Topicals



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Recent Topicals

Structured Products

Jul 4, 2017

In reference to our Focus of the week in May 2015, where we focused on structured products, it was in the investors’ best interest to discuss the topic again considering the recent poor performance of the traditional investments (equities and fixed income, where we are neutral on their performance). This has led to investors seeking investment opportunities in the alternative asset classes such as structured products, which deliver above average returns over the long term.Having discussed our view on equities and fixed income investments last week, we will now delve into alternative investments, starting with structured products: we will describe what they are, how the products are able to achieve higher returns, discuss the benefits and challenges of structured products, and give an investable example.Structured products are investment solutions that are packaged by investment professionals to enable an inv...

Kenya’s Interest Rate Outlook

Jul 4, 2017

In our Cytonn Weekly Report #42 (2015), we analyzed the interest rate environment and what was driving the rapid upward trend that we witnessed in Q3’2015. A lot has transpired since then, and the interest rates have declined to levels witnessed at a similar period last year. The aim of this piece is to first give a background of the challenges witnessed in Q3’2015, review the drivers of the high interest rate environment, understand the underlying factors driving the interest rate environment currently, and finally end with what we believe will transpire in the near future.2015 RecapThe interest rate environment in Kenya witnessed volatility in the last calendar year, with a sharp increase in rates highlighting the challenging economic environment. This was evidenced by the 91-day Treasury bill rising from 8.6% in December 2014, to peak at 22.5% in October 2015. This high int...

Corporate Governance in Kenya

Jul 4, 2017

This week the Capital Markets Authority published the “Code of Corporate Governance Practices” for public listed companies in Kenya, which were Gazetted on 4th March, 2016. The new Corporate Governance Code replaces the Guidelines on Corporate Governance, and listed companies will have a transition period of one year from the date of gazettement to come into compliance.The new code of governance is based on “apply or explain” principle, a paradigm shift from the “comply or explain” approach of their previous guidelines, which have been in place since 2002. The “comply or explain” approach lets individual companies to decide whether to follow set codes or not but the “apply or explain” approach requires companies to actually follow the set out corporate governance codes.Corporate governance is founded on the pillars that businesses have to practice accountability to stakeholders, fairness, have transparency in business activities and exhibit...

Ruaka Investment Opportunity

Jul 4, 2017

Cytonn Report #6 focused on Nairobi household settlement characteristics in the satellite towns around Nairobi. We saw people in the satellite towns take on average 3 years or less to buy land, build and settle down. Given Cytonn’s key focus towards providing middle income housing, this week we focus on Ruaka, which is an attractive real estate investment satellite town. The town is close to Nairobi and has two prime commercial retail developments within its vicinity – Two Rivers and the Rosslyn Riviera mall. Research by our Real Estate team shows that Ruaka developments deliver an average rental yield of 5.1% p.a. and potential total returns of more than 21% p.a. Following our market research on Ruaka in August 2015, highlighted in Cytonn Report #34, a supplementary study was conducted to reaffirm on the performance...

Nairobi Satellite Towns Settlement Characteristics

Jul 4, 2017

The real estate sector continues to gain a lot of prominence in the economy contributing about 8% of the Kenyan GDP. In 2015, the real estate sector recorded an annual growth rate of 14%, the highest in the country. We have also seen a lot of global cement companies seeking to set shop in Kenya, with the most recent one being India based UltraTech Cement seeking to buy a stake in ARM. The growth in the sector can be attributed to increased demand for residential property with most realtors shifting focus to development of apartments, villas, maisonettes and bungalows in areas around Nairobi and other major town. The key drivers for real estate developments have been: Infrastructural developments in the country The growth in the middle class Population growth High rate of urbanizationAt an approximated average annual housing deficit of 200,000 units, Nairobi is an attractive market for residential developments. However, owing to the...