Renegade, like this?:

I understand Kestrel has issued a STRONG BUY recommendation for KCB with a fair value of 29.50. Clients of Kestrel (Stocksmaster et al), could you please confirm this or even better share the intel?

The lion is on a roll.

Yeah, You "heard" me right, 29.50!!!!

Kestrel Capital (East Africa) Ltd

Member of the Nairobi Stock Exchange

KENYA – KCB BANK LIMITED UPDATE APRIL 2011
We upgrade our recommendation on KCB Bank Limited (KCB) to a STRONG BUY with a fair value of KES 29.50, representing a 25.5% upside from the current price of KES 23.50. Our positive sentiments are supported by strong balance sheet growth over the next 3 years (15.2% CAGR - driven by 18.2% CAGR in lending) and profitability (17.7% CAGR) mainly from expected reductions in cost-to-income (55.5% in FY13). With a higher than sector forward dividend yield (6.4% in FY11), KCB provides a good entry point among the large cap Kenyan banks.

·Cheapest large cap bank with a forward P/B of 1.5x - KCB trades on a forward P/B and P/E of 1.5x and 8.2x, a 42.4% and 20.0% discount to our large cap sector weighted average of 2.6x and 10.2x, respectively, making it the cheapest large cap bank in the Kenyan Banking sector. KCB also has one of the highest forward dividend yields of 6.4% against our sector average of 4.9%.

·Lower NIMs expected in FY11 - With inflationary pressures (9.2% in March 2011) and increased sector competition for deposits (Micro Finance Institutions also licensed to take deposits), we believe cost of deposits in FY11 to edge upwards (+10bp y/y) for KCB. The Central Bank of Kenya (CBK) has been pushing for lower lending rates (CBR at 6.00%) to enhance loan uptake in the sector. Consequently, we estimate improved loan growth (+24.0% y/y) supported by reduction in WAIR on loans (-20bp y/y) to lower Net Interest Margin (NIM) to 10.1% (-70bp y/y) against a sector NIM of 9.9% in FY11.

·Growing loans and deposits market share - KCB has consistently gained market share of loans and deposits among the large cap banks. Since FY08, KCB’s loans market share has increased 481bp to 32.2% while deposits market share has increased 193bp to 30.3% in FY10 among our universe of large cap banks. We expect this trend to continue in FY11 with the bank gaining a further 8bp y/y and 6bp y/y in loan and deposit market share respectively. We further highlight that KCB’s new loans and deposits market share stood dominantly at 43.1% and 30.5% in FY10 among the large cap banks.

·Slow but steady decline in CTI - The implementation of a new core banking system has increased the level of automation in the bank and is thus the impetus for an ongoing staff restructuring exercise (KCB has hired McKinsey consultants for this). Despite expectations of a sound income growth momentum and reduction in operating costs (staff costs to reduce by KES 400-500m), we do not expect a drastic impact on cost-to-income (CTI) ratio as the bank continues to open 4 more branches in Southern Sudan, expand its products portfolio in the SME and mortgage sectors and roll out agency banking (2,500 agents in FY11). As a result, we estimate a CTI of 59.0% (-110bp y/y) in FY11 (vs. 58.0% management target) and 55.5% in FY13 (vs. 50.0% management target). However, increase in transaction income from agency banking, mobile banking (‘Kopa’ Float and KCB Connect) provides upside risk to our CTI estimates. We estimate an 11.7% CAGR in total income vs. 8.2% CAGR in operating expenses over a 3 year period.

·KCB plans to raise tier II capital in 2H11 - KCB raised KES 12.5bn in the 2:5 Rights Issue in 2H10. This enhanced the bank’s capital adequacy ratios (23.2% vs. 12.0% minimum required) for it to grow its loan book (+22.9% y/y in FY10). The bank plans to raise a further KES 6.0-8.0bn in 2H11 via a domestic bond issue in order to manage the asset-liability mismatch that is arising out of increased lending to the mortgage sector. Although its mortgage book currently accounts for about 12.7% of net loan book (KES 148.1bn in FY10), KCB expects to lend an additional KES 7.0-10.0bn (about 20.0% of KCB’s new loans in FY11F) in mortgages, hence the need for long-term funding to manage the mismatch.

Kind Regards,

________________________________

Vimal Parmar

Head of Research



@ Mwanahisa: Post an email i forward you the full report.

Happy hunting

Download at the link below:

http://www.2shared.com/d..._Update_April_20111.html

Does the bond issue bring you any discomfort?

Now that HSBC has been allowed to setup a rep.office but barred from deposit taking...I see them having a need to partner with a local bank and guess who has the size, strength & distribution(EAC)...KCB!!!

The rep office looks for larger deals... There are many banks [or syndicates] that HSBC can deal with including Equity, StanChart, CBA, DTB, NIC,I&M, etc not just KCB...

KCB has now traded at 26. This is a high for the last how many months(years), for those who may have the data?

Looking good for KCB shareholders.