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Robust earnings list DSE ahead of NMB, CRDB  results

Robust earnings list DSE ahead of NMB, CRDB results

THE Dar Es Salaam Stock Exchange (DSE) records turnover of 3.8bn/- in October as a strong third quarter (Q3) earnings reports have helped fuel activity in the exchange as both NMB and CRDB banks stocks traded a combined 1.9bn/- in October.
NMB reported a cumulative profit after tax for Q3 of 210.95bn/- or 43.3 per cent higher than for the same period last year, which is higher than the entire profit after tax recorded last year.
On the same note CRDB recorded a cumulative profit after tax for Q3 of 167bn/- which is 40 per cent higher than for the same period last year, which is also more than the entire amount generated last year.
We view economic growth to be a factor contributing to strong Q3 results as the economy recovers from the slowdown resulted from COVID 19 last year.
Market turnover indicates how much trading activity took place on a given business day in the market as a whole, the Dar es Salaam Stock exchange, equity trading activities has stemmed 3.8bn/- transacted between investors in October, slightly lower than 4.0bn/- recorded in September.
This relatively low turnover is attributed to reduced activities in the block trade pre-arranged board whereby only 2.098bn/- was transacted in October compared to 2.8bn/-transacted in September.
Turnover in a stock indicates better liquidity, which means that it is easier to sell the stock in the market. Stocks that recorded a turnover, higher than 100m/- in the period include: CRDB 1.14bn/-, NMB 848m/-, TPCC (Twiga Cement) 640m/-, TCCL (Simba Cement) 540m/-.
The stock market was bearish in October as the Tanzania Share Index lost 72.22 points or 2.0 per cent contributed by slightly fall in price of NMB, TPCC, TCCL, and DCB Bank.


Why is stock market liquidity important?
Liquidity describes the extent to which an asset can be bought and sold quickly and at stable prices. In simple terms, it is a measure of how many buyers and sellers are present, and whether transactions can take place easily.
If there are only a few market participants, trading infrequently, it is said to be an illiquid market or to have low liquidity.
Usually, liquidity is calculated by taking the volume of trades. As indicated above total turnover for the DSE for locally listed stocks was 3.8bn/-. The bourse has shown high levels of liquidity arising due to significant level of trading activity owing to high supply and demand for stocks, as it is easier to find a buyer or seller.
Most stocks that have traded during the period include ones that have recently announced their Q3 earnings report announced as investors are looking to cash in on equity returns as the fixed income market continues to suffer from low yields.
Key drivers for the stock market growth are:
(1) Stronger earnings expectation – We expect stronger earnings expected in the Industry & Allied (IA) Banks, Finance & Investment sectors to stimulate demand for stocks; this is because the business environment is recovering and companies are forecasting growth in earnings.
(2) Increased foreign investor participation – we expect the recovery and stable outlook of the Tanzanian currency supported by improving economic conditions to boost investor confidence in the stock market and create more demand for stocks. From a valuation perspective, Industry & Allied (IA) Banks, Finance & Investment the banking, sectors are highly attractive with some key listed companies in the sectors trading at attractive metrics.

 

Fixed income
Primary market

The primary market activities were vibrant in the month of October as investors increased their participation with all two auctions of the 25 and 15-year Treasury bonds oversubscribing.
This is an indication that investors are drawn towards bonds with higher coupons as it is for the case of the 25-year treasury bond giving 15.95 per cent and the 15 Treasury bond giving 13.5 per cent, coming of the back drop of the Bank of Tanzania Monetary Policy Committee statement in its last bi-monthly meeting indicating that the current monetary policy measures will still be implemented through the months of September and October.
We’re likely going to see long tenure Treasury bond auctions over-subscribed in the coming auctions.

Secondary market
In the secondary market, the value of bonds traded decreased by 38 per cent to 157bn/-from 256bn/- recorded last month, with the 20-year bond representing 51.5bn/- or 33 per cent of the total value traded in October.
While, in the corporate bonds segment total value of 101m/- was traded during this period. We maintain our expectation of activity in the secondary bond market being driven by investors pursuing for higher yields and profit-making opportunities. Expansive monetary policy direction by the central bank will continue to put downward pressure across the yield curve, in the near term.

Outlook
Future expectation of growth
Strong earnings will push stock prices up as we head towards the end of the year, with NMB and CRDB reporting Q3 profit after tax gain of 42 per cent and 40 per cent respectively.
We expect to see a similar trend in other companies as the business environment recovers from the perils of Covid-19 suffered last year.

 

Low Treasury bond yields

Fixed income yields will continue to fall. We forecast to continue to see a low yield environment as the central bank continues to implement expansive monetary policy. We expect the central bank to remain cautious and diligent about maintaining an expansionary policy with fare moderation in inflation which is 4.0 percent for September.


Mr Masumbuko is the Chief Executive Officer of Zan Securities. The firm is a capital markets and securities authority licensed dealer and a member of the DSE.

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Author: RAPHAEL MASUMBUKO

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