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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.

Investments Considerations
  • We re-rate our coverage on Barclays Bank “BCBL” from HOLD to ACCUMULATE based on a fair value estimate of KES 17.79, an ER of +16.7% from the current market price of KES 15.25. Our investment case is informed by a recovering loan book and deposit growth estimated at (3-yr CAGR of 6.02% to FY17e) driven by diversification into new business lines and strategic focus shift to SME’s. The bank has good fundamentals (ROaA 5.6%, ROaE 23.8%/ As a result, we forecast a 3-yr CAGR of 6.1% in EPS to KES 2.18 in FY17e. The bank trades on a forward P/E of 8.7x, P/BVPS of 2.1x and a dividend yield of 6.9% against the sectors average P/E of 9.8x, P/NAVPS of 2.0x and a dividend yield of 3.4%.
  • Recovering loan book and deposit growth- Barclays bank had consistently lost market share in loans advanced in comparison to other large cap banks since 2009.However we have witnessed a reversal of this trend and forecast a 3 yr. CAGR 6.5% growth in loan book to KES 171.07Bn FY17e driven by a 10% increase in customer deposits and a loan to deposit ratio of 78.0% in FY 15e
  • Good dividend yield – the bank has a solid dividend policy that makes it feature as the bank with the highest dividend yield at 6.1% in FY 14 and we estimate this trajectory to hold to 6.9% in FY15e. The dividend pay-out ratio also increased to 64.0% in FY 14A up from 49.5% in FY13A
  • Diversification into new business lines in a bid to increase NFI – As most banks continue to face compressing NIMS as a result of competition, Barclays has announced it will offer banc assurance and stockbrokerage agency services to boost its non-interest revenues, as NII gets suppressed by falling interest rates. The bank’s non-funded income as a percentage to total income has been declining reporting a 5.4% decline to 30.7% in FY 14, however we believe this move will lead to NII / total income growth of 31.4% in FY 15e
  • Shifting focus to SME’s - In a bid to significantly drive asset growth in areas such as transport and manufacturing industries, the Bank recently launched an Asset Finance Centre of Excellence .The move is aimed at deepening its penetration of the small and medium enterprises (SMEs) sector in the country...
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