Valuation & Decision Making
~4 min read
Sector-Specific Metrics
Sector-Specific Metrics: Different Industries, Different Measures
Not all companies should be evaluated using the same metrics. Different sectors on the NSE have unique financial characteristics that require specialised ratios. Using the wrong metric can lead to poor investment decisions.
Banking Sector (Equity, KCB, Co-op, NCBA, Stanbic, ABSA)
Banks require specialised analysis because their business model is fundamentally different from other companies:
- Net Interest Margin (NIM) — The difference between what a bank earns on loans and what it pays on deposits, as a percentage of interest-earning assets. Higher NIM means more profitable lending. Kenyan banks typically have NIMs of 6-10%.
- Non-Performing Loan (NPL) Ratio — The percentage of loans where borrowers have stopped making payments. A rising NPL ratio is a red flag indicating deteriorating asset quality. Generally, below 5% is healthy for Kenyan banks.
- Cost-to-Income Ratio — Operating expenses as a percentage of operating income. Lower is better. Efficient banks on the NSE achieve ratios of 40-55%.
Telecommunications (Safaricom)
- Average Revenue Per User (ARPU) — The average monthly revenue generated per subscriber. Growing ARPU means the company is extracting more value from its customer base.
- Subscriber numbers — Total active users across voice, data, and M-Pesa. Growth in subscribers drives future revenue.
- Data revenue growth — As voice revenue matures, data and mobile money are the key growth drivers for telecoms.
Manufacturing and Consumer Goods (EABL, BAT, Bamburi)
- Gross margin — Revenue minus cost of goods sold, divided by revenue. Indicates how much profit remains after production costs. Higher margins suggest pricing power or cost efficiency.
- Operating margin — Operating profit divided by revenue. Shows profitability from core operations after all operating costs.
- Revenue per unit — For product companies, tracking revenue per hectolitre (EABL) or per tonne (Bamburi) helps assess pricing trends.
Applying Sector Metrics
When analysing a stock, start with the general ratios (P/E, P/B, ROE) covered in Module 2, then layer on the sector-specific metrics to get a deeper understanding. The combination gives you a more complete picture than either alone.