Tuesday, July 31, 2007

Thank you NSE

We have to give to credit when its due. In the last couple of days, I've written to NSE from the feedback form on their website asking for them to post pdf's for various companies's H1 results and they have come back within a day! Those long in the market will know the previous duration for response was ...never. Unless you wrote a letter in the papers.

Keep it up NSE.

Sent: Sunday, July 29, 2007 11:14 PM
To: NSE Info
Cc: NSE Info
Subject: Website Enquiry/Comments
Title: Mr.
First Name: tony
Last Name:
Comments: Any chance you could post the Equity pdf file for its half year results?
Thank you in advance

From: NSE Info [mailto:info@NSE.CO.KE]
Sent: 30 July 2007 11:12
To: Tony
Subject: RE: Website Enquiry/Comments
We are posting the announcement today.

Friday, July 27, 2007

Excellent interview with EABL's CEO

I really like some of the ideas that Mahinda had.
  1. "Utopia for business, is when politics and business are totally divorced": In the same way that an individual can't perform as a surgeon and a lawyer with equal excellence at the same time, GoK shouldn't expect or imagine that it can run businesses and govern at the same time. GoK's role should be to create the enabling framework, implement it and then run maintenance work over it, otherwise leave the private sector to run with these programmes. Civil servants owning or running businesses should either declare their interests or forfeit them.
  2. Given Kenya's "chama" phenomena...GoK should move fast to incentivize local collective borrowing and investment: So support investment clubs by recognising legally and in terms of IPOs, giving the opportunity afforded so-called QIIs.
  3. ...however, all these can only be done with the right leadership: Kenyans are yet to have the sort of leadership that is able to adequately address 21st Century problems that we face. For example, we talk day and night about diaspora remittances, but we don't want to give them dual citizenship; there are no known programmes to work with so-called developed nations to facilitate Kenyan economic migrants similar to those done by South Africa, Australia and New Zealand. In ICT, we need a qualified head of ICT who covers everything fro mobile telephony to the undersea cabling to computerisation of schools; GoK information network et al

Equity up 107% on H1 2006

More to follow....

Wednesday, July 25, 2007

NIC's PAT for H1 '07 35% up, rights and bonus issue

Despite ksh4bn growth in its loan book, net interest income was flat suggesting either tighter margins or lower interest rates. Fees on these loans grew strongly however (45%).

As trailed sometime back, NIC is taking early action to comply with Kimunya's new capitalisation requirements for banks. They will be giving two bonus shares for each held and will also give shareholders the opportunity to buy an additional 1 share for each of 5 they hold. This should increase its capital to around ksh2bn.

NIC bank has been an innovative though niche player in the banking sector with products such as Move and is expanding slowly to cater to an expanding customer base especially for its farm equipment leasing business.

Although its been known they were thinking of doing the rights issue, price responded positively to the bonus issue as well.

Tuesday, July 24, 2007

Is Kenya in the midst of an asset bubble?

An asset bubble is defined as a price level at which an asset's value is completely unrelated to its real value e.g. the price of a house being 4/5 times cost of building the house or a forward PE ratio of 40 times the company's profitability in the case of shares. An asset bubble can also be ascertained by comparing the price trend in a particular location with similar sized locations in other countries (in the case of house prices) and comparing company PEs where they are in the same sector. This article reviews the Kenyan experience of an asset bubble in its real estate and the stock market.

In real estate, although there is no data that is currently centrally corrected on movement in house prices (one is
being planned), anecdotally, it can be shown that the house prices in all the areas lying between Garden Estate and South B have in the last four years increased four-fold (evidence of 50% growth in last 2 years here http://www.propertykenya.com/articles/kenya_real_estate_boom.phpm and here http://www.globalpropertyguide.com/country.php?id=100&cid=af&cat=5). 1/2/ acre plot that would have cost an average of ksh750k in 2003, now starts at ksh2.5m; the equivalent in the above places cost ksh1m in 2003 and now costs ksh4.5m plus. For a family home, these would have cost ksh3-10m but now range from ksh10m-40m+. In fact, all major towns in Kenya are now experiencing a housing boom driven by the increase in money supply; a more buoyant economic environment; huge increase in diaspora remittances and a move away from the big cities of Nairobi and Mombasa. However, the asset bubble in these areas of Nairobi has additionally been driven by some unique factors.

  • Increased presence of NGOs with “phat” housing allowances for their staff thus a ready-made rental market increased population from the rural-urban migration and expatriates.
  • Asymmetrical information i.e. there are very few real estate players who have a real idea of the comparative house prices in the areas they buy/sell. This has led to situations where sellers can call a price and be able offload their properties at those prices.

The evidence in the stock market is more mixed. The NSE index grew by 378% between Dec 2002 to June 2007. However, the drivers for this were in most cases supported by the underlying earnings growth of the shares. The additional factors such as more investors (domestic and diaspora) flowing into this market and more optimism about the direction of the economy are likely to remain in place. Inflation has grown by 50% in the economy as and will thus have had a bearing on company profits. Several counters are exhibiting bubble-like qualities even after the correction earlier this year, but are driven by speculative events specific to them. The evidence of a bubble in the stock market is patchy at best.

While there is something in the region of 500,000 stock market investors, those involved in the real estate are a much larger group. Thus the current real estate bubble is of concern because:

  • It shows a dearth of similarly lucrative investment opportunities in other economic sectors.
  • To the extent that asset inflation can have impacts on economic activity (those holding appreciating assets will use some of the equity to buy consumables or invest elsewhere), any bursting of this bubble would lead to negative multiplier impacts) will distort economic growth by focusing resources on sectors with low multiplier effects.

Options to slow down the bubble:

Monetary policy-one of the main drivers of current bubble was the reduction of banks' cash reserve to 6% from 10% and consequent reduction in yields from t-bills which meant that banks now had to go out and lend (BDA put growth in mortgage lending at ksh3bn in 2002 to ksh35bn in 2006). As such a tightening of this or other measures that would impact liquidity such as the proposed increase in capital requirements will reduce it

Fiscal-introduction of capital gains tax was muted last year by Kimunya who is clearly
concerned about house prices.

Administrative: Planning permissions (as was done last year to allow utilities to catch up) and enforcing these rigorously would have the effect of spreading price growth to the whole city as opposed to particular areas of the city

Increased supply-will take time but is already having an effect in areas such as Kilimani and Kileleshwa.

Information: having an index that tracks prices and or a property price map would also allow real estate investors to make informed choices that would for example shift the burden from already densely built areas to other areas that require more housing. In NBI, making a economic case for building nicer houses in the slum areas would be a good result.

Do you love Kenya or Kenyans?

If only more Kenyans were like Martin Ngatia of Stockholm. Apparently Katuku won't be going back to Sweden even on a freebie...

"Malooned" gets rave reviews and profit

Watch the youtube snippet and the story here...

Sunday, July 22, 2007

Najivunia kuwa Mkenya

Above slogan is currently being used by the Kenyan government to promote its image amongst the masses. It means; ‘TO PROUD BEING KENYAN’. The context of the PR is to highlight the social-economic achievements under the new government after decades of mismanagement. Also following some blunders ‘Anglo-leasing’, the government want to counter much of the scepticism on whether these achievements have tickled down to the masses?

Thought should share this www.vioja.com/media%20sh.html (EABC) great authentic and undisputed talent from our Kenyan musicians. Undoubtfully, these guys shows with strong statutory framework the music industry just like the football and cinema industry's, are presently sleeping giants awaiting exploitation and have the potential to generate massive wealth and employment for the majority of the Kenyan youth population. Comparatively, the American music industry is worth billions of dollars similar to the British football worth billions annually both directly and indirectly employing many of the youth population. Despite such comparisons being extreme, they are justifiable since many Kenyan youths aspire to be as successful as those based in these countries plus we can a lot from such success.

Unlike our athletics where we stand, shoulder to shoulder with the world greatest, albeit constrained by lack of statutory backing and poor infrastructures, these three industries remain neglected leaving many youths aping the western culture despite their potentiality aided by the diversity of our tribes and ready-made consumer market. In the Diaspora, many are yearning for authentic stuff from home after realising that east or west home has the best. Interestingly, I have noticed that MTV are keen on the African market with programs such as ‘MTV uncensored Africa’ showing on SKY TV.

Way forward.

1 The African ambassadors should lead in promoting the music, cinema and football abroad.
2 Strong statutory framework should be put in place.
3 Educational or academy centres should be in place to identify and mould those with such talents, the three industries should not just be taken as extra curriculum activities.
4 The media should jealously play a vanguard role in promoting these three industries.
5 Incentives such as taxes, copyrighting such talents must be enhanced
6 Above would enable parents/peers to take the industry much more seriously.

Friday, July 20, 2007

Interims announced this week

In order of performance vs. expectation:
TPS: PAT doubled in H1'07 compared to last year as the group consolidated its lead in the Kenyan and TZ markets. TPS has also acquired hotels in Rwanda and Burundi and is using this to sell "Destination East Africa" tour packages. Barring anymore adverse travel notices and with improved road network, TPS Serena being the only tourism related stock on the NSE allied to AKD ownership should be a must-have. Despite a bonus issue, share price is nearly back to pre-bonus levels. Has exceeded expectations.
EACables: A 45% growth in after tax earnings is good going given the continued rise in base metals. EA Cables has just completed its new factory. This will enable it be in a position to provide fibre optic cables to the new market. Its also looking at entrenching its top position in East Africa while expanding to South Sudan and Central Africa. Watch this space.
NBK: Leapfrogged Equity to announce its results first. No major surprises in terms of rise in PBT of 34%. Closer scrutiny of P&L and BS did reveal several puzzles. PBT rise was primarily due to lower loan loss provision (because of fewer loans?) and Fees and Comms. Interest income fell by 20% due to lower rates compared to last yr. The bank has a very small loan book. The real puzzle was that after repayment of 20bn npl by GoK its 33bn NPL has fallen to 5bn? The new initiative announcements are also fairly dull. If a bank is going into mortgages or rural areas similar to 5 others, it has be able to say this is what will distinguish us from say Equity in the rural area or Stanbic in mortgages. There is also the risk of over-paying to snatch customers from existing banks or getting lousy customers in the case of mortgages.

Wednesday, July 18, 2007

Kenya RE IPO-The Prospects

What does Kenya Re do? Insures insurance companies. Has 21% of the Kenyan market. Its main rivals in the Kenyan market are Africa Re, PTA Re and East Africa Re in that order. By law, all Kenyan insurers must re insure 33% of their business, 18% they have to do with Kenya Re. Kenya Re generates currently 63% of its net premiums from Kenya and 30% from the rest of Africa. By industry, most of its premiums are from industrial fire (46%).

How does it make its Profit/Loss? Re insurers make money from net premiums (new premiums received less new claims) ; income from their investment portfolios (rent; dividends; net proceeds from buying and selling these investments; interest; unrealised capital gains from shares and property revaluations) and then adjust for management expenses. 40% of its investment portfolio is in properties...

Strengths: Has a strong balance sheet. Got a "very good" credit rating last July (i.e. before the scandal broke). A credit rating is important in the financial sector as it internationally comparable measure of financial strength. Recognisable name in Kenya and in Africa.

  1. Corporate governance and internal controls led to scandal discovered earlier in the year where the now ex-MD and FD were engaged in amateurish pilfering (amount not fully quantified in the prospectus). Most of the BoD that was there during this period are still there. New auditor now appointed who may take a while to get to know the system. Most of BoD have loans from Kenya Re. KEY WEAKNESS.
  2. Weak insurers especially in its key Kenyan market (20 out of the 42 are under-capitilised based on the recently issued criteria). 
  3. Reliance on investment income (has usually seen almost as much growth from this compared to its core activities).
  4. Non-property portfolio all Kenyan-based. It should be done to match its business exposure.
  5. Despite the international ambitions, doesn't hedge its book against fx risk
Opportunities: The Kenyan economy will grow as will that of the rest of the Africa meaning increased business in volume and variety of premiums. International opportunities are still open to Kenya Re. A reduced property portfolio should surely increase its liquidity and make KRe more agile in writing new business.

  1. Other re-insurers within Kenya (apparently most prefer foreign owned firms that are perceived as stronger). In its other markets in Middle East, stronger re insurers now targeting e.g. Takafu. 
  2. Re insurer rates are under competitive pressure. 
  3. Forecast for 2007 based on ropey fx assumptions (Usd fx rate of 73 when its been sub-70 for most of this yr and £ rate of 146).
  4.  GoK still has a 60% holding thus political interference (of the KNAC- sort) may still happen.
  5.  Large claims (e.g. the Tsunami of 2005 ) can and do have material impact on KRe's numbers.
  6. Cessation rights (which give KRe 18% guaranteed premiums from each insurer) come to end on or before 2011
For: KenGen IPo priced at 11.90 reached 40 on first day; Scangroup (10.45 hit 15 and is now 26); Everready (9.50 hit 25 on debut); AK (10 hit high of 15). Get the picture?
  • Over-subscription because Kenyans are price/return conscious thus IPOs are God-sent. Expect 300%+ over-subscription on the retail allocation.
  • Delayed refunds: AK was text-book, KenGen was nightmare. KRe being GoK ,will sway towards the KenGen experience
  • Diminishing marginal returns: Preference for institutional investors (means potentially there is lower upside in 2ndary market) and investor boredom may mean returns on the scale of 50-100% rather than 100%+

Tuesday, July 17, 2007

Kenya RE IPO-some analysis

Faida Stocks have done some investment analysis for this IPO. One thing to note, if you compare the Profit Before Tax on this research note with that on Kenya Re's website, you will notice that 2005 seems to be different. Don't yet know how and why.

Prospectus now available

Isn't there some requirement that an IPO prospectus has to be released some time before the application period? Barring last-minute legal hitches, application process is due to kick-off tomorrow!
For individuals and corporate investors: Wait until next week and if you a have decent broker, you'll be able to avoid committing funds only to get a 30-40% of your applied-for-shares. For those tired of the whole refund and application process, plenty of counters are looking attractive at the moment especially with this being the results announcement period.

NSE-Online trading a step closer...

The guys' behind mystocks.co.ke have now created a live stream from the NSE bringing us closer to the dream online trading destination. For those who keep a close eye on their shares (i.e. do analysis), it also shows buy and sell orders.
The only drawback so far is that their close of business prices don't tally with those of the NSE because while theirs is based on the price of the last traded volume, that of the NSE is supposedly based on VWAP i.e. turnover (in value terms) divided by volumes traded.

The other thing to note is that unlike previously where vendors paid a nominal fee, NSE will now be charging for this data as part as an income stream meaning that the vendors (eight.co.ke are the other), may start charging us investors for the same including the close of day prices. Hopefully the NSE charges will be reduced to reflect this additional cost to investors.

Monday, July 16, 2007

Why shun tea (agricultural) stocks?

In their otherwise excellent H2 research piece, D&B have advised investors to avoid tea stocks. This in itself is unusual because brokers (stocks salesmen), will rarely advice you not to buy any share, never mind a whole mini-sector. Their advice was based on changing tastes, fx issues and inflated production costs. Is this sound advice?
Investors will normally invest based on their expectations of capital gain (price performance) and income (dividends). Expectations will change depending on their perception of how price drivers are working. These will be earnings growth; cashflow generation; market share; dividend policy; management and company structure and share liquidity to name but a few. The key word is how in control the company is over all these drivers. In the tea and agriculture sector in general;
  1. Earnings are impacted by weather, world prices (fx), GoK policy, changing tastes. All these are outside company control and volatile but are also easily discernable. Its thus possible to do speculative plays based on observed weather patterns, global supply of the particular product and so on
  2. Market share: For most at the NSE, they are in world market and with the exception of Rea Vipingo have a small market share. So Rea Vipingo comes into play here provide (1) is working well
  3. Cashflow generation: This is probably the most volatile part of earnings for agriculture stocks based on (1).
  4. Dividend policy: Most at the NSE are foreign-owned thus give generous dividends (dividend yields by Kapchorua Tea and Rea Vipingo are among the highest) as a means of income repatriation. Again this makes them attractive speculative plays as discernable by price movement as they approach FY.
  5. Share Liquidity: They are foreign-owned thus all have a small float that in some cases means virtually no trades for months (Limuru Tea 70% owned by Unilever has traded twice in the last year).
Bottomline: Invest for speculative plays and dividends.

Briefs: Athi River showed a strong H1 07 ; BAT half yr was up slightly on prior yr, but also issued a profit warning as Kenya catches up with the rest of the world and starts to ban smoking; Williamson Tea and subsidiary Kapchorua realised improved FY PBT but predicted lower numbers for this year.

Transport-Joined up thinking urgently required

As we aspire to register constant 10%+ growth rates, a major plank of achieving this will be an integrated transport policy that looks at developing all the key arteries of our economy:
Roads: Mainly targeting built-up urban areas. At peak times, it can take 3hours+ to get in and out of Nairobi a city of circa 3m people (this is similar to London a larger city by land mass and population (8m). Bypasses (as already proposed) could help reduce this by 20%. Wider approach roads into NBI, Mombasa and wider throughroads for growing towns e.g. Eldoret, Nakuru could work to increase traffic flow. Betterbuilt roads coupled with more frequent maintainance could give us cheaper roads. Finally, heavy good vehicles should economically be encouraged to move their wares onto...
Railway: China is using rail network to both open up and link its economy within and outside to the rest of Asia, but also because its a recognised cheaper mode of transport especially for freight goods. Goods to Mombasa that now take upto 12 hours from Nairobi  and much longer to Busia would take as low as 4 hours on a modernised rail track. The track is already there all the way to Uganda and just needs the modernisation of the trains. Trains could also play a role in reducing road traffic in Nairobi with links to Thika (and areas in between). RVR should consider issuing long-held convertible bonds to finance both the relaying or repair of tracks and leasing modern trains. Once freight goods reach Mombasa, they will require a well-functioning 
Port: With a growing economy surrounded by similarly growing but landlocked neighbours, there is no excuse for KPA not to aggressively plan and institute a 24 hour port to able to increase capacity with the growing economy. Alongside this should be an efficient and corruption free customs clearance. Given its profitability, GoK should consider floating a portion of KPA at NSE with the intention to use the funds to develop and equip the port for the future.

Sunday, July 15, 2007

What is your vision?

Its often said that without vision, we fail.
Imagine, opening the door of your house and just walking or just getting into your car and just driving.Then multiply that by 365 days and however many years you've lived.

Having a vision is important in life as knowing where you are going when you get out of your house or into your car.

A vision doesn't have to be global or impact everybody or change the world, but it would be nice if it could change your life or that of your family, local community village et al.

Visions are expensive and time consuming, but so is anything that is of value to your life.

So what is your vision?

Thursday, July 12, 2007

Payment on Delivery for IPOs

For the Kenya Re IPO, GoK/NSE has further favoured institutional investors by allowing them to pay only when their share allocation is confirmed something not offered to retail investors. This in addition to allocation them a portion of shares for which only they can apply for. Retail investors are complaining seeing this as further unfair practice on the part of the NSE /GoK elite. However, there seems to be several reasons to suggest that this may be a very wise move on the NSE's part.

  1. Stability: Many investors (retailers as well as institutionals) have in past IPOs tended to liquidate some of their holdings and use the receipts for IPOs. This adversely impacts many counters causing the NSE index to fall. By giving this special dispensation to QII, it will allow them to in effect give some stability to NSE index during the IPO period. What about those counters with little institutional support? There are probably weak on fundamentals anyway...

  2. Speculation: IPOs have been dominated by speculators who chasing the immediate post-IPO uplift in the price will withdraw savings, borrow and sell everything including their priced bulls to participate in IPOs. This has negative impact on the wider financial system and is compounded by effect of delayed refunds. Most of the immediate post-IPO uplift has come from QII and others going into the secondary to pick up shares. By apportioning an amount of the IPO shares to QII, the secondary market will become thinner thus lowering the immediate uplift from IPOs. This will act to discourage speculators.

  3. Shareholder expense: Thanks to the free-for-all IPO system, KenGen held its last AGM at Kasarani Stadium and spent ksh80m on the various costs involved (printing and sending annual reports, dividend checks etc). This is not clever business. Moreover, having too many retail investors will accentuate any periods of volatility.

Finally, (and I am not in NSE's pay), MPs like journalists often refuse to let a good story get in the way of facts. Such is the case with yesterday's question time. James Mwangi (Equity's CEO) has never denied he worked for Trade Bank (its in Equity's annual report); unless he owns shares through his fellow directors, its not possible for him to hold 30% in Equity; Trade Bank was mentioned in relation to Goldenberg, as was Barclays, Stan Chart and others. As to people around Jimnah Mbaru owning 90% of the NSE, even a perusal on Hasinet's excellent company info will show you this is unlikely.

Wednesday, July 11, 2007

Diaspora: M-Pesa and Sambaza coming near you

Riding on its success as the first mobile service provider in the world to introduce money transfer services under the M-Pesa brand and In just three months, having managed to help clients transfer Ksh500 million ($7.4 million), across Kenya, Safaricom’s parent company Vodafone UK is now looking into launching money remittance from abroad via their mobile network.
Interestingly, I recently noticed that you can buy Safaricom calling cards in some shops in London and send the top-up to somebody back home which they can use within 1 hour of receiving it.
Talk of another great opportunity for the money making machine-that Safaricom has become.
However, the money transfer may be hampered by the inadequacies within the current legal framework in Kenya which does not cater for this service. There is also the issue of stiff competition from the existing money transfer agents.

Tuesday, July 10, 2007

Equity takes HFCK? More detail...EA Cables (TZ)

A bit more detail on the Equity/HFCK link-up now including Britak, Equity's largest shareholder. As an aside, Britak is planning an IPO in the next 18-24 months.

While this blogger has a very positive view of this deal, those fearing its impact on Equity bottomline ought to be aware that as Equity will only hold 25% of HFCK, HFCK's results will be accounted for as an associate in Equity's books. Equity will however have a controlling stake thus will be able to steer HFCK strategy and be in a position for a later takeover or equity exit

EA Cables seems to be working its magic in TZ, where its subsidiary is experiencing a turnaround in perfomance.

Thursday, July 05, 2007

Renaissance coming to a Stock Mkt near you...

Those not already engaging some cash in the NSE, you'd better do so now because the West is seriously waking up to the possibilities... Renaissance Capital having made it into top 10 on M&A leagues tables in Europe (football equivalent is making it into European Champions League except this is in investment banking) also have their eyes on sub-Saharan Africa with Nairobi acting as their hub for .

They are hiring some of the best talent around (worryingly for shareholders of the soon-to-be CFC Stanbic, they are also headhunting from CFC) and have applied to buy Francis Thuo's broker licence.

In other news, the local NSE chatroom seems to have AWOL-ed without warning...

Sunday, July 01, 2007


Its funny, a couple of months ago, Apple got sued by the Beatles' representatives because their use of the Apple trademark to market Itunes infringed a copyright agreement they signed with the Beatles (their corporate name is Apple). So shouldn't somebody (Kenyan/TZ govts perhaps?) for their usage of the name Safari for their new web browser?

Rant-aside, having now test driven Safari, I actually prefer it in some ways to the Windows internet explorer. Its actually quicker in terms of functionality (so those with access to the Kenyan-type internet speeds take note), and seems to do some stuff very intuitively. Its also free to download if you have Windows XP