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Genghis Weekly Strategy - 30th March 2020

In this week's edition of the Weekly Strategy Report, we give a recap of the equities and fixed income markets' performance over the past week and our trading ideas for the coming week.

Our Momentum, Income and Value equities portfolios continue to outperform the benchmark NSE 20 index. Performance of the Momentum and Income portfolios was ahead of all the benchmark indices including the Nairobi All Share Index (NASI).

Genghis Trading Ideas for the week…
Equities
BUY EABL at the KES 130 levels. At current price levels, EABL trades at record low P/E of 11.6x against a historical average of 25.1x. The brewer sits at one of its best dividend yields at 6.3% against a sub 4% historical yield.
At the price levels EABL is oversold and we do not expect that COVID-19 containment measures will affect its business in a similar way that the price has dropped over the last 2 months (-42.3%). Its current second half financial period (Jan - Jun) typically the weaker financial period is expected to be worse this financial year. If we go by last year's similar period (2H19), EPS was at KES 4.71 and assuming a worst-case scenario of 80% wipe-out of 2H19 EPS, current period (2H20) EPS would settle at KES 0.94 and FY20 EPS would come in at KES 7.94 (vs KES 11.23 in FY19), a 29.3% y/y drop. This extreme scenario estimated EPS still implies a significantly discounted forward P/E of 17.1x against historical average of 25.1x.
Recently, the brewer announced intentions to consolidate its shareholding in its 51%-owned subsidiary in Tanzania, Serengeti Breweries Ltd (SBL) through acquisition of an additional 30% stake, in a move we attribute to the rising fortunes of the Tanzania market. SBL has been a rising star in EABL's East Africa's markets, with the fastest growth in net sales (20%) in the latest 2 financial years.

Fixed Income
BUY FXD1/2019/5 at 10.97% - 11.00% levels. In the current volatile environment due to the COVID-19 pandemic, shorter maturity papers and higher-paying coupons will be attractive. FXD1/2019/5 is relatively priced against comparable maturities and has attractive entry points.