We initiate our coverage on Kenya Commercial Bank (KCB) with a BUY recommendation based on a target price of KES 44.68 which represents an upside of 16.8% on current price levels. The corporate segment has traditionally been KCB’s bread winner and with opportunities in the SME sector and county development related projects, the expectation is the bank will leverage on its’ operational experience and wide asset base to capture private sector inflows. We also expect a surge in transactional volumes based on the uptake of the internet, mobile and agency platforms which should see net fees and commissions grow by 19% FY13.

Our valuation drivers were based on the following:

ü Interest Margins: Deposit rates have declined although by a lower proportion reflecting bank’s determination to maintain their net interest margins. We also see the continuation of relatively high interest spreads, as the tenure for expensive deposits prevail with lack of a clear financial mechanism to spur rate reductions.

ü One off restructuring plan bears fruit with declining cost to income ratio: The CIR ratio declined from highs 68.9% (Q1:10) to lows of 59.64% (Q1:13). The completion of KES 1.6 billion restructuring program, consolidation of different branch operations across the region to a shared service center, and most recently a new CEO from a manufacturing background all indicates further reductions to the CIR.

ü Regional Expansion: After a long period of capital outlay for regional expansion, the present focus remains on consolidating existing operations using the shared service platform. If KCB succeeds with this process initiative, we see further improvements on cost rationalization and a strong foundation for a deeper expansion drive into East and Central Africa’s virgin territories.

ü Kenya shows signs of political maturity: A reformed regulatory framework, closer scrutiny from capital market regulators and a more interventionist central bank have all seen the creation of a stable macroeconomic environment. Despite the political hurdles encountered; inflation, interest rates and forex movements have all moved favorably characterizing an economy that is grabbing global attention as a favored investment destination in Sub Saharan Africa and a financial hub for the region.

ü KES 225 billion county budget allocation creates room for local penetration: We see the devolution process as a growth driver for banks with an extensive local branch network. Fiscal decentralization, salary processing of civil servants, government related projects will all increase the banking sector’s funded income providing financial inclusion rates of the remote counties can reflect their urban peers. The role of public-private partnerships will also be imperative in steering county development so the SME segment of their respective loan books will grow.

ü Dividend Policy: The management has not indicated any transformational budgetary plans and the bank is well above current statutory requirements so dividend payouts should be maintained at the historical average of 49%.

Source: Genghis Capital - 18th June, 2013

I ignore all analysts because iam also an analyst..my guess has beaten theirs many times.

fat fingers typo

Anyone know why Musa Ndeto left the chair position after barely one year?

Waoh. Heko KeySeeMbee. Bad debt recovery are reflected as "other income" {line 4.5 of P&L} ;-)

KCB still showing robust demand,we could see 44 tomorrow.We need those half year numbers.

There is no point of giving bad news in a hurry, i think!

They have this investor relations sub-web but its been dormant for a while now http://www.kcbbankgroup.com/investor_relations/

Yes,simba powers on.