Market Performance:

During the month of January 2025, the equities market was on an upward trajectory, with NSE 20 gaining the most by 7.6%, while NASI, NSE 25 and NSE 10 gained by 3.9%, 1.0% and 0.8% respectively. The equities market positive performance was driven by gains recorded by large-cap stocks such as Bamburi, EABL, and KCB Group of 7.7%, 2.8%, and 2.8% respectively. The monthly performance was however weighed down by losses recorded by large cap stocks such as BAT, Equity Group and Absa of 3.6%, 2.3% and 0.6% respectively.

During the week, the equities market was on a downward trajectory, with NSE 10 declining the most by 4.3%, while NSE 25, NASI and NSE 20 declined by 3.7%, 3.2% and 1.1% respectively, taking the YTD performance to gains of 5.0% and 2.3% for NSE 20 and NASI respectively and YTD losses of 1.1% and 0.6%, for NSE 10 and NSE 25 respectively. The week on week equities market performance was driven by losses recorded by large-cap stocks such as Safaricom, KCB and EABL of 9.0%, 6.7%, and 6.6% respectively. The performance was, however, supported by gains recorded by large-cap stocks such as Bamburi, Coop and Stanbic Holdings of 7.7%, 2.2% and 0.7% respectively.

Equities turnover decreased by 66.8% in the month of January 2025 to USD 74.0 mn, from USD 222.6 mn recorded in December 2024. Foreign investors remained net sellers, with a net selling position of USD 8.1 mn, a decrease from a net selling position of USD 9.9 mn recorded in December 2024.

During the week, equities turnover decreased by 6.2% to USD 17.3 mn from USD 18.5 mn recorded the previous week, taking the YTD total turnover to USD 74.0 mn. Foreign investors remained net sellers for the second consecutive week with a net selling position of USD 3.1 mn, from a net selling position of USD 0.2 mn recorded the previous week, taking the YTD foreign net selling position to USD 8.1 mn.

The market is currently trading at a price-to-earnings ratio (P/E) of 5.9x, 49.4% below the historical average of 11.6x. The dividend yield stands at 6.0%, 1.4% points above the historical average of 4.6%. Key to note, NASI’s PEG ratio currently stands at 0.7x, an indication that the market is undervalued relative to its future growth. A PEG ratio greater than 1.0x indicates the market is overvalued while a PEG ratio less than 1.0x indicates that the market is undervalued. The charts below indicate the historical P/E and dividend yields of the market;

Universe of Coverage:

Weekly Highlights:

1. Kenya Power & Lighting Company Plc (KPLC) H1’2025 Financial Performance

During the week, Kenya Power & Lighting Company Plc (KPLC) released its H1’2025 financial results, for the period ending 31^st December 2024, recording a significant 3025.4% improvement in profitability. The company posted a profit after tax (PAT) of Kshs 10.0 bn, a major turnaround from Kshs 0.3 bn   in H1’2024. The increase was mainly driven by, an 86.9% reduction in finance costs to Kshs 1.9 bn in H1’2025, from Kshs 15.0 bn in H1’2024, coupled with a 14.1% decline in the cost of sales to Kshs 71.3 bn, from Kshs 83.0 bn in H1’2024. The performance was however weighed down by a 5.4% decline in the total revenue to Kshs 107.4 bn, from 113.6 bn in H1’2024 attributed to lower pass-through costs and tariff adjustments. The tables below summarize the company’s financial performance:

Source: Kenya Power and Lighting Company (KPLC) H1’2025 financial statements

Source: Kenya Power and Lighting Company (KPLC) H1’2025 financial statements

Key take outs from the financial performance include;

1. Total revenue fell by 5.4% to Kshs 107.4 bn in H1’2025 from Kshs 113.6 bn in H1’2024 due to lower pass-through costs and tariff adjustments. Cost of Sales decreased by 14.1% to Kshs 71.4 bn, from 83.0 bn in H1’2024 attributed to a stronger Kenya Shilling and an optimized power generation mix,
2. Operating expenses rose by 20.3% to Kshs 23.7 bn in H1’2025 from Kshs 19.7 bn in H1’2024 mainly driven by higher staff costs, maintenance, and depreciation due to network expansion,
3. Drastic Reduction in Finance Costs by 86.9% to Kshs 2.0 bn, from Kshs 15.0 bn recorded in H1’2024 reflecting loan repayments and forex stability, attributable to the gain of the Kenyan Shilling against other currencies,
4. Earnings per share surged to Kshs 5.1, from Kshs 0.2 in H1’2024, marking a significant 3093.8% growth attributable to the increase in PAT to Kshs 10.0 bn from Kshs 0.3 bn, which was driven by lower costs and improved operational efficiency,

5. The company’s balance sheet recorded an expansion as total assets grew by 1.5% to Kshs 368.6 bn from Kshs 363.2 bn recorded in H1’2024 t mainly attributable to the 3.4% increase in property and equipment to Kshs 276.3 bn in 2024 from Kshs 267.2 bn recorded in H1’2024,
6. The company’s total liabilities reduced by 11.4% to Kshs 271.3 bn in H1’2025 from Kshs 306.1 bn recorded in H1’2024 this was attributable to a 20.0% reduction in current liabilities to Kshs 107.3 bn, from Kshs 134.1 bn in H1’2024 as well as a 4.6% reduction in non-current liabilities to Kshs 164.0 bn, from Kshs 171.9 bn in H1’2024, and,
7. The Board of Directors declared an interim dividend of Kshs 0.20 per share, payable on 11th April 2025 to shareholders registered as of 28th February 2025, marking the first time since 2017 when the company last paid an interim dividend of Kshs 0.5 per share. This translates to a dividend yield of 5.3% as of 31^st January 2025 and a dividend payout ratio of 3.9%.

KPLC has demonstrated a remarkable turnaround in financial performance, with a surge in profitability, lower debt costs, and improved operational efficiency. However, declining revenue, rising operational expenses, and reduced cash reserves present challenges. The company’s strategic initiatives and government-backed projects provide opportunities for long-term growth and financial stability. The company’s strong profitability rebound, improved financial health, and dividend payout signal a positive investment outlook, but investors should watch cost control and revenue trends in the coming periods Going forward Kenya power aims to sustain its improved financial performance by enhancing operational efficiency diversifying revenue streams and leveraging strategic projects such as the Digital superhighway and the green financing program. The anticipated lifting of the moratorium on new power generation contracts is expected to drive electricity sales growth while continued investments in infrastructure will support long-term financial stability

2. EABL East African Breweries Plc (EABL) H1’2025 Financial Performance

During the week, East African Breweries Plc (EABL) released their  H1’2025 financial results for the period ending 31^stDecember 2024, recording a 19.6% increase in Profits After Tax (PAT) to Kshs 8.1 bn in H1’2025, from Kshs 6.8 bn in H1’2024. The increase was mainly attributable to the 14.4% decrease in finance costs to Kshs 3.4 bn from Kshs 4.0 bn in H1’2024, coupled with a 2.1% increase in net revenue to Kshs 67.9 bn from Kshs 66.5 bn in H1’2024. The performance was however weighed down by the 4.9% increase in the operating costs to Kshs 13.7 bn in H1’2025, from Kshs 13.1 bn in H1’2024. The tables below show the breakdown of the company’s financial performance;

Source: East African Breweries Plc (EABL) H1’2025 financial statements

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Source: East African Breweries Plc (EABL) H1’2025 financial report

Key take outs from the financial performance include;

2. Net revenue increased by 2.1% to Kshs 67.9 bn in H1’2025, from Kshs 66.5 bn recorded in H1’2024, mainly attributable to strategic pricing, a strong portfolio and innovation launches. Further, EABL’s diversi­fied geographical footprint helped mitigate volatility.
3. Operating costs increased by 4.9% to Kshs 13.7 bn, from Kshs 13.1 bn attributable to signifi­cant increases in interest rates and social unrest which disrupted operations in Kenya during the period of review,
4. Cost of sales increased by 7.4% to Kshs 39.8 bn, from Kshs 37.0 bn in H1’2024, mainly attributable to increased cost of inputs occasioned by attributable to factors such as rising raw material costs, supply chain disruptions, and fluctuations in the cost of imported goods due to changes in exchange rates.
5. The Group’s balance sheet recorded a contraction, with the total assets decreasing by 3.7% to Kshs 137.7 bn in H1’2025 from Kshs 143.1 bn recorded in H1’2024 mainly attributable to a 9.2% decrease in non-current assets to Kshs 84.4. bn in H1’2025 from Kshs 92.9 bn in H1’2024. In addition, total liabilities recorded a 7.2% decline to Kshs 96.9 bn in H1’2025 from Kshs 104.4 bn in H1’2024, mainly driven by a 22.0% increase in long-term borrowings to Kshs 38.5 bn in H1’2025 from Kshs 49.4 bn in H1’2024
6. The Group’s short-term borrowing increased by 38.1% to Kshs 7.1 bn in H1’2025 from Kshs 5.2 bn in H1’2024, while the long-term borrowings decreased by 22.0% to Kshs 38.5 bn, from the Kshs 49.4 bn in H1’2024 an indication of the group’s strategic shift in its debt financing.
7. Earnings per share increased by 10.9% to Kshs 15.3, from Kshs 13.8 in H1’2024, largely driven by a 19.6% increase in profit after tax to Kshs 8.1 bn, from Kshs 6.8 bn in H1’2024. Additionally, the Board of Directors recommended an interim dividend of Kshs 2.50 per share with a book closure of 21st February 2025 and a payment date of 30th April 2025. This translates to an annualized dividend yield of 2.8% as of 31^st January 2025, compared to a dividend yield of 1.8% in H1’2024 and a dividend pay-out ratio of 24.4% in H1’2025 compared to 11.7% in H1’2024.

Following the improvement in macroeconomic environment arising from an ease in inflationary pressures and a stable and stronger currency, EABL has experienced an improvement in financial performance as evidenced by the increase in profitability by 19.6% as well as the 10.9% growth in earnings per share in H1’2025. Key to note, EABL realized a significant 151.0% increase in foreign exchange gains owing to the appreciation of the local currencies in the Group’s region of operation. For instance, the Kenyan shilling and Uganda Shilling gained by 17.8 bps and 3.4 bps, respectively against the US Dollar for the period under review. In our view, the Group’s earnings will be supported by the group’s continued diversification efforts as well as the efforts from the government to mitigate the impact of unregulated alcohol trade as illicit trade continues to grow. Moreover, the Group’s announcement of an interim dividend of Kshs 2.50 per share for the period ending 31st December 2024 is expected to boost investors’ confidence in the Group’s stock.

Monthly Highlights

1. During the month, Nairobi Securities Exchange (NSE) announced the lifting of the suspension in the trading of Kenya Airways Plc securities, effective January,5 2025. The suspension on trading Kenya Airways PLC shares was lifted following the company’s recent positive performance, which included posting a profit after tax and the withdrawal of the National Aviation Management Bill 2020.The trading of the group’s shares were suspended in July 2020 mainly due to implementation of the National Aviation Management Bill 2020. Please see our Cytonn Outlook 2025 for more info

We are “Bullish” on the Equities markets in the short term due to current attractive valuations, lower yields on short-term government papers and expected global and local economic recovery, and, “Neutral” in the long term due to the adverse operating environment and huge foreign investor outflows. With the market currently trading at a discount to its future growth (PEG Ratio at 0.7x), we believe that investors should reposition towards value stocks with strong earnings growth and that are trading at discounts to their intrinsic value. We expect the current high foreign investors sell-offs to continue weighing down the economic outlook in the short term.

1. Industry Report

During the month of January, the following industry reports were released and the key take-outs were as follows;

2. Residential Sector

During the week, Mi Vida Homes announced a strategic partnership with HF Group Kenya’s banking division, to enhance homeownership and real estate investment in the country. As part of the agreement, HFC will provide up to 95.0% mortgage financing at a fixed interest rate of 9.5% for a repayment period of up to 20 years. This initiative is aimed at making homeownership more accessible and encouraging buyers to invest in property instead of renting. Additionally, the collaboration is highlighted to extend beyond conventional property sales and financing by incorporating investment prospects and long-term property value growth.

According to the Mi Vida team, the partnership is designed to create a well-rounded support system that includes financial solutions, homeownership advisory services, investment opportunities, and long-term value appreciation for homeowners. They also emphasized that HF Group’s strong market presence and industry experience would help expand accessibility to a broader customer base.

We expect this partnership will enhance access to homeownership in the country by addressing financing barriers, streamlining the home buying process and boosting the mortgage market in Kenya. While the HF Group will gain access to a larger pool of potential mortgage customers, Mi Vida will benefit from a client base that can secure financing more easily thus supporting real estate growth in the country.

There was one notable highlight during the month;

1. GulfCap Real Estate broke ground for a Kshs 120.0 bn housing project in Kisumu marking a significant development in Kenya's real estate sector. Spanning 285 acres, the project aims to address the growing demand for housing in Kisumu, a city experiencing rapid urbanization and population growth. For more information, please see our Cytonn Weekly #04/2025.

We expect increased activities in the residential sector within the country sustained by; i)ongoing residential developments under the Affordable Housing Agenda, aiming to reduce the housing deficit in the country currently estimated at 80.0%, ii) increased investment from local and international investors in the housing sector, iii) favourable demographics in the country, shown by high population and urbanization rates of 3.7% p.a and 2.0% p.a, respectively, leading to higher demand for housing units. However, challenges such as rising construction costs, strain on infrastructure development, and limited access to financing will continue to restrict the optimal performance of the residential sector.

3. Commercial Office Sector

There were two notable highlight during the month;

1. The Local Authorities Pensions Trust (Laptrust) revised its plans for the Ugatuzi Tower project in Nairobi, reducing the proposed 50-storey office building to 34 floors. This adjustment comes in response to a surplus of office space in the market and escalating construction costs. Originally, Laptrust intended to construct a 50-storey tower at an estimated cost of Sh5 billion. However, legal challenges from some of its members delayed the project's commencement, leading to the current revision. The proposed building will occupy 1.3 acres at the intersection of Argwings Kodhek and Chaka Road in the Hurlingham area. Laptrust plans to complete the project within 24 months after obtaining the necessary licenses and beginning construction. For more information, please see our Cytonn Weekly #04/2025 ;and,
2. Tele performance announced plans to expand its Kenyan operations with the launch of a new hub at the Two Rivers International Finance and Innovation Centre (TRIFIC) SEZ. The new location is expected to create an estimated 5,000 new jobs, offering services such as digital business services, customer experience management, and advanced analytics.For more information, please see our Cytonn 2025 Markets Outlook.

We expect that the Commercial office sector will continue to grow impacted by several key dynamics: i) the increasing presence of multinational companies in Kenya is likely to drive up occupancy levels, ii) co-working spaces are gaining in popularity in the region iii) the entry of more startups driving demand for commercial spaces. However, the sector continues to face challenges due to a significant oversupply of office space, currently standing at 5.8 mn SQFT.

4. Retail Sector

There were Three notable highlights during the month;

1. China Square expanded its presence in Kenya by launching its 7th store at Greenspan Mall in Donholm-Nairobi which follows the opening of a 6th store at Two Rivers Mall-Kiambu in the previous week. These additions bring the retailer’s total number of outlets in the country to seven since its entry at Kenyatta University’s Unicity Mall in 2022. For more information, please see our Cytonn Weekly #3/2025,
2. ILAM Fahari I-REIT, which manages Greenspan Mall announced the inclusion of China Square in tenants portfolio, expressing enthusiasm for the growth and collaboration this partnership brings.  Elsewhere, the Centum team, which co-owns Two Rivers Mall, highlighted that the addition of China Square is expected to raise the mall’s occupancy to around 95.0%, boosting foot traffic and benefiting other businesses. For more information, please see our Cytonn Weekly #3/2025,
3. Majid Al Futtaim, the operator of Carrefour in Kenya, launched a new store at Rhapta Promenade Mall in Westland’s, marking its 27th store in the country. The new store aims to improve convenience and accessibility for customers around Westland’s area and has so far created 45 direct jobs contributing to its current workforce of over 2,800 employees the company has in Kenya. For more information, please see our Cytonn 2025 Markets Outlook. and,

We expect to witness more retail expansions activities for the year 2025, driven by increased investments from both local and international retailers, the availability of retail space, a growing consumer base, and evolving consumer preferences in the country.

5. Industrial Sector

There were two notable highlights during the month;

1. Kenya capped the period for SEZ investors to enjoy tax benefits and incentives at 10 years, reducing the time in which the government loses revenue in order to attract investors. Previously, there was no limit on the tax breaks offered to SEZs. Investors enjoyed a graduated corporate income tax (CIT) rate of 10.0% for the first 10 years, increasing to 15% for the next 15 years. Additionally, they were exempt from value-added tax (VAT), permit and advertisement fees and other duties. For more information, please see our Cytonn 2025 Markets Outlook.and,
2. The Kenya Revenue Authority (KRA) granted the Tatu City special economic zone (SEZ) a customs area status. A move which designates Tatu City as a zone where imported or exported goods can be stored before clearance by customs authorities. The SEZ status, already enjoyed by Tatu City, allows for business and trade laws distinct from the rest of Kenya with the main aim being to boost trade, employment, and investment in the region. For more information, please see our Cytonn 2025 Markets Outlook.

We expect a slight increase in development activities in the industrial sector through government support in line with its Bottom Up Economic Transformation Agenda (BETA) which aims to tap into the manufacturing sector to create wealth, employment and reduce poverty levels among Kenyan citizens Going forward, we expect the sector performance to be driven by: i) the rising demand for data centers in the country, ii) an increasing demand for cold rooms, especially in the Nairobi Metropolitan Area, iii) demand for quality warehouses due to the growing e-commerce business in the country, iv) support from the government, as evidenced by the establishment of Special Economic Zones (SEZ) and Export Processing Zones (EPZ).

6. Mixed Use Developments (MUDs)

There was one notable highlight during the month;

1. The National Social Security Fund (NSSF) announced plans to build a Mixed-Use development on one of its prime pieces of land located in Nairobi's central business district at the corner of Uhuru Highway and Kenyatta Avenue which has remained vacant for decades. The project will be implemented using an Engineering, Procurement, Construction, and Finance (EPC+F) model, where contractors handle the entire project from design to financing. For more information, please see our Cytonn Weekly #3/2025

We expect MUDs to continue shaping the real estate land scape in Kenya supported by the remarkable returns compared to single-use themes, changing client preferences, and MUDs attractiveness driven by the diversity in amenities and social offerings they provide to clients.

7. Real Estate Investments Trusts (REITs)

On the Unquoted Securities Platform, Acorn D-REIT and I-REIT traded at Kshs 25.4 and Kshs 22.2 per unit, respectively, as per the last updated data on 17^th January 2025. The performance represented a 27.0% and 11.0% gain for the D-REIT and I-REIT, respectively, from the Kshs 20.0 inception price. The volumes traded for the D-REIT and I-REIT came in at Kshs 12.8 mn and Kshs 34.8 mn shares, respectively, with a turnover of Kshs 323.5 mn and Kshs 722.8 mn, respectively, since inception in February 2021. Additionally, ILAM Fahari I-REIT traded at Kshs 11.0 per share as of 17^th January 2025, representing a 45.0% loss from the Kshs 20.0 inception price. The volume traded to date came in at 138,600 shares for the I-REIT, with a turnover of Kshs 1.5 mn since inception in November 2015.

REITs offer various benefits, such as tax exemptions, diversified portfolios, and stable long-term profits. However, the ongoing decline in the performance of Kenyan REITs and the restructuring of their business portfolios are hindering significant previous investments. Additional general challenges include:

1. Insufficient understanding of the investment instrument among investors leading to a slower uptake of REIT products,
2. Lengthy approval processes for REIT creation,
3. High minimum capital requirements of Kshs 100.0 mn for REIT trustees compared to Kshs 10.0 mn for pension funds Trustees, essentially limiting the licensed REIT Trustee to banks only
4. The rigidity of choice between either a D-REIT or and I-REIT forces managers to form two REITs, rather than having one Hybrid REIT that can allocate between development and income earning properties
5. Limiting the type of legal entity that can form a REIT to only a trust company, as opposed to allowing other entities such as partnerships, and companies,
6. We need to give time before REITS are required to list – they would be allowed to stay private for a few years before the requirement to list given that not all companies maybe comfortable with listing on day one, and,
7. Minimum subscription amounts or offer parcels set at Kshs 0.1 mn for D-REITs and Kshs 5.0 mn for restricted I-REITs. The significant capital requirements still make REITs relatively inaccessible to smaller retail investors compared to other investment vehicles like unit trusts or government bonds, all of which continue to limit the performance of Kenyan REITs.

We expect the performance of Kenya’s Real Estate sector to remain resilient supported by several factors: i) heightened activities from both private and government sectors, ii) an expanding population driving the need for housing, iii) government efforts under the Affordable Housing Program and the incentives advanced to developers aligned with the program, iv) an increase in deals in the commercial office sector likely to boost occupancy, v) increased investment by international and local investors in the retail sector, and vi) increased international arrivals in the country boosting the hospitality and tourism sector. However, challenges such as rising construction costs, an oversupply in select Real Estate classes, strain on infrastructure development, and high capital demands in REITs sector will continue to impede the real estate sector’s optimal performance by restricting developments and investments.

Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice, or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.