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:
Co-op sees Sh1.8bn boost after McKinsey reforms. Co-op Bank says the restructuring process which it completed in December at a one-off cost of Sh1.34 billion is set to give it the boost needed in the race to catch up with its peers.

Our View: We note the bank’s sluggish performance over the last 3-years (with a 2-year CAGR of 4.6% in PBT to KES 10.9bn in FY14) resulting from high operating expenses (with a 2-year CAGR of 19.1% in OpEx to KES 20.1bn in FY14). The bank has since last year engaged McKinsey on a 7-pillar bank transformation initiative intended to improve business efficiency, enhance its funding mix to ease the cost of funding as well as prudent exploitation of its value chain across its network and the exercise is expected to net approx. KES 500 million in annual savings. We believe this initiative will propel the bank’s performance where we forecast a 27.4% growth in FY15e PAT which is at par with the management’s estimates of 30.0% growth. We maintain an ACCUMULATE recommendation on the bank based on our fair value estimate of KES 24.27, an ER of +10.3% from the current market price of KES 22.00
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