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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:
Mortgage lender Housing Finance (HF) has hired global consultancy firm McKinsey & Company to help restructure its business, including the formation of a stand-alone banking subsidiary.

Our View: We believe this is in line with the Mortgage Financier’s strategy on forming a stand-alone subsidiary to mobilize cheap deposits. The company continues to offer good housing opportunity for low and middle income Kenyans. The Company’s strategic shift to low and middle income earners continues to tie in with the company’s overall focus of delivering affordable housing units to the market place. We see great potential in the areas of property supply chain through their building society arm; Kenya Building Society, as the firm targets borrowers who have the ability to repay a home loan and do not have the deposit required as partial payment. This presented a favourable opportunity for the company to drive their “Ezesha product” (105% mortgage financing product) given that their average mortgage life is 13 years, shortening their investment recoupment period. Having managed to raise KES 3.5b through a cash call, the firm plans to use the proceeds to expand its lending capacity in the mortgage finance segment, where it is competing with other top lenders like KCB. HF also plans to grow its presence in the country, with an estimated KES 175 million earmarked to fund the opening of seven new branches this year.

East African Breweries Ltd is to dispose of its subsidiary Central Glass Industries to Consol, a South African firm, at an undisclosed price. Central Glass, one of EABL’s seven subsidiaries, was established in 1987 to produce glass bottles and distribute across East African region. Central Glass Industries is currently building a new furnace at a cost of KES 1.2 billion. Over 20 per cent of its exports go to Uganda, Tanzania, Ethiopia, Rwanda, Burundi, Eritrea, Seychelles, Reunion, Mauritius, Zimbabwe, Zambia and Angola. Consol, on the other hand, has a glass processing capacity of about a million tonnes a year. The firm’s major shareholders include Brait Private Equity, Old Mutual and Sanlam.
View: We believe that a significant part of the sale proceeds will be used partly to offset the existing debt of USD 200 million EABL accumulated from the 2011 purchase of the 20% stake in Kenya Breweries Ltd from SABMiller, a South African beer manufacturer. EABL is keen to strengthen its balance sheet position and maintaining a healthy working capital especially with the intensifying competition after Carlsberg and Budweiser set feet in the market. In addition, Keroche Breweries is bracing to gulp a piece of the alcohol market with ambitions to grow its market share before listing (in 2020) from the current 5% to 20%. This week, the company launched a new plant with a capacity of 600,000 beer bottles a day and the ability to produce 30 beer brands.


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