A fellow Investment Group

http://www.ubuntugroup.org/index.html

HFCK-To do a rights issue

Article in the Standard todayhttp://www.eastandard.net/hm_news/news.php?articleid=1143964210. In the short-term, this should see the share price, but it may fall after the rights issue as the NSE absorbs the extra supply of shares. I maintain a BUY on this share despite the high P/E ratio. The housing boom in Kenya continues and will for the foreseeable future. More importantly, I still think that HFCK would be a very good buy for one of the large banks that wants quick access into the mortgage sector.

Another reason to buy into the Safaricom IPO

Imagine being able to do an EBay via your cell! Well according to this article, http://www.economist.com/world/africa/displaystory.cfm?story_id=8597377, they are already doing this in Ghana and Nigeria.

Overhaul of the power sector

If I was to be asked which economic sector is really in need of overhauling in Kenya over the next 3 years (apart from banking, stockbroking, insurance, agriculture, car, transport to name but a few), i'd say the power sector is. And it would probably be the easiest to do. So what are some of my suggestions:

Short-term

KPLC needs to be better at collecting debts especially those owed by the government.
The pricing issue with KenGen needs to be passed onto the customer-the customer who is also a taxpayer is already paying for this thru the govt covering the shortfall between what KPLC is paying and what it should be paying KenGen. At the moment we are trying to hide the fact that power costs alot to produce in Kenya. This is the reality, so lets pay KenGen in a timely manner so they can continue to reinvest and find cheaper ways of producing more power.

Medium-term

We should introduce another distributor into the market-either serving certain areas of Kenya or in direct competition with KPLC. We should let KPLC be a private entity-so gove divesture to KQ's level. Of the two, its more important that we have some government conttrol over power generation.

Long-term

We must redouble efforts to utilise the most natural of our resources-the sun- to generate enough power. We should go further and require that all buildings-old and new-have the capability to easily hold the solar panels used.

Ngugi wa Thiongo @SOAS 2nd Feb from 6pm

For those who are interested, our pre-eminent author will at the School of African & Oriental Studies in Russell next Friday 2nd from 6pm. Please RSVP to ras_research@soas.ac.uk

Nelson Muguku Njoroge-Equity's largest single shareholder

http://www.mashada.com/forums/130951-post1.html

Vodafone gives nod to Safaricom IPO

Check this interesting link about the much awaited Safaricom IPO.

http://www.timesnews.co.ke/20jan07/business/buns6.html

Dictionary of Banking

Ati a samurai bond is the James Bond of Japan; an IPO-is for Important People Only and insider trading is what people in the office do. Apparently this dictionary http://www.ubs.com/1/e/about/bterms.html will give you the alternative and recognised view.

DIDN'T THEY ALL START FROM SOMEWHERE?

http://www.financialpost.co.ke/Pdfs/TOP%20NSE%20MILLIONAIRES%202006.pdf

Companies Financial Year Ends

http://www.stockskenya.com/stkcompanydates.aspx All we need now are actual dates when they report their earnings. From FYEs, I'd say most will be around March/April time-an opportunity for a play on timings?

Love ’em and leave ’em approach swells the bill

Article in FT today.
http://www.ft.com/cms/s/91d3a538-a233-11db-a187-0000779e2340.html

NEW INVESTORS:CHOOSING YOUR INVESTMENT PORTFOLIO

Below link is a guide on how to understanding the company that you want to invest in.

http://www.nairobist.com/mwiki/index.php?title=NAIROBIST_ELIMU_CENTER

Investment Strategy

One of the tasks we set ourselves to do as club is to come up with an investment strategy so hear goes a first stab at it…
As a general rule it is prudent to ask ourselves:
Which stocks do we want to invest in-which means what are we looking for in stocks we invest in? Share price growth or dividends or both? Stock spilt or bonus share issue?
How many shares? Do we want to buy them all in one go and sit tight or increase our share holding in the particular stock slowly?
At what price?
How long do we want to hold them for?
As 5 year-term investors, the last one is especially relevant. This election year and the NSE will react both to who it thinks the new govt will be and also to who is elected. My current view is that a Kibaki government will be greeted more positively because it promises continuity where another govt will get a wait-and-see reaction for the first few months. However, it is also our first year and it would be good to get off on an ambitious footing. So bearing the need to balance these two imperatives, my suggestion was that we use a 50:40:10 rule on our monthly investments for the first year and review this next year. This excludes any spend on IPOs. So:
50% would be long-term stable shares with good dividends; strong profits possibly market leaders in their sector. We’d typically want to hold these for the next 2/3 years and have clear entry strategy (number of shares, price & timing) and exit strategy (timing and price).
40% would be growth shares where either the company is doing really well profit-wise, strategically or a strong company has recently had a share-spilt which will likely rise. These are stocks whose performance we’d review very closely on month on month basis and require careful research.
10% on speculative moves. This would be cash we could keep free during the month with the option to respond to any event on any stock regardless of its strength. If remaining uninvested, we can reinvest this in the next month. We could also use this 10% to invest in companies that have the potential but there are certain barriers or issues that stand in the way e.g. Kengen, KPL, National Bank of Kenya

On IPOs, my suggestion was that we go for the minimum available-please note as we are treated as a corporate, this is likely to be around 10,000 shares anyway. My reasoning on this is because my experience on IPOs is that refunds are now taking 1 month or 2 after the share has listed. If you also include the 2/3 weeks spent doing the allocation prior to listing, it comes to about 2/3 months when our cash will not be earning us anything.

Minutes of the Launch Meeting on 07 01 07

This is an abridged version of our minutes-members should have received a fuller version
1) Present:
Tony Maina (Chair)
2) Apologies:
3) Introductions: The meeting began with members introducing themselves. It is greatly appreciated that we have a very diverse club with a variety of professions and different levels of experience in terms of participation in the stock market.
4) Overview: An overview of how we envisioned the investment club to work was given and members invited to ask questions. This also touched on progress made in kicking-off operations. 5) Review of the KCIG Constitution: We reviewed the constitution section by section with amendments suggested for:
Article II (Section 2)-On Club goals: An additional goal was suggested and agreed as follows. To be a value-based network.
Article II (Section 4)-New Members: We can accept new members-subject to the 20 members cap. However as per above, we will need to define what we are looking for in a new member.
Article III (Section 1)-Meetings: Timing-It was suggested that it is very important that members are ON-TIME for meetings as a sign of respect for their fellow members. The club officials were tasked to ensure that meetings are kept to time and adhere to agenda. It was unanimously agreed that the monthly meetings will be held on the first Sunday of every month.
Article III (Section 1)-Meetings: Venue-given the cost of venues, it was suggested that the club could take advantage of the fact that has a ltd company which allows him to get of meeting venues at a lower cost. Njindo will investigate this further.
Article III (Section 1)-Meetings: Tactical meetings: Given the speed at which the markets, it was suggested that club should be able to hold tactical meetings to discuss urgent market developments that require us to act on. The meetings will be conducted via our blog, quick get-together or through email with all members being the opportunity to participate. Will add this to the constitution but will stipulate the need for a quorum.
Article IV (Section 1)-Club dues: It was suggested and unanimously agreed that member’s will set-up a standing order to the club’s bank account to leaving their bank accounts on 30th of each month.
Article IV (Section 2)-Investing conditions: It was suggested that we put a disclaimer on our blogsite attesting to our not being stock market advisers.
Article IV (Section 2)-Investing conditions: It was suggested that all members should have access rights to the blog so they can post their thoughts and to allow the club to it use as the first point of discussion on stocks. We should make this our primary point of discussions on stocks so that we can reduce the amount of time we spend in the formal monthly meetings.
Article IV (Section 3)-Investing accounts: Suggestion that we don’t require weekly accounts. Will hence strike off from the constitution.
Article V (Section 1)-Withdrawal of Interest-It was suggested that the present treatment of benefits for death/legal incapacity is unduly harsh and should be amended to give the beneficiary the right to liquidate former member’s holding or to wait until holding matures. Will amend constitution to reflect this new position.

Steer clear of Mumias Sugar unless govt intervenes

The story in the Nation today http://www.nationmedia.com/dailynation/nmgcontententry.asp?category_id=3&newsid=89215, shows that on top of lacking enough sugar to crush, next will see the co facing very very stiff competition.

Nairobi Stock Exchange

Nairobi Stock Exchange

NSE HITS THE 6000 MARK

The Nairobi Stock Exchange (NSE) yesterday recorded robust performance with the NSE 20 share index crossing the 6,000 point mark.
In yesterday's trading, the bourse recorded yet another milestone after the NSE hit the 6,000 mark settling at 6,026.51 up 64.05 points from the previous trading session.
This was a major milestone for the bourse with the move coming just a few months after the share index hit the historic 5,000 mark with the move being attributed to the installation of the automated trading system, robust country’s economic growth as well as the continued deepening of the capital market.
At the same time, buoyed by robust trading, turnover rose to Sh631 million on a volume of 7.3 million shares, up from Sh569 million on 6.5 million shares that was posted during the previous trading session.

2007 UPCOMING GREAT INVESTMENT OPPORTUNITIES

Kenya RE IPO
Dyer and Blair is the Lead Transaction advisor in the privatization of the Kenya RE Corporation. The Government of Kenya owns 100% of Kenya Re and intends to sell 40% of its shares. Kenya RE is undergoing a re-organization to reduce costs, improve processes and diversify its income stream. It made a profit of Kes: 461M in 2005 as compared to Kes: 452M previously. The IPO is slated for March 2007.

SAFARICOM: Kenya's most Profitable Company.
Having made a profit of over Sh. 12 billion last year, Safaricom is one of the fastest growing companies in Kenya and it’s riding higher. Safaricom valued at over Kshs: 200 Billion will offload at least 25% of its shareholding probably mid 2007.

Telcom Kenya
The government intend to sell about 34 per cent of its shares through an IPO around Sept 2007.


East African Portland Cement:
Lafarge and the Government to offload more shares to the public to reduce their holdings, and increase the total number of shares traded to the 25% required by CMA for listed companies.Lafarge holds 41.7% in EA Portland and 73% in Bamburi Cement. likely IPO is about end of the year.

Kengen:
The government plans to offload a further 19% to the public in June 2007. Around 400 Million shares reducing its stake to 51%.

FAMILY FINANCE BUILDING SOCIETY (BANK)
Soon to be Family Bank is one of the leading microfinance institutions in Kenya and is now offering 15,000,000 Million Share at Kes:60.00 per share (minimum of 500 shares). The share offer is by private placement and a subsequently IPO or like EQUITY BANK did. One need to be an account holder with family finance to be able to purchase the shares.

SAROVA GROUP
Owns a portifolio of profit making hotels chain in Eastern Africa.

Co-op Bank
Already selling their shares through private placement @100 per share
Profit making and available in many parts of the country.

(Other romoured IPO's include):

Sadolin paint-

Adopt-a-light-biggest outdoor advertiser in kenya, involved in road signing too.

Orion EA-sells agricultral chemicals in East Africa.

Triple A Capital-

More information will be provided about the above.

EQUITY BANK: IMPRESSIVE SUCCESS STORY

Background
Equity Building Society was our first investment, in April 2003 when it was still a Building Society, and it continues to outperform expectations. It obtained a bank license in December, and converted all its assets and liabilities to the new entity - Equity Bank Limited (“EBL”). It now has the largest client base of any financial institution in Kenya, with 20% market share (based on number of clients), and plans further expansion.
While EBL is not a typical MFI, with a focus on attracting savings from new clients among the target market, and less emphasis on micro-lending per se, it has successfully developed a business model to provide financial services to the “un-banked” that carries important lessons for other aspiring MFIs elsewhere in Africa.
Growing the client base by attracting new deposit accounts with no minimum balance and clever marketing and client service, and then charging for a variety of banking services that these customers demand, means that EBL is able to reach break even point on a new client or new branch relatively quickly, and then slowly build the loan portfolio prudently.
Although T-Bill rates have increased in Kenya during the second half of the year, EBL has had to cope with a declining interest rate environment for most of the past 15 months. It has compensated for the drop in interest revenue with increased service fees, which now account for roughly 60% of total revenue, while remaining at or below the levels charged by the main banks.
2004 Highlights
The past year was full of changes and expansion:
The incumbent CEO retired and James Mwangi, previously CFO was appointed Managing Director mid year and soon implemented numerous management changes, in style and substance. The Board was closely involved with this management transition.
The cramped conditions at the old head office became unsustainable, and new premises were secured and the move implemented mid-year. The new space is more expensive, but is already contributing to improved staff morale and productivity.
Significant investments were made throughout the year in additional institutional capacity:
Staff increased from 350 to 550;
8 new senior managers were hired;
Credit policies and procedures were revamped and 20 new credit managers hired;
The IT platform received attention, a Wide Area Network was installed for branch communications, a centralized server and IT system developed, the MIS was enhanced, and evaluation started for a next generation MIS investment; and
New management systems and preparation for operating under a banking license were implemented.
6 new branches were opened, mostly within Central Province, thereby fuelling the client and deposit growth.
After reviewing various options in the fall of 2004 for converting to a bank, including acquiring a defunct bank, the decision was made to apply for a banking license and concurrently raise additional capital. The license was obtained on December 31 and over KSh 720 million (over $9 million) was raised from Kenyan investors.
EBL has maintained its profitability, despite declining interest rates through most of the period and higher operating expenses, and higher provisions. Preliminary unaudited results for 2004 show an increase in net income of about 45% to $ 1.9 million.
AfriCap’s investment
We invested Kenyan Shillings 120 million, @ KSh 60/share, for 16% of the company in April 2003. EBL has about 2,500 shareholders, widely held among Kenyans - clients, staff, and individual investors. AfriCap has been represented on the Board and has contributed actively to strategic discussions, to resolving management issues, and to the continued institutional strengthening of the senior management team.
The recent share issue mentioned above, at a price of KSh 134/share, demonstrates the increase in value of our investment. At that price the value of our initial investment has more than doubled in less than two years, to $3.4 million, representing an unrealized gain of $1.8 million.
TSF Program
Our contribution to the combined TA support from DFID, Swiss Contact, and MicroSave has continued, with a focus on institutional transformation. Priorities shifted somewhat following the departure of John Staley, the Operations Mgr funded by TSF, and consultants for Change Management and Bank conversion have been more active as those issues came to the fore in the second half of the year.

KCIG and HM Revenue and Customs

The link below provides all the necessary information you need to know about running an investment club in the United Kingdom in relation to:

• Taxes
• The constitution
• Non-residency
• Declaration

http://search2.openobjects.com/kbroker/inldrev/inldrev/kbsearch?sr=0&nh=20&cs=iso-8859-1&sc=ir&ha=7&mt=0&qt=investment+clubs

Investment Clubs and the FSA

Just to reassure myself, I decided to check on what the FSA-UK's regulator of financial services had to say about investment clubs. As far as I can see, the only issue that touches on us would be with respect to money laundering i.e. that the bank or anybody else that we have dealings with has to know who we are "KYC" rules. And also that we must make sure that we don't give advise to anybody other than ourselves on what they should invest in. Anyway, I touch the relevant article for you to peruse at your leisure.
http://www.proshareclubs.co.uk/cgi-bin/proshareclubs/library/pagewiz.cgi?pg=/lib_money_laundering.htm

More stock picks for 2007

EA Cables: since the takeover by the G-29, the company has taken over a TZ company to given an additional leg in its ambitions to be an east African entity again; saw dizzy price heights before stock spilt and continues to return credibly good financials. All these factors will continue over the next few years because the common denominator-majority ownership by TransCentury will want to stay for several few more years.The cons is probably the same, the G-29 involvement means that should they want to exit or become stretched by involvement in other projects the company will suffer.
NMG and DTK:both majority owned by the progressive Aga Khan. NMG will become the dominant media house in East Africa over the next few years. As with the recent bonus share issue for Diamond Trust, I believe NMG will have a share spilt at some point this year to increase the liquidity of its shares and as a capital-raising exercise for future expansions. For NMG the only issues will be barriers to its expansion namely political interference as happened in ’06 when several of its staff and journalists were denied workings permits by TZ and had to leave. DTK will be expanding operations to the region.
ICDC:formed in 1967, ICDI has acted as an investor in various businesses. It has some features of a private equity fund and those of a mutual fund. The company is currently benefiting from NSE resurgence but also owns various profitable unlisted companies that could be listed in the NSE over the coming years.
KCB:Terry Davidson’s turn-round plans are well on target. The bank is now competitive in the Kenyan market, should start operating profitably in TZ and is expanding into South Sudan. I expect further government divesture in the next few years as well a share spilt. The downside is that the bank still has a significant NPL problem of the political variety i.e. politicians and their business who owe it money. This will require political will not yet seen in the current government.
Equity: the CEO is one most visionary and able mangers in Kenya’s private sector today. He is also one of the bank’s largest shareholders. The next 18 months should see the bank’s share price rocket reflecting its performance. Post this, employees will be allowed to offload their shares and hence may see lower share price. The chinks in its armour are probably to do with its fast growth i.e. non performing loans. 2ndly its success in spreading banking to village has not gone unnoticed by its bigger rivals-Barclays has now done an about-turn and will be re-opening some of the branches it closed in the late 90s. Thus there will be increased competition for Equity.
CMC:as the middle class base in Kenya expands more and more will be buying new cars rather mitumbas. And CMC are in a prime position to benefit from this.
For stable dividend policy and share growth, one should also look-out for EABL, Standard Chartered. For speculative purposes try Sameer and Scangroup.
PS: Since my post on 22nd on NSE opportunities for 2007, Barclays has since risen by 30% as investors recognise the opportunity its price presented. Those who moved in mid to late Dec will probably see the price double in the next 12-15 months.

NSE Stocks

Attached is a list of the current stocks being traded on the NSE, their websites and majority ownerships.
C:\Documents and Settings\williato\NSE Stocks.xls
While putting this list together, a couple of things struck as being part of the reason while we probably don’t as yet have a large stock market and secondary another reason why our economy will take a while to motor forward.
Ownership-with very few exceptions, most of the firms are majority-owned by foreign interests. Of the remainder, many are government owned. This has various implications. Firstly most of the foreign owned companies will obviously be repatriating a large portion of their profit. Secondary, it also means that we are along from creating our own multi-national firms. Thirdly, having so many others where the government has influence means political patronage will continue to flourish as will economic inefficiencies.
Internet sites: Many don’t have websites i.e. have a mentality that is still stuck to the 1950s way of doings things. For me, a business will only succeed if it’s not only adapting to or pioneering modes of doings in a society, but uses all the channels that are its disposal to market its products and expose itself to a wider audience. Those that do have websites are still using them for very limited purposes and yet they call themselves commercial entities!
Paucity of information: getting hold of a lot of this information was difficult. If CMA and NSE were playing their role, I should have just been able to go to their websites and pull up the information.

Agenda for the Launch Date

Hi all,
Here is our agenda for Sunday’s meeting.

Introductions
· Discussion of outstanding issues on the constitution-please bring a copy along.
· Signing of the constitution by members.
· Election of officials for the coming year.
· Selection of an additional member for account signatory purposes.
· Setting of goals for the year in terms of investment.
· Receiving feedback re any interesting stock picks at the Nairobi Stock Exchange.
ANO

Anybody who doesn’t have a copy of the constitution, please see below.

See you all on Sunday!

PS: Please let us know in advance if you can’t make it for this meeting.

KENYA CAPITAL INVESTMENT GROUP LAUNCH

Dear delegate,
You are invited to the KENYA CAPITAL INVESTMENT GROUP launch meeting.

Date: Sunday, 7th January 2007

Time: 2PM

Venue:
The Mitre (function room)
24 Craven Terrace
W2 3QH
Lancaster Gate.

Nearest station: Lancaster Gate, (Central line), Paddington or Queensway.
Buses: 94, 148, 274, 390.

Turn right out of Lancaster Gate tube and walk towards Notting Hill. Craven Terrace is second right.

For more information contact:

John: 07961879446
Or
Tony:

Or visit: http://www.mjengakenya.blogspot.com/