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:
Kenya's Trans century swings into KES 2.11Bn loss in 2014.The firm blamed the loss on a 36 percent drop in revenue from its engineering division, caused by delays in some projects

Our View: This was expected as the exit of the 34% RVR stake in Q1:14 netted KES 1b fair value book loss, which has been mirrored in FY14 financials. From the initial CapEx of KES 668m (acquiring 20% stake in RVR) deployed in Dec-06, TCL invested an additional KES 581m in 2010, KES 740m in 2012 and KES 924m in 2013, bringing the total stake in RVR to 34%. As at FY13a, the fair value of the 34% stake was KES 4.79b inclusive of KES 308.8m fair value gain, hence the KES 3.8bn(USD 43.7m) realized from the sale of its stake in RVR was below the fair value of the investment prompting a KES 1bn loss. We maintain our BUY recommendation based on a fair value estimate of KES 22.50, an ER of 30.43% from the current market price of KES 17.25. Our investment case is informed by affirmative business outlook across all business segments. The company has outlined a strong pipeline of projects. We forecast a 4-year CAGR of 15.8% in PBT to KES 1.5b in FY17e and a notable growth in PBT margin (FY17e: 8.4%), elicited by a constricted growth in OpEx as well as the declining finance costs to FY17e. The stock is trading at an undemanding rating compared to its regional peers and has underperformed the market by 49.7% (1 yr).

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