 by regular power outages caused by insufficient electricity generation and a

dilapidated transmission network. Problems were made worse by both drought, which curbed hydroelectric output,

and a jump in the cost of diesel-fueled generation. To offset this the country has continued to seek foreign assistance

ncluding financing from the International Development Association, the Japan International Cooperation Agency

and the French Development Agency, targeting 5,000 megawatts of geothermal power capacity by 2030 in the

process. Utilities companies have also now turned their focus to geothermal power which is generated from heat

stored underground.

On the NSE, however, the Utilities sector rose 35 per cent for 2010 to match the performance of the NSE All-share

ndex. Pre-tax profit for Kenya Power & Lighting Company Ltd. for the 2009-10 financial year stood at KES 5.6

billion. A rights issue in December 2010 created 488.6 million new shares at KES 19.50 per share to raise part of

$500 million required to upgrade and expand its network over the next four years. The Kenya government remained

the majority shareholder and pledged to continue providing soft loans to the company in excess of KES 16 billion for

the four-year period.

Kenya Electricity Generating Company Ltd. saw a 47 per cent rise in total revenue from electricity sales to KES 6.34

billion for its first-half year ended December 2010 from KES 4.3 billion previously and an 11 per cent rise in pre-tax

profit to KES 1.28 billion during the same period. Earnings per share rose to KES 0.41 from KES 0.39 as the

company sought partners to assist in the construction of two geothermal power plants of combined 280MW to boost

output. Buoyed by higher revenue and profit numbers the stock rose 32 per cent in 2010 to close at KES 17.00 on 31

December 2010.

Conclusion

2010 saw a rise in the stock valuations of the NSE constituent firms as corporate earnings recovered from a period of

global financial malaise in 2008 and 2009 and political uncertainty within Kenya both which resulted in a market

sell-off in 2008 and in the beginning of 2009. Real GDP rose 5.6 per cent in 2010 driven by lower inflation as

relatively low interest rates spurred increased borrowing and a rebound in demand. Foreign interest on the NSE alsogrew driven by attractive valuations and a relatively weak Kenya shilling. The result was a market rally that saw both

the benchmark indices close the year higher in excess of 30 per cent.

Agriculture and Financials stocks led the market rally in 2010 showing impressive returns with Agriculture

continuing on its positive trend that had seen it outperform in previous years while Financials recovered, coming

from a low base in 2009, to close the year 56 per cent higher. Kakuzi Ltd. and Eagads Ltd. were the outstanding

outperformers within the Agriculture space rising 155 per cent and 150 per cent respectively. The Financials stocks

Co-operative Bank of Kenya Ltd. and Centum Investment Company Ltd., both which saw their fortunes reverse in2010, were equally impressive returning 112 per cent and 104 per cent respectively.




The Energy sector was the only decliner on the NSE weighed down by increased regulation and industry

competition. Its constituent firm KenolKobil Ltd. was the worst performer on the bourse for the year – down 80 per

cent- amid fears among investors that the company could lose its operating licence. Both Automobiles sector stock-

Marshalls E.A Ltd and Technology sub-sector stock- Access Kenya Ltd also came under significant pressure on the

back of poor sales by the former and rising finance costs and foreign exchange losses faced by the latter to record net

osses for the year. The stocks closed the year 35 per cent and 33 per cent lower respectively to become the second

and third worst performing stocks in 2010.

However, the market overall appeared to have recovered from its capitulation in the preceding two years (which saw

the market bottom in February/ March 2009) and as the economy continues on a recovery path the outlook should

remain bullish in 2011.




Appendix

Table 1: Re-configur ation of the sectors on the Nairob i Stock Exchange (NSE)

NSE sector reclassification

Sector Sub-sector Stock

Agriculture Rea Vipingo Ltd.

Sasini Tea & Coffee Ltd.

Kakuzi Ltd.

Williamson Tea Kenya Ltd.

Kapchorua Tea Co. Ltd.

Kenya Orchards Ltd

Limuru Tea Co. Ltd

Eaagads Ltd.

Industrials

Building & Constr uction

Athi River Mining Ltd

Bamburi Cement Ltd.

E.A Portland Cement Co. Ltd.

Beverages

E.A. Breweries Ltd.Food Processor s

Mumias Sugar Company Ltd.

Unga Group Ltd.

Other I ndustri als

British American Tobacco Kenya Ltd.

E.A. Cables Ltd.

Sameer Africa Ltd.

Crown Berger (K) Ltd.

Eveready East Africa Ltd.

A. Baumann & Co.Ltd.

Financials

Banks

Barclays Bank of Kenya Ltd.

CFC Stanbic Bank Ltd.

Kenya Commercial Bank Ltd.




National Bank of Kenya Ltd.

Diamond Trust Bank of Kenya Ltd.

NIC Bank Ltd.

Equity Bank Ltd.

The Co-operative Bank of Kenya Ltd.

Standard Chartered Bank Ltd.

Insurance Pan Africa Insurance Holdings Co. Ltd

Jubilee Insurance Co. Ltd

Kenya Re-Insurance Ltd.

other Financials

Housing Finance Ltd.

Centum Investment Ltd.

Olympia Capital Holdings Ltd

City Trust Ltd.

Oil & Gas (Energy)

BOC Kenya Ltd

Kenya Oil Ltd.

Total Kenya Ltd.

Carbacid Investments Ltd.

Telecommunications

Safaricom Ltd.

Automobiles

Marshalls E.A. Ltd.

Car & General Ltd.

CMC Holdings Ltd.

Consumer Goods

Genera l Retai lers

Uchumi Supermarkets Ltd. Suspended

Hutchings Biemer Ltd. Suspended

Consumer Ser vices

M edia & Adver tising

Nation Media Group Ltd

ScanGroup Ltd.

Standard Group Ltd.




Leisur e, Enterta inm ent & H otels

TPS (Serena) Ltd.

Technology

Access Kenya Group

Transport

Kenya Airways Ltd.Express Ltd

Utilities

Kenya Power & Lighting Co. Ltd.

KenGen Ltd.

Table 2: Sector index and benchmar k index perform ance (2010)

DATE

31/12/ 09

29/1/

1026/2/

1031/3/

1030/4/

1031/5/

1030/6/

1030/7/

1031/8/

1030/9/

1029/10/

1030/11/

1031/12/

10

annual %

chan

ge

Agriculture 62 64 71 120 109 105 113 110 107 106 110 101 104 68Building &Construction 80 82 86 94 98 103 104 107 107 114 110 104 100 25

Beverages 86 89 90 96 101 105 108 108 107 112 126 129 120 39

Food Processors 47 60 67 71 87 86 86 92 80 82 73 65 66 40

Other Industrials 85 88 94 101 100 100 103 115 119 122 123 118 118 39

Industrials 81 84 87 94 99 102 104 107 106 111 116 114 108 34

Banks 32 35 35 36 40 42 44 46 48 51 52 50 50 57

Insurance 59 68 65 74 76 73 73 76 81 79 80 77 74 26

Other Financials 40 44 42 48 58 57 64 65 68 74 73 72 70 78

Financials 33 36 36 37 41 43 46 48 49 53 53 51 52 56

Energy (Oil &

Gas) 61 66 68 75 80 88 38 41 40 43 41 40 39 -36

Telecommunic

ations 61 71 73 75 78 75 78 79 66 60 66 61 64 3

Automobiles 61 62 56 64 71 71 69 68 72 70 71 66 67 9

Consumer

Goods - - - - - - - - - - - - - -

Media & Advertising 44 44 46 50 52 53 55 54 66 71 73 67 71 61

Leisure,Entertainment &Hotels 57 61 60 81 82 76 72 74 73 78 89 87 87 52

Technology 87 95 89 87 85 75 87 86 75 80 74 69 58 -33Consumer

Services 49 50 51 56 57 57 59 59 67 73 75 70 72 48




Transport 56 78 77 93 88 86 73 73 73 71 70 71 71 28

Utilities 50 56 54 59 63 68 68 69 69 70 71 67 68 35

NSE-20 share

index 63 69 70 79 82 82 84 87 86 90 90 85 86 37

NSE All-share

index 71 75 77 85 88 91 91 95 96 101 103 98 96 35

Table 3: Best and worst-perform ing stocks in 2010

Best

performing

stocks

annual %

change

Worst

performing

stocks

annual %

change

Sector Sub-sector Sector Sub-sector

Agriculture Kakuzi Ltd. 155

Eaagads Ltd. 150

Industrials

Other Industrials

E.A CablesLtd.

-20

Financials Financials

Banks

Diamond Trust

Bank of Kenya Ltd.

93

The Co-operativeBank of Kenya Ltd.

112

Other Financials

Other Financials

CentumInvestmentCompany Ltd.

10 4 Olympia

Capital

Holdings Ltd.

-8

Energy

BOC Kenya Ltd. -12 KenolKobil Ltd. -8 0



18 © 2011 PK M i Gl b l C lti

Automobiles

Marshalls E.A Ltd. -35

Consumer

Services

Consumer Services

M edia &Advertising

ScanGroup Ltd. 141

Technology

Access KenyaLtd.

-33

nairobi stock exchange (nse) sector and benchmark index performance (2010)

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