SA bank sees headroom for stock market [Business Daily (Kenya)]
(Business Daily (Kenya) Via Acquire Media NewsEdge) Higher uptake of commercial bank loans, single-digit inflation and cash inflows from oil, gas and minerals sectors could support the NSE against the current slide triggered by foreign investor sell-offs, analysts at South Africa's Standard Bank have predicted.
The NSE's price-to-earnings ratio currently stands at 16.4, meaning investors are willing to buy stocks at shares prices that are 16.4 times over the earnings per share.
Standard Bank analysts, however, say the Nairobi Securities Exchange still has headroom for growth, adding that price tracking NSE 20-Share Index could in fact hit an all-time record of 5,600 points in this financial year.
"We think it can go higher still. The index's price-to-earnings (PE) ratio at around 16.4 is clearly high, but not too silly. Growth is picking up and interest rates look set to decline in line with inflation, which is unlikely to unduly pressure the currency at present," says the report.
Telecommunications company Safaricom, Jubilee Holdings, CIC Insurance and Centum are all trading at record or near-historic levels.
The market, however, recorded a sharp drop in the second half of January, with the NSE 20-Share Index plunging from the 5,000 points range to 4,856.15 points on Friday while market capitalisation has fallen from past Sh2 trillion to Sh1.89 trillion on Friday
Announcements of full-year performance for listed firms, which is expected to start in this month, is expected to offer the bourse a lift.
"On a stand-alone basis, the market is a bit more expensive compared to a few years back, but strong earnings could be supportive of these forward valuations," said an outlook report by PineBridge Investments.
PineBridge found that as at December 31 2013 the NSE's PE ratio stood at 14.3 against the MSCI Emerging Markets Index's PE of 12.1, but noted that the NSE was priced at the same level with peer African bourses.
Mauritius had a PE of 14.2, while Nigeria and Zimbabwe both had a 14 PE ratio.
Standard Bank expects that the rate of inflation to oscillate at between 5.5 and seven per cent this year, suppressed by the falling prices of food which should make the case for Central Bank of Kenya to maintain rates.
Latest Kenya National Bureau of Statistics (KNBS) data shows that the rate of inflation has been gradually falling since October 2013 when it stood at 7.76 per cent but increased last month.
January's rate of inflation stood at 7.21 per cent from December's 7.15 per cent mainly driven by an increase in the cost of food.
PineBridge Investments said that they expect inflation figures to increase only for the first half of the year due to introduction of taxed on value added tax on previously zero-rated goods.
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