This research report was prepared by the Research Department of Old Mutual Securities Limited. Old Mutual Securities Limited is a securities trading company licensed by the Capital Markets Authority (Kenya) for the purpose of facilitating trade on the Nairobi Securities Exchange.

Here are our views on the news making headlines today for Kenya:
Co-operative Bank of Kenya (CO-OP) is expected to release its FY14 financial results this morning.

Our View: Though the bank’s performance in FY14 is not expected to be strong as witnessed on its peers, Bloomberg consensus EPS growth expectations for FY15e and FY16e is 17.9% y-o-y and 23.8% y-o-y for FY15 and FY16 respectively. Backing out the comments of the expected performance of the consensus expectations appear fairly reasonable, and thus presumably in the price. The FY14 performance is likely to be impacted by the declining margins, one-off restructuring costs as well as increase in provisioning resulting from the growth in non-performing loans. From the management meeting we had last month, Q4:14 showed credible signs of the improvements in CTI, NPL and cross selling, which can lead to higher expectations for 2015E bottom line. The bank has been working with McKinsey implement its transformation strategy to drive down the cost/income ratio (CTI) and cost of funding. The bank will incur KES 1.2 billion one-off cost for laying off 150 employees though this is expected to save the bank KES 500m annually. The bank continues to explore other business opportunities having secured a license to operate as a clearing member in the derivatives market...

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