Saturday, June 30, 2007

NSE: A preview of H2 07

July to Dec will likely be dominated by the slated IPOs namely Kenya Re, Safaricom and far-fetchedly, (NBK, Telkom) and the General Election. Analysing these and their likely impacts:

Kenya Re: As Kenya Re is using an AccessKenya type of IPO mode, this will lock out some of the speculative retail investors and will also reduce the upside expected. Its unlikely that Kenya Re will have a strong downward impact on the NSE. But bear in mind that with previous oversubscriptions, overextended refund periods, the retail sector are becoming increasing choosy about IPOs. Verdict: minimal downside impact on NSE index.

Safaricom: GoK will be under immense political and public pressure to do this IPO as a free-for-all i.e. similar to KenGen. If it does, the NSE may well see counters falling by 5-10% as liquidity dries up. But, will GoK allow the wider market to fall at the expense of putting smiles on the same folks? Yes/maybe. Bottomline: expect some impact on NSE counters

General Elections: Impact has been -ve in past elections with some correlation being seen when there has been uncertainty as to the new head of state. This time will be no different except that it should be clear within July/Aug how bad the impact will be on NSE. At the moment, the political consensus is that IF the ODM house gets itself in order and unites behind its candidate, there might be a real political contest in which case expect some downside on the NSE.

Other highlights will be the interim results of various shares, especially Equity (can it double Q2 profits to justify current multiples being reflected in its share price?), EA Cables, NBK (will they get any uplift from the npl pay-off as alleged by some?) and KQ (any impact of accident?) and will Mumias give its long-suffering shareholders some +ve news by releasing improved FY 06 results. Also, in the frame will be M&A in form of CFC Stanbic who its clear they have done their homework in terms mitigating against BOC/Carbacid-type of hold-ups. As well as Equity/HFCK?

NSE: A review of H1 07

NSE closed down some 10% down on its 2007 opening position driven down by profit-taking by
institutionals, fear caused by closure of Francis Thuo and panic selling by speculative retail traders. Our group though kicking off investment half-way thru this period recorded an outperformance when compared to the index.

Wednesday, June 27, 2007

Muhammad Ali in Quotes

A man who views the world the same at fifty as he did at twenty has wasted thirty years of his life.
A rooster crows only when it sees the light. Put him in the dark and he'll never crow. I have seen the light and I'm crowing.
Age is whatever you think it is. You are as old as you think you are.
At home I am a nice guy: but I don't want the world to know. Humble people, I've found, don't get very far.
Boxing is a lot of white men watching two black men beat each other up.
Champions aren't made in gyms. Champions are made from something they have deep inside them - a desire, a dream, a vision. They have to have last-minute stamina, they have to be a little faster, they have to have the skill and the will. But the will must be stronger than the skill.
Float like a butterfly, sting like a bee.
Frazier is so ugly that he should donate his face to the US Bureau of Wild Life.
Friendship... is not something you learn in school. But if you haven't learned the meaning of friendship, you really haven't learned anything.
Hating people because of their color is wrong. And it doesn't matter which color does the hating. It's just plain wrong.
He who is not courageous enough to take risks will accomplish nothing in life.
I am the astronaut of boxing. Joe Louis and Dempsey were just jet pilots. I'm in a world of my own.
I am the greatest, I said that even before I knew I was.
I believe in the religion of Islam. I believe in Allah and peace.
I figure I'll be champ for about ten years and then I'll let my brother take over - like the Kennedys down in Washington.
I figured that if I said it enough, I would convince the world that I really was the greatest.
I hated every minute of training, but I said, ''Don't quit. Suffer now and live the rest of your life as a champion.''
I know I got it made while the masses of black people are catchin' hell, but as long as they ain't free, I ain't free.
I know where I'm going and I know the truth, and I don't have to be what you want me to be. I'm free to be what I want.
I never thought of losing, but now that it' s happened, the only thing is to do it right. That's my obligation to all the people who believe in me. We all have to take defeats in life.
I run on the road, long before I dance under the lights.
I wish people would love everybody else the way they love me. It would be a better world.
I'll be floating like a butterfly and stinging like a bee.
I'll beat him so bad he'll need a shoehorn to put his hat on.
I'm not the greatest; I'm the double greatest. Not only do I knock 'em out, I pick the round.
I'm so fast that last night I turned off the light switch in my hotel room and was in bed before the room was dark.
I'm the best. I just haven't played yet.
I done wrestled with an alligator, I done tussled with a whale; handcuffed lightning, thrown thunder in jail; only last week, I murdered a rock, injured a stone, hospitalised a brick; I'm so mean I make medicine sick
I'm the most recognized and loved man that ever lived cuz there weren't no satellites when Jesus and Moses were around, so people far away in the villages didn't know about them.
If they can make penicillin out of mouldy bread, they can sure make something out of you.
If you even dream of beating me you'd better wake up and apologize.
It isn't the mountains ahead to climb that wear you out; it's the pebble in your shoe.
It's hard to be humble, when you're as great as I am.
It's just a job. Grass grows, birds fly, waves pound the sand. I beat people up.
It's lack of faith that makes people afraid of meeting challenges, and I believed in myself.
It's not bragging if you can back it up.
It's the repetition of affirmations that leads to belief. And once that belief becomes a deep conviction, things begin to happen.
Life is a gamble. You can get hurt, but people die in plane crashes, lose their arms and legs in car accidents; people die every day. Same with fighters: some die, some get hurt, some go on. You just don't let yourself believe it will happen to you.
Love is a net that catches hearts like a fish.
My toughest fight was with my first wife.
My way of joking is to tell the truth. That's the funniest joke in the world.
No one knows what to say in the loser's locker room.
Old age is just a record of one's whole life.
Only a man who knows what it is like to be defeated can reach down to the bottom of his soul and come up with the extra ounce of power it takes to win when the match is even.
Only the nose knows, Where the nose goes, When the door close.
Rivers, ponds, lakes and streams - they all have different names, but they all contain water. Just as religions do - they all contain truths.
Service to others is the rent you pay for your room here on earth.
Silence is golden when you can't think of a good answer.
Superman don't need no seat belt.
The fight is won or lost far away from witnesses - behind the lines, in the gym, and out there on the road, long before I dance under those lights.
The man who has no imagination has no wings.
The man who views the world at 50 the same as he did at 20 has wasted 30 years of his life.
There are more pleasant things to do than beat up people.
There are no pleasures in a fight but some of my fights have been a pleasure to win.
To be able to give away riches is mandatory if you wish to possess them. This is the only way that you will be truly rich.
Wars of nations are fought to change maps. But wars of poverty are fought to map change.
We have one life; it soon will be past; what we do for God is all that will last.
What keeps me going is goals.
When you are as great as I am it is hard to be humble.
When you can whip any man in the world, you never know peace.

Friday, June 22, 2007

Will the G29 follow Blackstone and do an IPO?

Blackstone IPO of 20% of their shares has got everybody (from China to Wall Street) excited today. Si Transcentury do the same for NSE? This would ofcourse mean lifting the veil over their dealings and particularly who the full 29 dudes are...

Equity takes HFCK?

If Riba's story is on the mark, this is great news for the banking sector and both sets of shareholders. This should be the turning pt allued to earlier for HFCK. For Equity, they go to the top of the Mortgage sector without breaking sweat. Any downsides? Only for Equity to the extent that mortgage business is capital intensive, the housing sector may be on a bubble and HFCK npls are around ksh6bn (have implications for capital).
As a whole though, its an awesome deal for both.

KPLC break-up (at last...

As argued here and here, the power sector is now beginning to get some much needed re-engineering. By removing the distribution business, it will allow resources to be directed at reducing 25%+ losses in power output thus enhancing revenue. The distribution business will like-wise benefit via more efficient delivery due to envisaged increase in competition. It will be interesting to see how GoK will carry this out given that KPLC is a listed share. As to the impact on its price, investors might be better off waiting to see the shape the listed business will have before voting with their pockets.

Wednesday, June 20, 2007

The Safaricom Phenomena-ksh17bn PBT for '06!

Its now official. Its profitable (very), to do business in Kenya-just ask Safaricom. PBT rose 40% to ksh17bn, subscribers are forecast to reach 8million ( 25% of all Kenyans-not sure how they distinguish new and repeats subscribers) and Kimunya must be salivating at the prospect of doing the IPO later this yr.
The IPO is almost certain to be this year because you can just imagine the smile on voters as they walk into that voting booth thinking I got 100 Kengen Shares, 100 Safaricom shares, kweli Kibaki ni kingothi.

Sunday, June 17, 2007

Thursday's Budget & the NSE

As always, Kimunya's presentation was Raila-like, populist but please read the detail. Some of the bits that will likely impact the NSE in the coming year/s are:
Govt direct participation in the NSE per paragraph 38. Following its failed OFD for 19% of KenGen and the fiasco that was Mumias (for the shareholders at least), GoK wants to be able to sell its stakes in various NSE listed shares in small blocks as opposed to doing a large block at a go. Sounds good in theory, but in an illiquid market like NSE, this will only be doable if its targeted i.e. the block is partially offered to institutional investors. The issue that is causing concern is where GoK may try to shore up a share price. Opinion here is that the first is ok with safeguards, but the 2nd is a no no.
Repayment of NBK's npls owed by parastatals over the next 20 years. No doubt, this will increase its liquidity and allow it to lend more. The question here is the interest repayments. NBK has been accounting for interest on npl in its P&L, in which case any subsequent repayments would not go through the P&L, but this is only if it has done this for all its npls. Another ksh13bn remains to be cleared. GoK also announced that it will be selling more its stake in NBK.
Increased recapitalisation requirements for financial institutions over the next 3 years: There are currently several banks that fall under the ksh1bn that will be required.

  1. CFC-but they are already in advanced merger talks with Stanbic-for 6 months?
  2. DTK-despite doing a rights issue in December, they may need to complete their merger with Habib Bank
  3. HFCK-they are in the midst of a rights issue to sort this out
  4. NIC- they announced a rights issue on Friday

Within the unlisted banking sector, there is quite a few that again will most likely merge or seek help from their shareholders. More importantly, the insurance sector is also being required to recapitalise.
Sin taxes were in effect again, but one suspects that the demand inelasticity for these products is such that only a big rise in the duty would dent the profitability of EABL and BAT.
Construction-related stocks will benefit from allowances on low cost housing.
Finally, happy papa's day to all the fathers out there!

Thursday, June 14, 2007

Nairobi-seriously good to look @

Next time you read those Economist-type articles written by some misguided fools, send them these pictures for an alternative view (spotted courtesy of mimi tu). Alternatively, they can read this from the much more balanced FT.

Monday, June 11, 2007

Kenyans and pool investment

With limited research it’s difficult to establish the phenomenon of investment clubs both at home and in the diasporas. A good example of the clubs being referred here is the Tran century group. In the UK and US I have come across well-established groups such as Ubuntu, KCIG, ACP.
The idea of an investment club is borne from the need to pool resources, learn, minimise risk, maximise returns, networking and exchange ideas. Illustratively, the idea is widespread in the UK and there is a large number of clubs that have come together.
Despite the awareness within the Kenyans in UK, the concept has not translated into reality although the benefits outweigh the risks and would enrich individuals and the community disposal income.
From research, various barriers have emerged as to why this is the case.
Amongst them, include;
· Immigration issues
· Mistrust-supposedly this is informed by past experiences
· Fear of unknown
· Individual short term goals
· After quick money or short cuts hence the rush to the illegal pyramid schemes despite the risks involved
· Tribalism which is prevalent even in the Diaspora
· Ignorance
· Cultural practice- many assume there is job security in the west. Whilst advertisement and latest trends lure others more so the younger generation into spend now, save later lifestyle common in the west. In some instances, people have questioned the rationale of spending 2 to 3 hours researching or even sitting down in a club meeting.
· Commitments phobias-there are those that I have spoken to who are afraid to come together in a long term deal instead preferring loose partnerships.

Regardless of these barriers, coming together as either a group of friends or family vis-à-vis with unknown or strangers both have their pros and cons. Nonetheless, with both experiences, the latter is more advantageous than the former in terms of; professionalism, diversity, values, boundaries, contacts, educational opportunity, decision making, rationality, influence, skills, operations, management etcetera. Some disadvantages may include; egos getting on the way, lack of commitment, hidden agendas, bonding take longer, it also takes longer finding or identifying like-minded individuals.

Therefore with this in mind the question is, what will take to break these barriers and can Kenyans as with other communities (Chinese/Indians/Nigerians) come together.

Wednesday, June 06, 2007

Results Catch-up

KCB: saw 38% rise in Q1 after tax profits helped by strong loan growth (ksh16bn year on year (44%)) which drove 22% rise in interest income and 24% growth in Fees and commissions. Gratingly for those who like to see banks doing their intermediary role, KCB is driving loan growth forward without concomitant rise in loan loss provisions. KCB’s current momentum (it plans to open 10 new branches every year and expand regionally to Sudan, TZ and Ug in that order), explain the recent share spilt.
Equity: A doubling of income (both interest income and fees) led to a massive 226% rise in PAT from prior yr’s Q1 and led to questions about sustainability. The bank has now acquired a
ksh6.9bn loan to help further expansion as it looks to enter the mortgage sector.
NBK: Saw Q1 PAT fall by ksh7m to ksh152m on falling net income. NBK has finally had ksh20bn of its Ksh33bn NPLs written-off by GoK. Though there will be no immediate impact, earnings will improve in the long-term as a cleaner balance sheet allows it to lend more. This will and is atracting speculators in the short-term.
KQ’s 15% drop in PAT for FY was a surprise when it shouldn't have been i.e. CEO Titus had flagged this earlier in the yr. The surprise was in the reasons for the fall (weaker dollar and fuel costs). The dollar is weaker compared to prior yr, but was only below the average rate of 72 for around 2 months of KQ's financial year. Fuel costs can be hedged to a large extent.
DTK: After tax profits doubled from year earlier with strong income on a growing loan book supported by only a slight increase in expenses . DTK is issuing a rights issue for its TZ business.
Its AKD stable mate, Jubilee also announced FY which grew by 51% on growth across all income streams. For its shareholders, there is a final dividend of ksh3.25 and 1 for 4 shares held bonus share issue to look forward to.
Finally, NIC Bank's strategy of niching the market seems to have paid-off in FY06 with PAT growing by 59%. NIC continues to innovate and its contrary strategy means it will make money at times when others may not. As with other growing medium-sized banks, NIC will need to recapitalise at some pt (possibly via a long-term loan or rights issue) as affirmed by Fitch ratings agency.

Monday, June 04, 2007

Is an East African Community viable or achievable?

The analysis is primarily based on what has occurred so far and what is envisaged and will evaluate EAC on LE PEST context.
Economics: Theory says that by coming together and lowering customs, you increase trade between the countries. By allowing free movement of labour, you’ll essentially get lower labour costs as the labour pool increases. There will a bigger market for the companies within and externally attractive and giving EAC some clout. Bigger means economies of scale in terms of pooling of resources and know how. Against this, note that all 3 countries suffer from extreme infrastructure dilapidation, underdeveloped and unequal economy growth rates and markets; have no real manufacturing bases either for value-adding activities on local resources or FDI-related. As for the reduction customs duties and free movement of labour, it’s possible as Nation Media would tell you to have non-monetary trade barriers. You could also add into the mix:
Taxation- there is a move towards harmonising this starting with VAT, however corporate and personal taxes are bigger more complicated pieces.
Monetary policy-important because it does impact interest rate which in turn impact exchange rate and inflation. Having a common currency will test monetary policy.
The donkey/horse analogy: Will Kenya (being the larger economy), have to slow down its pace so that Ug/TZ can catch up? Germany’s re-unification and subsequent 10yr recession is a prime example of what happens when you merge two unequal economies

If an EAC entity is ever to work, then the economics has to work and should probably be the litmus of a future EAC.

Political: A political union would probably go as far as the East Africa Assembly has gone i.e. a talking shop that is far removed from the realities on the ground. It should however lessen the tribal politicking that we have in Kenya and to some extent in Ug.
This piece is probably the most difficult to envisage because our politics are in dire straits in all 3 countries. In TZ and Kenya, democracy is skin deep and even shallower in Ug. Thus a union will effectively be merging problem political entities.

Social: Do we share commonalities that can bind us together? We all speak (to various degrees) Swahili and are neighbours. And erm, that’s probably it. Anecdotally, at university, we had a mixture of the 3 main nations and really got on well with Ug-ians. It probably helped that many had been to Nai and had generally travelled. The other point is that many Ugandans and Kenyans are well educated with a grasp of external issues that many not be as present in TZ.

Technology: As with general infrastructure, there is a lot of potential ala underdevelopment. The good thing, all the countries face the same challnges and can hopefully develop common solutions. this is however capital intensive.

Legal: TZ, Kenya and Ug share legal systems inherited from a common colonial master and these have with few exceptions, remained broadly the same. Rwanda amended its Belgian inherited constitution in 2003 and now has a constitution that is context specific i.e. tailor-made for Rwanda especially the innovative Gacaca Courts. Burundi is operating a transitional constitution that marries its Belgian with customary laws as well as forward-looking amendments such as 30% inclusion of women in the legislature. Given these backgrounds, it’s a sure bet that a new constitution would have to be written initially maintain national vetoes. Cue more banana and orange campaigns.

Environmental: The major cities in all 5 countries would become magnets for the various countries populous that will no doubt be looking for greener pastures. Given the chronic lack of planning in Nai, Kala, TZ (the benefit of the move from Dar to Dodoma is still unknown) means more slums are likely and general pressure on resources (especially social amenities). And who will oversee NEMA-type activities?

Bottom-line: Two wrongs don’t make a right. If there is going to be a successful EAC entity, let’s develop it piece by piece starting with closer economy integration alongside the technology/legal aspects and build up to the political piece over time.