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:
Barclays win over KRA saves banks hefty tax demand. The bank has won a protracted legal battle with the Kenya Revenue Authority, which was demanding tax payments on fees remitted to Visa, MasterCard and American Express for electronic money transfer services. The court’s decision comes as a victory for banks, saving them hundreds of millions of shillings that would have been due in taxes following a steep rise in the use of “plastic money” in the past five years.

Our View: This portends well for the banks NFI contribution to total income. In our recently released report on Barclays; we re-rated our coverage on Barclays Bank from HOLD to ACCUMULUTE based on a fair value estimate of KES 17.79, an ER of +17.03% from the current market price of KES 15.20. Our investment case was 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%.
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