Investors in publicly listed firms at NSE set for barren dividends season

Investors in publicly listed firms at the Nairobi Securities Exchange (NSE) are set for barren dividends returns for the year as companies continue to register dismal trading results.

The poor results which are largely triggered by the COVID-19 pandemic are further expected to keep the NSE on a bear run as participants particularly foreign investors stay away.

Banking industry stocks which largely draw investor interests ahead of the close of the financial year are seen taking a beating in price as the lenders omit the traditional annual dividend.

Lenders such as KCB and Absa have for instance recorded a steep decline in earnings across nine months to September on high loan-loss provisions occasioned by increased borrower risks.

“Investors are likely to shy away from banking stocks because of the lack of dividends. Traditionally, investors have made a rush for banking stocks ahead of the annual reporting season and subsequent book closures,” noted Sterling Capital Head of Research Renaldo D’Souza.

Analysts at Genghis Capital has already fore warned missed dividends from commercial banks this year with lenders such as Equity, NCBA and Standard Chartered having already pruned, pulled or adjusted pay outs to shareholders from their 2019 earnings.

“This is mainly due to uncertainty about the current environment rather than concerns on capital positions. For the full year, we do not expect Equity Group to make a final dividend payment,” the analysts had stated in an August banking sector note.

Combined, listed banks comprise of the top 10 companies at the NSE by both market capitalization and turnover according to statistics by the Capital Markets Authority (CMA).

Meanwhile, market leader Safaricom has also seen its earning dented by the pandemic with free-cash transfers below Ksh.1000, occasioned by the crisis eating into the telco’s profit by six percent through six months to September.

Cumulatively, top banks along with Safaricom and KenGen hold an 85.7 per cent market concentration rate as of September revealing their stocks weight on the performance of the NSE.

Dented earnings from the NSE’s top cream as expected to see the market remain on a bear run, illustrated by the stagnation or a dip in share prices.

“With profit warnings being inevitable, investors are likely to be more hesitant to buy into the market should prices sink further. Why buy now when you can do it later?” posed Mr D’Souza.

The NSE remains in a bear run with its primary all share index, NSE 25 & NSE 20 having declined by 15.1, 21.6 and 32.2 per cent respectively in the year to date (YTD) as per statistics running to Friday, November 13.

This on the back of heavy investor sell-offs particularly by foreign investors that followed Kenya’s first reports on COVID-19 infections.

The NSE for instance saw its worst day of trading on March 13, as investors pulled stocks worth Ksh.119.6 billion triggering an automated halt to trading.

According to the Head of Research at AIB-AXYS Africa Sarah Wanga, the new slide may not be as significant with investors having already priced in the risks covered in recent trading results.

“Investors have factored in the impact of the pandemic on company trading results. A number of banks have however underperformed with results being worse than previously expected,” she said.

The NSE however remains with lucrative entry points for new investors with the current price to earnings ratio standing at 9.6 times, 25.8 per cent below an 11-year historical average of 13 times.

Wanga expects a full economic recovery to turnaround the performance of the NSE along with positive cash flows from foreign investors.

“The improvement in market performance is largely depended on a full recovery of economic activity. Once the global economy starts to recover, this will change foreign investor sentiments towards emerging and frontier markets for the better, anchoring market recovery,” she added.