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 Airways has shed 30 per cent over the past two months reverting to a Sh7.75 low on a series of negative corporate reports, erasing price gains made between November last year and February 2015. The KQ stock had climbed to a six- month high of Sh11 on February 6 on the back of positive investor sentiment driven by the falling fuel prices and reduced cases of Ebola that robbed the airline of key West African routes from late last year.

Our View: We expect the stock to trade at the current low levels in the near future driven by negative industry sentiments. The company has recently turned to debt to pay its workforce as it flies under the weight of liquidity problems, exerting pressure on the existing debt burden of KES 136 billion as at HY14. The long-term debt position of the company significantly exceeds the shareholders contribution (with a longterm debt to equity ratio of 6.3x as at HY14) while its total revenues remain almost at par with the long-term debt position which means capital restructuring is inevitable. In our view, the company might turn back to shareholders in the near future for additional capital injection or rather look for a strategic partner to inject capital in exchange of a notable stake in the company... 

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