Why It’s a Great Time to Buy Kenyan Stocks

African stocks have fallen off many speculators’ radar screens. But there are bright spots in the gloom that shrouds the continent’s stock markets, and I believe the Nairobi Securities Exchange (NSE) will soon be one of them. Here are a few reasons to be bullish.

Photo by Erik Hersman
Photo by Erik Hersman

African stocks have fallen off many speculators’ radar screens.

An economic slowdown in China, a sharp drop in commodity prices, unorthodox economic policies in Nigeria, and questionable political leadership in South Africa, have scared off all but the most patient investors.

But there are bright spots in the gloom that shrouds the continent’s stock markets, and I believe the Nairobi Securities Exchange (NSE) will soon be one of them.

Here are a few reasons to be bullish.

  • Kenya’s electricity output is at an all-time high, which makes it easier for businesses to operate and expand.
  • Oil prices are at multi-year lows, which makes it cheaper to transport people and goods.
  • Strong tea sales and a recovering tourism industry have taken downward pressure off the shilling, which helps to contain the cost of imported materials and products.
  • Interest rates are high but appear relatively stable.

The factors above are why the IMF predicts Kenya’s GDP will expand by 6.0% this year – making it one of the fastest-growing economies in Africa.

But, for me, the most compelling reason to invest on the NSE now comes down to value.

Quite simply, Kenyan stocks are cheaper today than they have been in years.

Let’s take a look at the recent returns of Kenya’s ten largest stocks.

Company 1-Year Return*
1. Safaricom 10.5%
2. East African Breweries -16.7%
3. Equity Bank -26.2%
4. KCB Bank -35.0%
5. Co-operative Bank -14.7%
6. BAT Kenya -11.1%
7. Barclays Bank Kenya -24.2%
8. Bamburi Cement 14.6%
9. Standard Chartered Kenya -43.1%
10. Diamond Trust Bank -22.6%
* 52-week return as of 1 February 2016

It’s a pretty dismal looking set of returns, isn’t it? Safaricom and Bamburi were the only shares to increase in value, and most of the others dropped by more than 20%.

But in spite of the market’s pessimism, these companies continued to go about their business unfazed, quietly reaping profits and creating value for their shareholders.

As a result, investors now have the opportunity to pick up a shilling’s worth of earnings at price tags not seen in several years.

The table below displays the current price-to-earnings (P/E) ratio for each of the NSE’s ten largest companies. It also shows how long it has been since each stock has traded at a similar valuation.

Company  P/E Ratio (ttm) Years since similar Valuation*
1. Safaricom 17.5 3 years
2. East African Breweries 21.5 4 years
3. Equity Bank 8.0 4 years
4. KCB Bank 6.4 more than 5 years
5. Co-operative Bank 7.8 2 years
6. BAT Kenya 18.0 2 years
7. Barclays Bank Kenya 7.7 more than 5 years
8. Bamburi Cement 12.9 4 years
9. Standard Chartered Kenya 7.3 more than 5 years
10. Diamond Trust Bank 8.4 3 years
* calculated as of 1 Feb for each year

As you can see, the market is pricing Kenya’s blue chip firms at a significant discount to their historic averages. In some cases, it’s been more than five years since their P/E ratios were this low.

With valuations this low and the economic forecast this bright, Kenya investors should be very pleased with their returns five years from now.

[Disclosure: At date of post, I (Ryan) held a beneficial interest in shares of KCB Bank.]

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10 thoughts on “Why It’s a Great Time to Buy Kenyan Stocks”

  1. Hi Ryan I think you are doing a terrific job, I am a student at Egerton University and want to venture into the stock market trading as a long time investment, kindly offer me the needed advice and mainly on which companies I should consider investing in. Thank you.

  2. Great insights. I appreciate you laying out the P/E ratios for us. Would love to get my foot in the door in Kenya.

    Cheers

  3. Hey Ryan, very well summed up! been singing this song to some investors and i aint tiring off yet! will continue to do so.
    You doing a great job!

  4. Hi Ryan,

    Appreciate your work in educating people about African markets. Would like to seek you opinion on NSE Keya (as a stock) and DSE listing and it’s valuation.

    Regards
    Sreeselva

    1. Hi Sreeselva,

      Thanks for your comment and apologies for my delayed response. At the moment, shares of NSE Kenya look a tad overvalued to me, but I thought they were a bargain when initially listed (https://investinginafrica.net/nse-ipo-bargain/).

      I think the DSE IPO was an exceptional value and participated in the offer. Hopefully we’ll end up getting allocated a handful of shares!

  5. Hi Ryan, yes I agree stocks are trading at the lowest. Banking sector is more fragile and over exposed in reality lending. More banks are at verge of closure. COnfidence is very low inspite of regulatory measures. In the sense I would say bank sectors will play negative for a long term.

    1. Thanks for your insight, Sonal. The near-term outlook for Kenyan banks does look a bit gloomy, but I remain bullish over the next 5-10 years. Kenya’s economy is diverse and East Africa will benefit from a big demographic tailwind over the next couple decades. Banks with strong balance sheets should benefit as their weaker peers bow out.

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