WATCHOUT: NSE Bull run to resume in 2007

The Nairobi Stock Exchange will close one of its most successful years on a slowed-down note, but analysts say that the bull run that saw the bourse break several records will return in the early months of 2007.
Activity next year is expected to centre on several initial public offers (IPOs) as well as the expected good returns of already listed companies piggyback-riding on an above 6 per cent economic growth rate.
Stockbrokers attribute the cyclic slowdown at the end of each year to the financial demands of the holiday season and the beginning of the school year in January.
“The NSE boom is expected to proceed in the foreseeable future,” Polycarp Ngoje, head of research at Suntra Investment Bank told The EastAfrican. “The only turbulence is likely to come from the increased political activity accompanying the 2007 general election, but serious investors will ride this out given Kenya’s traditional stability.”
According to Mr Ngoje, the effects of raised political temperatures in 2007 is also likely to be watered down by the stabilising effects of retirement benefit schemes and retail investors flush with liquidity. Foreign investors have routinely off-loaded their stakes ahead of general elections.
In 2006, the NSE notched several firsts, including commencement of the electronic trading system (ETS) in September.
A month later, in late October, the daily turnover at the market hit the Ksh1 billion ($14 million) mark, cementing the bourse’s position as sub-Saharan Africa’s third largest stockmarket after the Johannesburg Stock Exchange and the Nigerian bourse. The latter routinely records a turnover of around $20 million.
Over the year, the NSE Index also rose by nearly 2,000 points, from just under 4,000 points to nearly 6,000, while market capitalisation shot up from Ksh462 billion ($6.3 billion) in early January to Ksh770 billion ($10.8 billion) in mid-December.
The NSE’s fortunes this year are perhaps best illustrated by the dramatically successful listing of battery maker Eveready, which is expected to commence trading at the bourse this week.
Despite some concerns about the company’s business outlook, 63 million shares on offer representing 30 per cent of equity were oversubscribed by about 800 per cent, the highest ever oversubscription in the history of the stockmarket in Kenya.
On Thursday, the bourse also saw the close of the sale of 92 million Mumias Sugar Company shares by the government, which brokers say will be fully taken up despite an initially slow uptake by retail investors.
According to financial experts, the bullish trend at the NSE has much to do with Kenya’s resurgent economy, as well as increased public awareness of the opportunities there. Many Kenyans have traditionally invested in real estate and rural farms, but this is gradually changing, analysts say.
“The funds being invested on the stockmarket are a product of improved surplus incomes and prospects of further economic recovery,” NSE chairman Jimnah Mbaru said recently. “Investors have also been attracted by the substantial profit growth of the companies listed on the exchange.”
In 2007, the most eagerly awaited privatisation will be that of mobile phone provider Safaricom, which bagged the first position in the telecommunications and ICT sector in the recently concluded East Africa’s Most Respected Companies Survey.
With a client base in excess of 5 million and profits in excess of $166 million in 2005, the company is expected to attract greater attention than the KenGen IPO, which saw Kenyans fork out more than $360 million.
Last week, in an indication that the government is committed to the firm’s privatisation, a senior official said that Telkom would sell part of its 60 per cent stake on the NSE without consideration of Vodafone’s pre-emptive rights. The British phone company owns 35 per cent of Safaricom.
Analysts, however, say that even barring a legal suit by Vodafone, the Safaricom IPO is unlikely to reach the market before September 2007, given all the preparatory work that needs to be done.
Apart from Safaricom, pundits say the NSE is likely to witness an unprecedented number of IPOs in 2007 through 2008. Leading investment bank Dyer & Blair says it is already doing initial preparations for the possible listing of at least six companies.
Among the private companies that have independently expressed an intention to list within the next two years are hotel group Sarova, health management organisation AAR and supermarket chain Nakumatt.
Government-owned or dominated firms that are eyeing privatisation include Telkom Kenya, New Kenya Co-operative Creameries and Kenya Re, which is expected to be privatised in the first five months of next year.
In 2007, significant synergy is also likely to accrue to investors from new cross-border investments in the Ugandan and Tanzanian bourses, following greater integration of the regional markets, including the imminent merger of the Nairobi and Uganda stock exchanges.
Kenyan investors in the Stanbic Uganda IPO, for example, are expected to make at least a 25 per cent return on equity by the end of the first half of next year, money which many will probably plough back into one of the IPOs taking place at the NSE.
Like the NSE, both the Dar es Salaam and the Uganda stock exchanges have experienced dramatic growth over the past two years, with the Ugandan bourse recording an 81 per cent growth in its index last year alone, according to the African Securities Exchanges Association.
Other African exchanges also recorded phenomenal growth, with Zimbabwe’s bourse returning a 1,545 per cent growth, the Egyptian exchange 146 per cent, and Botswana 75 per cent.

NSE in 2007

The dos:
Buy Barclays because:
I think this share is presently under-valued against peers on price alone-PE ratio is among the lowest in the banking sector. This is partly due to the recent increase in shares
Investors will always go for it as a quality, well-managed, stable-dividend policy stock-especially important in uncertain periods such as Election time
Their move bank into the unbanked is timely given the current economic growth. Areas such as Ngong (where it’s re-opening its branch) have really grown and continue to attract solid commuting middle class.
It remains a status symbol for the aspiring middle class in Kenya

Don’t BUY because:
· The move into the unbanked combined with recent increase in loan amounts to 2m/= represents risk especially in terms of potential NPL
· If rumoured integration into ABSA doesn’t pay-off or is prolonged, the bank will loose out to upcoming banks such as Equity
HFCK-
1. I see this as a takeover candidate especially given its prime position in the Mortgage market. Expect this in the next 12-18 months, otherwise won’t happen
2. Frank Ireri, the new MD talks a good game and is young enough to want to make a mark
3. The housing market will boom if economic growth is sustained
Against this:
1. Share looks overvalued compared to banking peers (P/E of 83+ compared to KCB-36; BBK-18; DTK-29;Equity-36) i.e. investors may already have factored in the likely takeover premium
2. The economy take-off maybe premature
3. Non-performing loans may rear their ugly head
4. Ireri maybe poached by a peer bank
KenGen
· If the economy growth is sustained-this stock will mirror that performance
· The ongoing rural electrification programme means on-going market growth whether the economy grows or not
· Ongoing investments will continue to pay-off in future
· The P/E ratio at 16 is very good compared to other shares in the bourse
· Eddy Njoroge has steered the company well
· The likely addition of 19% shares means lower govt share
· Its monopoly position

Against this:
· The ongoing price saga with KPL means the stock will stay saddled with political baggage
· Govt remains the majority shareholder-always a recipe for corruption and political manipulation
· The economy growth maybe unsustainable
· The company may struggle to find alternative sources of power-or they may prove too costly
Express:
One for the future…

Our Constitution

The Constitution of Kenya Capital Investment Group

Article I
Formation of Club. The individuals signing this constitution are forming an investment club as its members. The club will be known as the Kenya Capital Investment Group (KCIG).
Article II
Section 1 - The purpose of the club is to pool member resources to invest at the Nairobi Stock Exchange and other stock markets as the opportunity arise.
· The Club shall neither deal on behalf of, nor advise any persons other than the Members, in relation to investments of any kind, nor arrange for any persons other than the Members to deal in investments.
· The club shall not act as a lender or borrower to any member or other external parties
Section 2 - The club goals are as follows:
Pool finances and ideas in investing in stock markets.
To become more knowledgeable, astute investors.
To create a stock portfolio with sustainable gains, dividends that will succeed in meeting our needs
To double our initial investment every 3 years.

Section 2 - Duration.
The club will begin on January 7th 2006 and will continue to operate year-round and for an initial period of 5 years, at which point, members will vote on whether to continue indefinitely. It is a condition of joining this club that members will commit to invest continuously for the initial 5 year period.
Section 4
New Members. The club may admit additional members at any time by two-thirds consent of all members. As a condition of membership, all members agree to be bound by the terms of this constitution and by all resolutions adopted or to be adopted by a vote of the members. (A specific requirement of every member is that he/she must have access to an operational email account and internet and make a best efforts attempt to access that account at a minimum of at least once per week.)

Non-assignability of Member’s Interest. No member may assign, transfer, pledge or hypothecate his or her membership or interest in the club without prior notice and approval at the discretion of the majority of members. Any attempt to do so shall be construed as such member’s election to withdraw from the club.


Article III
The Club will be governed by the decision of a majority of Members present and voting via regular meetings.

Section 1 - Meetings.
Meetings of KCIG will be held so that members can:
· Discuss and agree forthcoming investments
· Review performance of prior investments
· Review accounts
· Bring any other issues to the attention of the club
Meetings will be held on a monthly basis except in emergency circumstances.
Emergency meetings will only be held if agreed to by two-thirds of members
Additionally, the club will also hold an annual general meeting. The AGM will
· Elect officials for the forthcoming year
· Review past performance and set targets for the forthcoming year
· Review performance of and vote on our banker and stockbroker
Meetings will only be held if two-thirds of the members are present excluding those present by proxy.
Meeting notifications will be done during the prior meeting and club’s website and a subsequent reminder two days before the next meeting.
All club members are expected to participate equally in the management of the club and attend no less than 50% of Monthly General Meetings per annum. A member who flouts this rule can have their membership withdrawn subject to a two-thirds majority vote.
The club’s officials shall meet periodically to review the administrative functioning of the club. The officials shall report back to the membership if necessary either through email, website or at the nearest MGM. Scheduling of officials’ meetings is at the discretion of the officials.
Article IV
Section 1 - Club dues.
Each member must make monthly contributions of a minimum amount of £100 to the club portfolio by or on the respective month’s MGM.
Members can make their contributions in advance (limited to 12 months)-with agreement from tow thirds majority vote.
Each month’s contributions will be kept in the Club’s bank account, until the club’s monthly meeting when investment decisions will be taken.
If a member is delinquent in his or her monthly contributions for a period of more than 3 months without a reasonable explanation, their membership may be terminated from the club by a 75% majority vote of the members. The terminated member will receive an amount subject to the terms described in Article V of this constitution.
Members are responsible for providing up to date personal or professional information that may affect the club, to enable effective and efficient running.

Section 2 - Investing Conditions. Upon receiving membership to KCIG, each member will adhere to the following rules:
1. All investing decisions will be decided upon by a two-thirds majority vote.
2. Decisions related to the investment of the previous month’s collected dues will take place during each MGM unless situations outlined in Section 4.5 request otherwise.
3. Each investment shall be protected by a capital gain/loss limit only if the club decides to do so.
4. Each member understands that, regardless of their opinion on any vote, the majority decides the use of each member’s contributions.
5. If any member is massively in disagreement with any decision passed by a vote, that member may elect to terminate membership in KCIG in accordance to the guidelines set out in Article V.
Section 3 - Investment Accounts.
· There shall be maintained in the name of each member, a record of that member’s stake in the portfolio.
· Any increase or decrease in the value of the club’s investments on any valuation date shall be credited or debited, respectively, to each member’s capital account in proportion to the value of member’s capital account on said date.
· Dividends shall be allocated to the record of each member’s stake in the amount appropriate for that member’s particular holding.
· The value of each member’s account shall be communicated weekly via email based on Friday market close.
· Uninvested contributions for any given month shall be added to the clubs value and apportioned appropriately.
Section 4 - Member’s Stake. Members have equal voting rights regardless of the size of their stake in the club’s portfolio. Each member’s stake shall be limited to 20% of the portfolio’s total value. Members’ stakes shall be valued on the previous business day to MGM.
Section 5 - Annual Accounts: On the anniversary of the club’s first meeting, a full and complete account of the condition of the club shall be made to the members.
Section 6 - Bank Account: The members or club officials shall select a bank for the purpose of opening a club bank account. Funds deposited in said account shall be withdrawn only if the withdrawal is counter-signed by 2 out of the 3 acting officials plus an additional member.
Section 7 - Broker /Custody Account: The members will select a broker and enter into such agreements with the broker as required, for the purchase or sale of shares/bonds or other market instruments. All securities owned by the members shall be registered in the club name unless another name shall be designated by the members.
Section 8 - Liability. No member or official of KGIC is liable for any club member’s financial loss that may occur as a result of the club’s investment decisions.
Section 9 - Administration fee. By a majority vote, the club may agree on an annual non-refundable payment to the club to defray the club’s administration costs. The annual payment amount will be. If a member is delinquent in his or her annual administration fee for a period of more than 31 days unless approved by the club’s officials, the member may be terminated from the club by a more than two-thirds majority vote of the members. The terminated member will receive an amount subject to the terms described in of this constitution.
Section 7 - Club Structure. By a majority vote, club members may agree to have the club treated as a “ltd company” for tax purposes or in the event of participation in IPO should such an action be necessary.

Article V
Section 1 - Withdrawal of Interest:
On leaving before the expiry of the 5 year period, the member will receive the lower their contributions or their holdings in the club, less any transactional costs. Transaction costs are costs incurred in disposing some of the club holdings if the need arises to do so. Their refund will be processed within four weeks of their departure.
The member can also choose to leave their holding intact until maturity i.e. end of the 5 year period.
They will also have the option of inviting a substitute member to take over their investments with prior consent from a majority vote.
Death or legal incapacity of a member will be considered a voluntary withdrawal. Members will nominate a beneficiary for such an eventuality. Normal rules of withdrawal will suffice unless decided otherwise by two thirds of the membership.

Article VI
Officials.
xxxxxxxxxxx: Club Chair
xxxxxxxxxxx: Secretary/ Treasurer


Official duties.
Chairman/woman:
Chair club meetings ensuring strict adherence to meeting’s agenda and timing
ensures members are updated on club account,
Act as club representative in meetings with external bodies and especially banker, stockbroker and others as required
Assist on the treasury responsibilities
Assign researching responsibilities to members
Will have signing authority on withdrawals

Secretary/ Treasurer:
Will take down minutes in meetings and distribute to members.
Will organise the regular meetings i.e. venue and timing
Will oversee club finances,
Submit investment requests
Will summit monthly and year-end portfolio valuation reports
Will deputise for the club chair
Will have signing authority on withdrawals

Compensation. No official or other member shall be compensated for services given to the club, except for reasonable and necessary club expenses authorized by a two-thirds majority vote of the members.

Elections
· Elections will take place at the AGM
· Consecutive or multiple terms are acceptable.
· Voting
i. Nominations for officers will be held the day of elections. Self- nominations are acceptable.
ii. Eligibility
o Candidates must have been active members in the club for
o In order to partake in the voting process, members shall have attended at least one-half of the regular meetings
iii. Votes will be cast on paper in order to maintain anonymity.
iv. Each candidate will give a short speech prior to the casting of votes.
v. In the event of a tie, unless candidates concede the position to opponents, each will serve for a period of six months?




Article VII

Amendment of Constitution and Dissolution. This constitution of KCIG may be amended or KCIG may be dissolved upon a two-thirds affirmative vote of the entire membership at any regular or special meeting, provided that a written notice of the proposed amendment or proposed dissolution has been given to each member at least fourteen (14) days prior to the meeting. On dissolution, all the club’s debts and expenses will be paid first, and the club’s remaining assets will be distributed to the members in cash or in kind, or partly in cash and partly in kind, apportioned in accordance with the membership interests of the members.

IN WITNESS THEREOF, the founding members have signed and executed this Constitution of KCIG the Seventh day of January ,2007 , at London, UK.

Name Signature Passport/Id Number
John Maina ………………………… ……………………
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Tony Maina ……………………….... ……………………


THIS AGREEMENT is made the seventh day of January 2007 with revisions on the following dates:

Investing in shares at Nairobi Stock Exchange contd...

How is a share price calculated?

• Although they are various ways of doing this, the most common is by the use of EPS or Earnings per Share. The owner of a company will decide that he would like to have to invite an additional 1000 owners or shareholders into his company, who will therefore be getting a share of the company’s profits. If the profits are also a 1000, then the share price would Earnings (profits) divided by the number of shares i.e. 1. However, the owner will also add a premium to the share price in lieu of future profits from the company, but also a discount to attract potential investors.

What should I consider when deciding what stock to invest in?
Your investment strategy should be driven by the following but by no means exhaustive list of variables;

• Your time horizon i.e. how long do you want to keep your money in a particular stock and also how long are you prepared to wait before you can reap your desired return on that share. Most investors will have 4 time horizons; speculative, short-term (up to 6 months); medium-term (up to 2years) and long-term (2+ years)
• Your risk appetite: Quite simply, how much of the amount you’ve spent on the share can you afford to lose? Unlike the majority of investments, share prices to go up as well as down.
• Financials: Look at the company’s profits, cash flow, market share, and financial ratios (e.g. P/E, Interest cover but specifically its EPS) and how all have changed over the last 5 or so years. You should rarely invest in a company unless you have seen audited financial data. However, please remember that this data will be a reflection of the company’s past performance and not necessarily of its future performance. Hence, lookout for forecasts for the coming year or over the next few years (for IPOs).
  Company’s environment: What market share does the company hold and is it a growing or decreasing one? Are their any legal issues outstanding? In other words, do a SWOT analysis so that you encompass issues such as the economy, rivals, politics and government policy. The last one is especially important at the NSE as the government has a holding in a substantial number of companies.
• Company’s management/shareholders: A well managed company with reputable MD/CEO will mean that good performances won’t be far behind. Some companies have majority shareholders i.e. an individual or a fund or an investment company may have a controlling shareholding of 50%+. In which case, try to understand how they operate. Transcentury Ltd, the Agan Khan are examples of majority shareholders in EA Cables and NMG respectively and are known for being performing companies. Sometimes, government-owned companies may come with political baggage of the wrong kind.
• Do you like the company’s products: If you don’t or have no idea what the company sells, chances are that not many other customers do and hence its not a growth company. However, some new companies will have products/service ideas that are new to the market, in which case ask yourself do you understand the potential.
• Avoid herd mentality: Unless you buy the same shoes, clothes, electronics as your pals; don’t buy a share just because everybody else is. Typically, when everybody else is buying a share, you may end paying too much for it and if its prices rises too fast, its difficult to judge the right point to buy into it and similarly it will be just as difficult to judge when to exit.
• Finally, buyer beware: shares to go up as well done, past performance is not a predictor of future performance. Hence set yourself limits in terms of how much you invest, when you invest and when you sell. And invest in a company you understand.

NSE-An Insider's View

Presentation by Jimnah Mbaru to Kenyans in London on 9th of December 2006.
http://www.dyerandblair.com/UserFiles/File/Investment%20Opportunities%20PPT.pdf

Why an investment club?

The idea of forming Kenya Capital Investment Group was inspired by the recognition that as investors that the returns at the NSE were superior than those at the London Stock Exchange and investing in UK property. However the risk involved was also higher because as individuals, we could probably only invest in one stock at a time. Added at to this, the recent upsurge in the number of investors at the NSE has meant that stockbrokers can’t cope and are hence cherry picking customers based on the amounts the customer is investing. An investment club will allow us:
-Pool together our resources in a way that in the long term we should be able to invest in other projects
-Diversify our risks and thereby improve our returns
-Pool together our ideas thus helping us become better investors

Don’t just go for fast rising stocks

When people think or ask about investing in the stock market, they often want to know which share will go up the fastest. Inevitably that can be difficult to predict, even though on a few occasions you may actually hit the right share to make a killing.
The first problem with buying the share that will go up fastest is that you may not necessarily pick up the share that will go up the most, and that is a better aim when investing. The second problem with volatile shares is that they are very risky, so you could make a good and fast buck on your first five investments, but then end up burning your fingers on the sixth share and that loss would in all wipe out the profits from the quick risers.
The better approach when investing would be to look at the broader picture and base most of your investments on companies with good management that are progressively growing in profits and profit distribution. Then, with the remaining cash, you can decide to speculate on the quick movers and enjoy some ongoing profits where you make the right move.
Never use money that you will require for essentials such as food, or shelter, or school fees. In the event that your investment does not perform well, you do not want to be stuck with less than you can afford to live on.
There are a few glory tales about people who have earned from the stock market to pay school fees, but those are the exceptions and perhaps those who have nothing to lose because the amount of money they started with was too little to finance their daily livelihoods anyway.

About Kenya Capital Investment Group

Who are we?
We are a group of Kenyans who recognising the need to go beyond remittances to our families back home now want to invest in the Kenya's stock exchange. In doing this, we are challenged by companies such as Transcentury Ltd formed by a group of 29 guys who back in 1996 got together with each of them donating around Ksh1m with their goal to create wealth. Today, their net worth is over Ksh1bn; they won EA Cables a listed company at the Nairobi Stock Exchange and several other companies and are market movers.

Our Vision

Sow well, reap well.

Our Mission

That by investing as a group in the Nairobi Stock Exchange, our individual resources, strengths and preferences in investing in shares, will help us achieve a well-balanced and diversified portfolio of stocks bringing with it good returns and mitigating against the risks of specific stocks.

Investing in shares at Nairobi Stock Exchange

What are shares?
A share as the name suggests gives you a share in a company, that is you partly own a company and are able to get a share of its profits. Where the company is listed on a stock exchange, you will get a share of the profits (in the form of dividends) and vote on major decisions affecting the running of the company (e.g. selection of the board members).
Why would anybody want a sell a share in their companies?
Most companies will sell their shares either privately (by inviting known investors to take a stake in their company) or publicly (by listing on a stock exchange). The reason for inviting other people to share in their company will be many including as a way of raising additional finance to grow further; as a way of measuring themselves against peer companies and an even as an exit strategy out of the particular company.
Why invest in shares?
Most of us when we want to save often find it a tiring and long process. Part of the reason for this is because one is almost totally reliant on increasing wages or reduced expenses for one to be able to save more. The other reason is one gets very little assistance from the banks by way of savings rate. In the UK, you get between 0-12% pa interest in a savings account and for the higher rates one has to open a current account. In Kenya, one has to open a fixed account to even get 4%. Others are reliant on investments in real estate where in the UK one may get up to 15% pa on the appreciation of your property’s value(although you in need to adjust for the interest on your mortgage). In Kenya, one can get higher returns, but you require huge capital upfront.
Invest in shares and in the majority of instances, you will easily generate returns of 30% or more on one share alone. These will be in the form of dividend (a share of the company’s profits after taxation) and profits due from sales of the share due increase in price. For IPOs (that is where a company lists itself on the Nairobi Stock Exchange or any other stock exchange), you can even double or triple your outlay on one share alone.
How does one acquire shares on the Nairobi Stock Exchange?
The NS has around 50 listed companies in which you can buy shares in. Presently, you can only buy shares through a stockbroker (they buy and sell shares and fixed bonds on the stock exchange on behalf of investors). Once you decide what company you want to invest in, you will then go to a stockbroker. You will open a CDS (Central Depository System) share account with them; indicate what company’s shares you want to buy and then agree on the price you want to buy them at.