Crisis-Resistant Essential Businesses. That's Where Your Money Should Be.
In the last two weeks or so. We have seen the progressive scaling down of operations across government and private sector offices. This has also extended to businesses. It started with encouraging non-essential staff to work from home. Followed by limiting operating hours for some businesses then full closure of some businesses like bars. Having seen what is happening in some countries where the Corona virus outbreak is weeks ahead of us, we know that the worst case scenario is a full lockdown where only the 'essential businesses' will remain open.
How the Stock Market reacted.
Let us get back to the stock market. In the first weeks after the outbreak, most stocks fell. We thought we had seen the worst but it's now clear that as the situation gets worse the market will plunge further. We have suddenly been thrust into a bargain-hunting season. Not all stocks whose prices have fallen are good buys. There are some like those in the airline industry which were struggling to get their heads above water and this latest crisis has just thrown a spanner into their recovery plans.
In the stock market, current stock prices are a reflection of the future expectations of investors on Company performance. Not the present. In some cases the investors are wrong and this results in panic selling of stocks of very solid businesses with a healthy balance sheet that can withstand the current crisis. To add icing on the cake, if the business also happens to be a crisis resistant essential business, then you have a sure bargain. For instance, transport is an essential business because people have to move around but during times of crisis, movement is limited. So transport is essential but not crisis-resistant.
In the stock market, current stock prices are a reflection of the future expectations of investors on Company performance. Not the present.
Every crisis presents its own unique list of crisis-resistant essential businesses. We found only one crisis proof essential business that is also listed in the NSE:
SAFARICOM
With the limited movement, people will still communicate with their friends and families. People will spend more time on the internet following up on the news and getting entertained. That's more airtime and internet bundle sales. The move to zero rate transactions below ksh.1000 came as a surprise to Safaricom shareholders. Are they willingly foregoing growing mpesa revenues? I see this as hitting two birds with one stone.
First, they get to further endear themselves to Kenyans in this time of crisis (this could somewhat counter the negative sentiments about mysterious disappearance of bundles and airtime). Secondly, it will encourage more customers to use mobile money for payments. Think of it like a free trial that helps to introduce users to a service and also bring about behaviour change. Once a new or existing customer consistently uses mobile money for a month to make payments, chances are high that they will continue using it. Adoption will increase.
This was the perfect time for Safaricom to lower transaction fees. Temporarily.
OTHERS THAT FAILED TO MAKE THE LIST
1. UNGA LTD
Kenya's staple food is ugali (made from maize-meal). No matter the crisis, Maize meal and other types of flour will always be in demand. However, Unga limited has not delivered stellar results in the last year. They have suffered stiff competition and the recent locust invasion might further hurt their production of flour and animal feeds. This means they were already facing a challenging business environment even before the Corona virus hit.
2. BANKING STOCKS
Banks are closely coupled to businesses which take loans. The current crisis will negatively impact business performance. The businesses will also cut down on employee numbers and personal loan uptake will fall. The banks are likely to experience profit drops. The falling prices might present bargains especially for banks with a strong balance sheet but it is clear that Banks are not crisis resistant.
Good luck investing!!!
Disclaimer: The views expressed above do not represent those of any company or individual mentioned. This article is merely an attempt to provide general information. We advise due diligence before making an investment decision. We believe our sources to be reliable but we cannot guarantee their accuracy and completeness.
Author
Robert Omondi @KenyaTrader254
Technology Product Lead & Stock Market Enthusiast
