Thursday, September 27, 2007

Another classic one from Michael Moore

Going by the reviews of this it seems that not everything that we should copy from the world’s greatest capitalist especially in relation to funding of the health care system.

Am looking forward to watching this one to see what Michael Moore has uncovered.

Tuesday, September 25, 2007

Monday, September 24, 2007

Guide to scorecard

This idea was just to counter the tendency among us Kenyans to vote like blindfolded drunks playing darts. Its also to hopefully move the debate from single-issue based polemics to a more rounded view of each prospective candidate.

So for each candidate, score them out of 10 (minus only allowed for corruption) for all 10 areas based on:
  1. Their record so far: Review their past performances and utterances.
  2. What they may do if they get to statehouse: Some of this will be found here for Kalonzo, Raila's is here and Kibz is here.
  3. Score 1 & 2 against what our young nation needs and by comparing the candidates
  4. Score 1, 2 &  3 by looking at their teams, because for sure none will deliver on their own.
As for the areas,  the Economy is key because nobody eats democracy.

  • Growth: Which candidate's policies and team will grow the economy? Kalonzo's tax policy may sound good, but what impact will it have on the economy?
  • Corruption: Whose record and policies will have an impact on this evil?  They can talk all day about zero tolerance or truth commissions, but what sort of company do they keep? What impact will their anti-corruption policies or lack of, have on the economy? Hence the minus score...
  • Allocation: How well will their policies ensure fair allocation of the revenue and economy generation? How will majimbo deliver if local govt hasn't, why can't Kibz get CDF to work?
  • Efficiency: What will their spending plans mean for the economy? Free this and that costs money. Building the VP his own house is not good use of money...
With the building blocks in place, how about the supporting pillars;
  •  Democratic space: Stand on free media, delegation of GoK duties, accommodation of opposing views.
  • Infrastructure: What plans do they have for our transport network, ICT? How about past successes or failures in this area?
  • Security: How will they measurably reduce the "ngeta" culture creeping into the nation?
  • Reforms: Show one radical idea that will for example get our civil service working, reduce the 1m+ judicial cases out there?
  • Leadership: Can they create a compelling, inclusive and influential leadership? How do they compare with other two?
  • Charisma: Do they have it? This is a soft one in recognition of the fact that Kenyans probably vote on this one most...

Saturday, September 22, 2007

A rational way of voting?

Having seen/suffered (delete as appropriate), the effects of our voting emotionally in 2002, isn't time we tried a more rational approach for example using a balanced scorecard?
You could each of the candidates out of 10 (10 being the highest) on how you think they will on each of the following and then go into the booth with something approaching thought.

Banks H1 -Updated

Update of this post. DTK either has very high quality loans or more plausibly, needs to increase its loan loss provisioning. CFC has the highest proportion of its income from Fees & Commission (perhaps from CFC Financial Services?), and the 2nd highest insider loan proportion after the govt-owned KCB.

Credit Crunch, Securitisations & Wall Street

In investing like in poker there is always a sucker, if you don't know who it is , then its gotta be you! As Wall Street firms announced their results this week, that became a lot clearer. Lehman so a 3% yoy fall; Morgan Stanley 7% fall; Bearn Stearns saw a downturn 61% but Goldman Sachs scaled the heights with a 97% increases yoy.

This Economist article is very good for the layman who wants to understand what the recent credit crunch has been about.

Tuesday, September 18, 2007

Politics save Northern Rock; Lehman delivers na KenGen?

At the rate savers were withdrawing funds (£1.5bn a day), you can see that NRock with £24bn was due to run out of the stuff soon. And no politician likes to be associated with such public failure. Least of all one who has just become PM and wants to hold election soon like Gordon Brown. The decision to cover all deposits introduces moral hazard of the kind not seen before because bankers are being told to take risk without bila worry. Fractional reserve lending strictly allows a bank to lend £8.8 out every £10 you deposit with it. Lakini now a bank will be able to lend even their branch because there is govt coverage.

Lehman Brothers took a 47% hit on its Fixed
Income (that's where its CDS and ABS income was put) and still managed to only miss breakeven by 3%. Fixed Income used to be 50% of its earnings, so you can imagine the fear they had. As I always say, Investment Banking is the only business where you make money as the market is going up and everyone is buying stocks, commercial paper and derivatives and when the market is going down because they are all selling their stocks and looking to unwind hedged positions.
Bear Stearns is next. They are even more into CDS and ABS than Lehman.

Anybody else see KenGen's nasty surprise coming? And to make it worse, after increasing their dividend from last year when they are on their investing cycle, they are thinking of increasing their borrowing. This is might now be a very long-long term stock for some.
After this factual commentary on Equity' performance, I suppose they will be accusing Rina Karina @ Faida of being on Equity's pay. Sometimes, Equity reminds me of Professor Wangari Maathai, unappreciated in Kenya, radical and innovative in some ways, eccentric in others. But showered with accolades internationally.

Monday, September 17, 2007

Share basics

Once you've decided to invest in shares and have set yourself some goals, the next task is to select some shares to buy.
These are some of the basics I apply.
  1. Knowledge: How does the company generate revenue? i.e. what does it do, where does it do it and how does it do it? What are its strengths and weaknesses compared to rivals and given what it does?
  2. Financials: For a non-banking/insurance company, I'll look at what is the percentage increase in turnover/sales; costs/expenses;  financing costs; PBT; PAT; EPS (PAT divided number of shares); current liabilities/current assets. How has net cash flow moved over time and why? Compare these to its rivals if there are any at the NSE. For the banking sector, see this post and another to follow. For insurance sector, look at growth in premium income and investment income.
  3. Forward looking: Review the company-specific research and news stories from here, here, here and kathalika for future developments and strategy going forward. Also build up understanding of its market by looking at opportunities and threats that are represented by changes in rivals' fortunes, legislation, economy, social and political changes.
  4. Share price: Decide on an entry and Exit strategy before you buy the share. Both should be determined by your expectations of future share price performance. For guidance on this, look at past share performance with mystocks being particularly good at this and then extrapolate based on knowledge build in 1-3 above.
  5. Quantity: If buying for long-term (thus have gone through 1-4 above), avoid hedging your bets by buy a few here, there and everywhere. We've all heard the story of the hyena that couldn't decide which path to take to the meat and ended up with two shorter hind-legs. Buy a few quality shares whose perfomance you can track over time and buy in huge quantities rather than buying some now and adding some later on.

NSE-Slow climb; KenGen bad & Mumias good

Despite forthcoming elections and uncertainties thereof and the rumbling train of Safaricom, investors continue to pour into shares. Most of this is driven by the on-going results season and should peter beyond that.

KenGen, announced
disappointing numbers. Whether the impact of the tax is one-off or is on-going (they have a deferred tax charge of Ksh5.6bn which will have to be released back into the P&L over time. Given their heavy investment programme, I think its bit irresponsible of them to increase their dividend payout. I guess GoK needs the doh. The fall in its share price will probably reflect this
City Trust announced excellent
full year followed by a sweetener dividend Ksh3.75) and predictably a 1 for 4 bonus issue. For my money, this stock has had more insider-dealing than any other this year.
Good news for holders of the Mumias (dudes when you going to have a website?). The COMESA waiver has been extended another 4 years!
EA Portland also released FY and saw
flat PAT and PBT with sales not really improving from prior year. I guess shareholders at least have the likely merger to look forward to.
Safaricon still has that whiff of controversy everyway you look. Now Vodafone are threatening to delay the IPO unless GoK signs some
agreement. My view is it shouldn't happen until we know who is Mobilete aand there is some agreement as to how Mobiltelea will compensate Kenya for its shareholding-corruption was involved so that is that for me. If the IPO does go ahead, lets have all 25% being NSE-listed. The argument about foreign exposure is neither here not there.

Friday, September 14, 2007

That was that for Friday

As predicted, the FTSE was a sight for sore-eyes today. Northern Rock closed down 32% for the day and 82% down for the year. All banks and property-affiliated stocks took a hit. And you even had financially savvy bankers queuing outside their branches at 9 am this morning waiting for it to open so they could withdraw their funds. The search is now on for :
  1. Somebody to buy Northern Wreck (as its being called)
  2. Scapegoats who range from the FSA, rating agencies, Bank of England, investment banks i.e. anybody but Northern Crock management
  3. Somebody with a good torch to follow all these derivative financial transactions around the banking industry so that everybody knows how much they need to adjust their accounts by.
In other news, because of the recent market downturn, Barclays is now unlikely to be able to afford ABN Amro. Its offer was in its own shares...

Tuesday is the next key date-Lehman Brothers, a top 5 investment bank and one of the prominent players in the CDS and MBS (mortgage-based securities) markets announces its Q3 results...

Thursday, September 13, 2007

Corruption: Another dark day

After last weeek's "do nothing" reaction to the Kroll Report, Wednesday's decision by Parliament to unilaterally give clemence to corruption committed before 2003, should not have come as a surprise but it did.

The funny thing, Kenyans being Kenyans, we'll probably return most of these people to parliament for another 5 years...

Credit Crunch: 1st big scalp

As with Countrywide in the US, Northern Rock, UK's 5th largest mortgage lender has gone cap in hand to the Bank of England for some cash to see it through the next few months.

Because its majorly a lender than a deposit-taker, they've always relied on a very liquid and cheap overnight market. However, apart from being an aggressive lender, the mortgage business is now out of favor, and the bank found itself having to pay a higher premium each time.

As I suggested earlier, things are also thick for a parent bank of one Kenya's largest banks, but at least Bank of England would be prepared to bail them out to prevent a systemic financial crisis.

Expect big falls on the UK banking sector tomorrow.

Credit Default Swaps

CDS as they are more popularly known is basically a form of insurance that cushions your losses should your borrowers default. Default can be
they stop repayments, they go bankrupt or even companies restructuring
e.g. Uchumi getting a strategic investor.
In return for the protection, the CDS buyer will pay a periodical premium for an agreed period or until the credit event occurs.
Its a useful financial instrument because it in effect creates collateral on a loan that you may learnt. The main buyers tend to be regular lenders
such as banks who may want to reduce required regulatory capital against a borrower
and thus be able to lend more. For the CDS seller typically another bank, but also (lately hedge funds, insurance companies, any sucker coming late to the party) will receive the premiums and in most cases will not have to payout.
The above is a plain vanilla CDS aka single-name CDS, so-called because the reference borrower will be one known company or even govt bond. Today there also multi-name or default baskets which are basically a CDS composed of different corporate bonds (ranging from 5 to 125+ in a CDS index) on which you as protection buyer would take a bet on whether there will be a default within the group or not. A special variation of this type of CDS is the nth to default CDS. Here as a seller of the CDS, you get an opportunity to choose after which number of defaults you'll have to payout. The difference with the multi-name is that your payout for the nth to default is unlimited to the actual name that defaults.

The product should have an appeal to the fast-lending Kenyan banks and especially those who lend to corporates, the only downside being the usual trust issues.

Wednesday, September 12, 2007

TransCentury finally join the 21st century

I like their website too. Minimalist to the nth degree. Its also refreshing to see that all the staff are fairly young. The interesting thing would be to see how leveraged they really are if as alleged they make most of their acquisitions using their shareholding as collateral.

Reading accounts getting easier

Doing accounts for UK companies with a US listing must have been a nightmare over the last few years. In addition to reporting under the new IFRS reporting standards and on US GAAP (generally accepted accounting principles), some also had to do UK GAAP if the CFOs were the pedantic type. So 3 three accounts for one company.

Sense seems to have prevailed and the SEC will now allow UK companies and others to file their US accounts under IFRS. This is primarily driven by the fact that London is now more attractive for IPO listings than ever.
Its also good because, this will really help speed the acceptance of IFRS worldwide which should in turn mean that we as investors can now be able to compare companies across countries seamlessly.

I believe some Kenyan companies are already reporting to IFRS.  Jimnah was recently complaining about the lack of foreign buyers at the NSE.

Having all listed firms do IFRS is one way of attracting these buyers. Over to you Jimnah/CMA/KRA...

Saturday, September 08, 2007

Week 36 @ the NSE

NSE went up 200pts in the week driven apparently by peeps who got their refunds and decided to splash out on the rest of the counters including KRe-that was clever move to announce the results just after listing. Some of the counters are now showing signs of the exuberance that was there about this time last yr. Exuberance can be another word for manipulation or good tidings being expected. The following have puzzled and made sense:

NIC-had already gone up by almost 70% from the price on July 25th confirmed plans to do rights followed by a bonus. What I don't understand is why if they are going to be selling the rights shares@Ksh70, peeps are running around trying to get some at Ksh180. Why not just wait post-bonus. Not complaining though...
DTK-in contrast, guys haven't really chased its shares despite it being a better prospect in my humble opinion
EABL-This tends to be a fairly dull share, capital gain-wise but this week has moved up after announcing a bonus issue and a tasty dividend. With the amount shares it trades, watch it go back to its customary 2 pts up 2 pts down post this little excitement
AK-one can appreciate the excitement about its recently acquisitions (Today Online and Open View), one should however also prepare to exit as soon as Telkom announces its strategic partner and or the cabling projects start giving firm dates of arrival on our shores.
KPLC-no comment, except look at preference shares (debt), transmission losses, GoK vote-buying tactics et al. If GoK wants the share to be more tradeable for wananchi, let it offload its equity so two birds in one go because it will remove the political risk attached to KPLC's share performance.

Friday, September 07, 2007

Does your degree matter?

I have no problem with peeps not believing in education-ignorance is bliss and all that...
However if you are going to get a degree and your end goal is to be a success (judged as financially, community building, intellectually, influence, fame et al) then think through your choices as would you as an investor. 
  1. What is the best price for maximum profit becomes what degree can I do to get me to  where I want at least expense to my pocket and brains? 
  2. What is the upside translates into how far can i get on just the one or two qualifications?
  3. Can i get income and capital gain becomes how portable is my degree?
  4. Diversification is now those who do accounting, but also study law in the spare time...
  5. et al...
  6. The above survey-done just on salaries by degree in the UK compared to an A-level certificate throws up some interesting stuff.
  7. PwC's survey says that graduates earn on average circa Ksh20m more than those with high school grades alone.

After a huge and somewhat liquid lunch, here is the bill

These last few years have been excellent for banks in UK/US. Commercial banks were lending record amounts on mortgages, credit card and overdrafts as well as underwriting huge LBOs and commercial paper. Some got so much money they set up private equity arms, special purpose vehicles (SPVs used for buying mortgage books, loans and offering credit default protection) and the like so they could lend to themselves at an arms length. Others got fat of their corporate banking arms who now were on top of bond issuance leagues and so forth. Investment  banks, hedge funds, private equity firms, all raked in record revenues.
The last month has been a nightmare as the waiters brought the bills. More so the last week. Barclays for example fired their head of the section that set up SPVS, have had two "technical accidents" that have led to them cap in hand to the Bank of England to borrow overnight funds at 100bps higher than LIBOR; had to bail out one of the SPVs they sponsor at a cost of £1.6bn and will have to bail another one next week. Lehman closed its subprime mortgage arm in US, laying off 1,200 jobs and another 800 in Europe, Goldman Sachs had to bail out a SPV.
Now the latest rumour today is that a parent of one of the largest Kenyan banks is facing liquidity crunch and may (stretching it a bit I think)  even go under.

Lesson of the week: Look at the prices before you become a glutton!

Wednesday, September 05, 2007

Parastatal Special: New KCC

In many parts of Kenya, KCC and KMC are the two avenues (the only two in some areas) that the local population can earn any regular and guaranteed coins. The on-going efforts to resuscitate the two is thus strategic and a boon to local economies .
KCC was established in 1925 to provide a market for Lord Delamere and the like of their produce. Over time, KCC grew to become a monopoly whose reach extended beyond providing milk to the urban population to social engineering in form of UHT milk to entice kids from arid areas to go to school.
In semi arid and arid areas especially, KCC's role in general development cannot be underplayed. In Endarasha, Kieni (tends to be dry due to being on the leeward side of Mt Kenya) for example, apart from providing them with regular monthly income, dairy farmers grouped themselves into a cooperative which among other things came up with a water project that brought piped water from the Aberdare Ranges to each household, a tractor for smoothening the local murram roads and so forth.
Either by design or sheer incompetence, the former regime managed to rundown KCC and then lo and behold privatised it with most of the shares going to Moi (via lawyer Kenneth Kiplagat). Other companies (prominently Uhuru Kenyatta's Brookside Dairy) stepped in to fill the void.
Since 2003, the now renamed New KCC has arisen and is now picking  up in market share on both supplyside and sellside. With an experienced business head of Matu Wamae and the youthful energy and marketing experience of 37 year-old Francis Mwangi ,New KCC has moved to recapture lost market share, re-consolidate milk supply and is now moving regionally and even to Middle East with recent orders from Yemen.
Its rejuvenation has been a boon for local economies such as Endarasha,where farmers had moved onto the more volatile horticulture farmers.With good prices and guaranteed payments farmers, are now in the midst of an electrification programme. They also recently announced plans to join 5other cooperatives and start a processing plant for the whole of Kieni.

New KCC intends to list in 2009.

Monday, September 03, 2007


Finally test-drove mama mikes. It didn't work for some reason. One can see the attraction especially if you are sending low amounts and wanting the recipient to spend on something in particular. And the transfer cost is is stepped up. Its a great business model and will continue to tramp even those like sambazanow that are trying to compete on just one of the products.
When MPESA was announced, I expected it to have some adverse impact on the low-income banks like Equity. Wapi. Equity has since introduced m-banking and since then according to a report in the current issue of the Financial Post, they've have seen an amazing 40% drop in queues at their banking halls. Two things, I don't how they accurately they measure these unless they account every client they've dealt with. Two, call the change even 10%, this still shows what can be done with technology at hand. More generally, I expect mpesa which has now been extended to the Kenyans in the UK to develop along the lines of mamamikes and start offering itself as a commercial channel for the supermarkets, banks et al.