KCB Group & BIH rank as most attractive financial institutions in Sub-Saharan Africa as per Cytonn Investments report
AA – Having established a strong research team and delivery framework in Kenya, Cytonn Investments Management Plc has now launched a Sub Saharan Africa (SSA) research coverage initiative. The initial coverage will be limited to Financial Services, which is one of our strongest research sectors, alongside real estate research.
SSA has long been viewed as the next global growth frontier buoyed by improving macro-economic stability, compelling demographic trends, improved governance and ease of doing business across the continent. However, following a decline in commodity prices and slowing demand from China, the region fell behind the world economy in output, growing at 1.4% in 2016, slower than the aggregate global growth of 3.2%. The slowdown was not evenly distributed amongst countries in SSA, being mainly concentrated in commodity exporters, while more diversified economies sustained robust economic growth, with countries in East Africa including Djibouti, Ethiopia, Kenya, Rwanda and Tanzania, all recording GDP growth rates above 5% in 2016, with Ethiopia leading at 8%. This year, the economic outlook for the Sub-Saharan Africa region is positive with an overall growth forecast set at 2.6% in 2017, rising to 3.4% in 2018, against expected global growth of 3.6% and 3.7%, respectively. A number of factors are supporting this growth, among them; stronger domestic demand following the emergence of a rising middle class, sound macroeconomic policy management now entrenched in many African countries, a generally improving and favourable business environment, a more diversified economic structure, particularly towards the services sector and light manufacturing, and rising commodity prices, which started to rise in the latter part of 2016.
Having established the compelling investment opportunities in the Sub-Saharan Africa region, we undertook an analysis on the Sub-Saharan African Financial Services sector to determine which companies are the most attractive and stable for investment from a franchise value and from a future growth opportunity perspective. In total, we analysed 49 companies operating in 10 Sub Saharan African countries. These countries are Kenya, Uganda, Tanzania, Rwanda, Nigeria, Ghana, Mauritius, Zambia, Namibia, and Botswana.
In the Sub Saharan Africa Financial Services Sector Report released today, KCB Group and Botswana Insurance Holdings rank as the most attractive bank and insurance company, respectively, in Sub Saharan Africa, supported by strong franchise and intrinsic value scores. The franchise score measures the broad and comprehensive business strength of a company, while the intrinsic score measures the investment return potential. The National Bank of Kenya (NBK) and Sanlam Kenya ranked lowest, in the bank and insurance company categories, respectively, with both firms ranking low in both the franchise and intrinsic value score.
“The report analyzed the results of select listed banks and insurance companies over the first half of 2017 so as to determine which financial institutions are the most attractive and stable for investment from a franchise value and from a future growth opportunity perspective,” said Maurice Oduor, Cytonn’s Investments Manager. “Our shortlisting criteria was based on identifying countries with a stable macro-economic environment, coupled with minimum requirements a listed company has to attain in stock market metrics such as market capitalization, turnover, foreign investor participation and free float”, added Maurice.
“The Sub Saharan Africa space remains attractive, buoyed by improving macro-economic stability, compelling demographic trends, improved governance and improving ease of doing business across the continent,” said Caleb Mugendi, Investment Analyst at Cytonn Investments. “We expect that growth in the region will be supported by stronger domestic demand spurred by a rising middle class, sound macroeconomic policy management, a generally improving and favorable business environment, a more diversified economic structure, particularly towards the services and manufacturing sectors, and stable commodity prices,” added Caleb.
In the Bank category, KCB Group ranked first overall, boosted by its strong franchise score, while ranking position 6 in the total return score. Its optimal loan to deposit mix and a favorable return on average equity boosted KCB Group’s franchise value. Zenith Bank and Societe Generale, from Nigeria and Ghana, respectively, rounded up the top three, with both recording particularly strong franchise value scores, ranking 2nd and 6th, respectively. Zenith Bank ranked position 5 in diversification, while Societe Generale ranked position 6 in terms of return on average equity.
In the Insurance category, Botswana Insurance Holdings emerged top overall, following a strong franchise score, supported by low loss and expense ratios, in addition to revenue diversification. Kenya Re and Custodial and Allied of Kenya and Nigeria, respectively, capped off the top three, supported by favorable solvency ratios and combined ratios, respectively.
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