Kenya and Nigeria's Stock Market Performance: Corona, Carefree, Culpable or Confused?

Dear Africa Interested Individuals,

I looked at the price level of eleven (11) 'visible' stocks on the Nairobi and Nigerian Stock Exchanges on December 31, 2009 and March 20, 2020.  Are the point-to-point prices largely a reflection of the Corona pandemic, Carefree economic and political leadership, Culpable management of companies or Confused portfolio investors?  I chose the last trading day of 2009 as a starting point, because this was the first full year concluded after the start of the global market collapse in 2008.  I see this as a bottom reference point.  

Both markets are doing poorly year-to-date as at March 20, 2020: Kenyan Stock Market index is down 20.1% while the Nigerian Stock Market Index is down 17.3%.  How does the current price level compare to the 'bottom' price reference point of December 31, 2009 for the companies selected across multiple industries?  Before I delve into the selected companies, I will like to state that stock markets that are not manipulated, are supposed to be a reflection of investor economic perception looking ahead.  Stock prices reflect investors’ perception today of a company’s future performance built on a foundation of positive economic growth. Government actions feed into potential GDP which feeds into the perception of the consuming populace which feeds into the potential return on equities.  Keep the last sentence in memory as you read along.  

Four banks were selected in each country.  Banks are a good reflection of the pulse of an economy; they are exposed to multiple sectors simultaneously given the nature of their business.  

Ks = Kenyan Shilling      N = Naira

KENYA                                                                 Dec. 31, 2009 price      March 20, 2020 price

1. Equity Bank                                                         Ks14.35                             Ks38.95

2. Kenya Commercial Bank                                     Ks20.50                             Ks40.55  

3. Standard Chartered Bank                                    Ks161.75                           Ks193.25

4. Diamond Trust Bank                                            Ks70.00                             Ks90.00                              

5. Kenya Airways                                                     Ks35.75                             Ks1.63

6. Uchumi Supermarket                                           Ks14.50                             Ks0.26

7. Nation Media Group                                             Ks118.00                           Ks24.60

8. Bamburi Cement                                                  Ks156.00                           Ks45.90

9. Centum Investment                                              Ks11.25                             Ks21.75

10. Safaricom                                                           Ks4.55                               Ks25.40 

11. Kenya Electricity Generating Co. (KenGen)       Ks12.90                             Ks4.59

NIGERIA                                                              Dec. 31, 2009                       March 20, 2020

1. Zenith Bank                                                         N13.60                                N11.85   

2. GT Bank                                                              N15.50                                N18.60

3. Access Bank                                                        N7.60                                  N5.85  

4. First Bank                                                             N14.05                                N4.00

5. UAC of Nigeria                                                     N36.75                                N7.85

6. Julius Berger                                                        N25.79                                N23.70                      

7. Ardova (formerly Forte Oil & AP)                         N33.51                                N13.80

8, Guinness                                                              N127.50                              N25.20

9. WAPCO Cement                                                  N30.00                                N10.10

10. Flour Mills                                                          N36.00                                 N19.30

11. Ecobank Transnational                                      N15.00                                 N4.90

Ecobank Transnational (ETI) was added because the Nigeria region of the bank has its largest  share of group assets though the bank is not Nigerian.  

The Nairobi Stock Exchange All Share Index rose by 86.2% from 12/31/09 to 03/20/20.  The Nigerian Stock Exchange All Share Index rose by 6.6% from 12/31/09 to 03/20/20.  

Six (6) of the eleven Kenyan listed companies (including all four banks) had a share price increase over the reference period.  Only one (1) of the eleven Nigerian listed companies (GT Bank) had a share price increase over the reference period.  The closest to break even point was Julius Berger which is just 8.8% away from its price on 12/31/09.  If its 1-for-10 stock split issued six years ago is factored in, Julius Berger will be the second company with a share price increase.  I quote from an article (on this blog) written twenty months ago that is the featured post viewable on desktop and tablet:  "Given that the federal government is fixated on the physical capital stock as it strives to reduce Nigeria’s widening infrastructural gap. It is imperative for investors in the stock market to invest in companies in sectors likely to benefit directly from the infrastructure spending focus of the Buhari administration. The two sectors I deem viable investment options under the current government policies are: cement and construction. Certain stocks in these sectors are well positioned to benefit from current government policies over the next twelve – twenty-four months and will be more resilient on the downside, even when the stock market is on a persistent decline as is the case presently."  Julius Berger just announced a dividend  (N2.75) and stock split 1-for-5) that is better than the corporate action announced six years ago (N2.70 and 1-for-10,) despite the current share price being approximately a third of its price six years ago: approximately N24.00 now and approximately N72.00 six years ago.   

Four of the five Kenyan companies that declined in price over the reference period, had major, public scandals that rocked their boards.  Uchumi and Kenya Airways have been rocked by accounting scandals, Nations Media and Ken Gen have been rocked by corruption related scandals involving their employees.  It is interesting to note that the subsidiaries of Lafarge Holcim in Nigeria (WAPCO) and Kenya (Bamburi) both declined in price over the reference period by 66% and 71% respectively.  Management at the global level has to look inward and take responsibility.  

                                                    

                                                      Notable Observations - Kenya

1. Four of the six Kenyan companies that had a share price increase did better than the All Share Index's increase of 86% over the reference period.  

2. The two most prominent banks in Kenya (Equity Bank and KCB) had share price increases that exceeded that of the Nairobi All Share Index over the reference period.  

3. All four Kenyan banks had positive price performances over the reference period despite grappling with a cap on lending rates and the National Bank scandal.  

4. Diamond Trust Bank still achieved a 28% increase over the reference period despite declining 36% over the past one year.  

5. Standard Chartered Bank Kenya has risen 19% over the reference (the least among the four banks) and has had the most disappointing corporate performance in recent years on average.  

6. Kenyan companies' price performance is largely reflective of idiosyncratic circumstances of each company.

                                                       Notable Observations - Nigeria

1.  Nigerian bank prices are not reflective of each bank's performance; but more of a pervasive gloom surrounding the country's economic direction and footprint.  

2.  Access Bank is currently trading at a lower price, than its price when Access Bank did not include Intercontinental Bank and Diamond Bank; two banks acquired by Access Bank over the past eight years.  

3. The only bank holding company on the list (FBN Holdings/First Bank) has the worst price performance among the four banks.  The bank holding company business model has not been successful from an investor standpoint and needs to be looked into from a viability standpoint as it relates to the Nigerian business landscape.  

4.  ETI Group is currently trading at a third of its price on 12/31/09 despite not having acquired Oceanic Bank at the time and the Nigerian region having about 25% of the total assets of Africa's largest bank by reach presently.  

5.  Only GT Bank had a price performance (20%) in excess of the All Share Index (6.6%).  

6.  Nigerian stocks have a much better chance of a positive outlier performance by an individual stock than Kenyan stocks.  The Nairobi All Share Index has a better foundation to perform better than the Nigerian All Share Index on average over the next three (3) years.  

The Nigerian government is not taking direct measures to positively impact the financial lives of its teeming population and this is negatively impacting the growth of potential GDP.  The drivers of potential GDP are ultimately the drivers of stock market price performance.  An increase in the rate of labor productivity growth will increase a country's sustainable rate of economic growth and potential return on equities.  The Buhari administration continues to be fixated on the physical capital stock instead of the human capital stock.  A country's greatest asset is its people and not its natural resources which is not necessary for growth.  The Buhari administration continues to focus on the latter which has led to a continued and persistent decline in investor perception of Nigeria's near-term potential GDP growth and the resultant, persistent and significant decline in index performance from February 2018 to date.    

Nigeria's GDP growth rate from March 2011 to December 2019 averaged 2.7%.  Kenya's GDP growth rate from March 2010 to September 2019 averaged 5.7%.  Kenya's economy is built around soft commodities while Nigeria's economy is built around hard commodities while paying 'lip service' to soft commodities despite repeated promises to reverse the trend.  It should therefore, be no surprise to readers that Kenya's index has risen by 86% point to point from 12/31/09 to 03/20/20 while Nigeria's index has risen by approximately 7% point to point over the same period.  So, what has largely been responsible for the All Share Index movements in Kenya and Nigeria over the past ten years?     

Has Kenya's index movement been driven by the corona pandemic, carefree leadership, culpable C-level management or confused investors driving volatility through their trading practices?  Kenya's market index movement has largely been driven by culpable management (positive and negative) over the past ten years and in 2020 by the Corona pandemic.  

Nigeria's market index movement has largely been driven by a Carefree political and economic leadership (steering a ship without a clear direction and conflicting intent) over the reference period and in 2020 by the Corona pandemic.  The Corona pandemic has led to more confusion among investors resulting in a 17% and 20% index decline in Nigeria and Kenya's indices respectively over the first twelve weeks of 2020.  The Kenyan stock market is Gold; while the Nigerian stock market is a Diamond.  Gold is more valuable than Diamond on average and much easier to ascribe a value to.  Diamonds can be ascribed a value that no one believed was plausible initially but this is rare.  

In a nutshell, if you are not really good at picking African stocks, increase exposure to the Kenyan market over Nigeria.  If you are good at picking African stocks and want a significant spike in portfolio return and have the risk appetite, then, Nigeria is where you need to be.  Kenya is a positive market splash over the mid - long term, while Nigeria is a boom or bust in the near-term at the stock level.   

Nigerian companies' share prices are being obliterated by carefree fiscal and monetary leadership.  I discussed this further in the 3rd most recent article on this blog.  Company performances will continue to have minimal impact on stock prices in Nigeria until the Buhari administration and the Central Bank of Nigeria implement logical policies to empower (instead of impoverishing) the country's main asset: its people.    Investing in Nigeria's stock market today is more about potential and not expectation; while, investing in Kenya's stock market is more about expectation and not potential and this is why company operational and governance performances will continue to drive stock performances as it should.   

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