Friday, November 30, 2007

Is NSE getting tired of retail investors?

  • A restricted portion of IPOs being reserved for retail investors and subsequent minuscule allocations.
  • Strange allocations for rights issues (NIC had 49% oversubscription thus investors would have expected to get around half of their order, yet anecdotal evidence suggests that most retail investors only got around10% of their order).
There are legit reasons for wanting fewer shareholders;
  1.  Less price volatility-apparently QII are long-term investors
  2. Less admin costs in terms of annual reports, AGMs
Yet, its no coincident that most of the global companies encourage ownership of their shares. The reasons are numerous but here is a few:
  •  Marketing of the brand: if you own Barclays shares, and they are performing, it will be one of the names that resonates when you are looking for banking, employment. Yani its part of your marketing the company
  •  Share liquidity: if a share is not regularly traded, its difficult to see how it will rise
  • Corporate image: being seen to have many stakeholders is good for business especially where it involves mass retail as most do in Kenya
For the brokerage business, high transactions mean more fees so encouraging growth of retail investors is a no-brainer. Yet many have customer services straight out of the civil service.
For GoK, encouraging share ownership is a surefire vote winner. With the proviso,that you know what you are doing in the economy arena.

Bottomline: NSE, encourage Kenyans to the bourse by having preferential treatment of your repeat customers tomorrow and the day after namely the retailer. The NSE and by extension our economy will grow because more of us have a stake in the growth of both. And please define what is a QII (fund managers
pension funds and insurance companies are the ones I have seen so does that mean that Baraka fund  who I know are just an investment group 
(albeit very moneyd one) compete for the same shares as Otieno or Kamau?)

Commodities futures in Kenya

This is a type of product that allows you to leverage your knowledge of agriculture globally or locally to earn some coins by taking a bet on supply-side impact on the price of a given commodity.
EMAC are trying to encourage greater usage of the product and may have something in place soon according to this article...

One problem is that CMA (not for the 1st time), is behind the times. Its next CEO needs to be somebody who either has some solid regulatory experience (CBK) or investment banking experience (preferably outside our motherland), so they can be proactive rather reactive to operational risk ala Francis Thuo or product development e.g. corporate bonds, cds, realtime trading, abs, various types of futures, forwards et al.

Monday, November 26, 2007

Monday shorts

  • The proposal to limit foreign ownership of companies that are NSE-listed to 60% is I think a good one. Most of these pay themselves a high dividend as a way of exporting 
    their profits back to their home nations.
  • Northern cRock's long suffering shareholders will probably get £0.40 for each of their shares under the best rescue deal being offered by Virgin. The share was trading at £12+ in Feb of this year. Mind you, its a 146 years since the last bank run on a UK bank.
  • US probably has a 60% chance of hitting recession next year and UK around 30% thanks to credit crunch.
  • With England (and the rest of the nations that form UK and Ireland) out of next summer's European Championships (its the equivalent of Kenya's General Election being postponed), there have been suggestions as to things the English can be doing in June 2008 ranging from National Moths night 
    to World Championship in Nettles eating (the English have a PHD in eccentricity).
  • What exactly is the point of the Commonwealth apart from reminding us that we once a British colony?

Wednesday, November 21, 2007

Telkom's sale: good business?

51% of Telkom Kenya was sold to France Telecom and Alcazar (owned by Agility) for Ksh26bn.
Before that, its 60% stake in Safaricom was exchanged for Ksh69bn debt (made up of Ksh36.3bn to KRA; Ksh10bn to its pension fund and Ksh5.8bn for a syndicated loan and the rest?). My only reservation on the price would be the stake that FT has been given. This now means that all telecom industry is majority owned by foreigners.

However, one must look beyond the price and ask what TK and France Telecom will out of the deal.
TK gets:
  • An experienced acquirer: FT has owns Orange, UK 2nd largest mobile operator and also has businesses in Poland, Holland and North Africa. Its had its share of faux pas though.
  • Capital: With many projects under way in mobile telephony, landlines, internet et al, TK will need a huge infusion of capital to grow
  • Experienced Telecoms company: With advanced logistics and technical know-how. FT is the number one broadband Internet provider in Europe and 2nd in the mobile sector after Vodafone
France Telkom gets:
  1. A perenial loss-making business with stagnant customer numbers
  2. Access to the high-growth Kenyan mobile sector
  3. Gets in just before fibre-optic cable is about to land on our shores
  4. Crucially, the TK has a unified licence (mobile, fixed and internet businesses)
  5. TK's data bandwith that can usefully be applied in flowing TV and internet content to homes.
Is Safaricom OFSD being undervalued? So far, the 25% OFSD is expected to bring Ksh40bn thus valuing Safcom at around Ksh160bn. With Ksh17bn profits i.e. a proxy P/E of under 10 (average NSE P/E is 20+), I think we should be looking to raise Ksh60bn+ from the stake.

Tuesday, November 20, 2007

More Q3 results

Athi River recorded 85% growth in PAT, aided by with T/O growing at 55%. Note that ARM is now benefiting from increased cement capacity its new plant. Secondly that it also generates  significant chunk of its revenue from building-related materials rather than cement. Its cash flow has improved immensely from prior yr when it was financing its new Clinker and servicing borrowing. Adding to this momentum is the deal in Kitui for coal and limestone. A good growth 
outside of the banking sector.

BBK saw 12% yoy growth for 9 months of 2007 with income growth being matched by expenses.. Hopefully at some point we'll start seeing the impact of its loan hawking activities on its P&L (an worryingly, on its loan loss provisioning). A nice defensive stock if bought under Ksh75.

NIC (one of my four long-term bets in banking sector), saw 44% growth. int Its income breakdown between interest income andF&C remains a puzzle to me. Compared to its half year results, where its income was primarily derived from NII, the 9 month numbers would almost suggest that it made a loss on interest income. I guess there must a lot of latitude on income claissifcation in Kenya. 18% income growth of was strongly supported by flat expenses. With funds in the bank (I expect the rights to have been massively oversubscribed because of the 2:1 bonus issue) and revenue augmenting moves, NIC is a must buy.

DTK, (my other bet for long-term in the banking sector) saw 67% growth with 71% growth in loans and advances generating 57% interest income growth. DTK was in the market again to raise funds (will just about get full subscription because of compe from NIC) as it looks to expand. Another bank that is shedding its traditional image in its hunt for customers and growth.

Nominations last Friday

Courtesy of Daily Nation.

Sunday, November 18, 2007

Unit Trusts in Kenya

The changing workplace

A study of working in London now compared to when I  started 9 yrs ago...
  1. Lunchhour: Used to be a liquid lunch that would be stretched to two hours on a Friday, today you are luck if you get 30 minutes.
  2. Work-life balance: Wasn't required in the old days, now firms are attempting to encourage workers to work less than a 100 hours a week by inviting them to meetings about "work-life balance"-held from 530pm...
  3. Internal communications: Were posted on a noticeboard near the restaurant, nowadays they are even done by videocast
  4. Meetings: In the old days, you got lucky and got sent for a meeting in Cardiff, today you have tele/video-conference with your English-challenged colleagues in Japan, India or even Brazil.
  5. Long-service awards: were given to peeps who had been with the firm for 30 years, today you are given one after 5 years. If you reach ten, you get to meet the CEO.
  6. Feedback from your boss: If you did a piece of work, you would print it and walk it to the boss' office, who'd then write comments all over your carefully prepared spreadsheets,  today he will email you from his blackberry while he is in another meeting.
  7. Internet access: We used to have one standalone PC for accessing internet, now you even set up your own intranet site so you can post documents for all to view
  8. Org structure: The pyramid hierarchical structure has given way to more flat structures. There also also more dotted reporting lines to other divisions outside your own. E.g. if you are a trader in an investment bank, you will have a dotted line to operations and finance and vice versa.
  9. IT systems: Most companies had a trading system linked to a general ledger which then linked into a financial system. Now a IT system architecture map looks like spaghetti on paper
  10. Black co-workers: Having black co-workers was a novelty, the only black people you saw worked in the canteen or were security. Today led by our brodas from Nigeria, every division has one or two. Very few in management though...
  11. Performance management: You were given a list of objectives for the year and if you got lucky, you would sit with somebody at the end of the year who ticked off everything. Today, you have the list of objectives, you also have a list of behaviours. If you are lucky, it will be the same boss you had at the start of the year. If you are a line manager, your list of behaviours will include diversity i.e. how many women, black people etc you've hired in your team; community work i.e. how much voluntary have you done etc.
  12. Boss' office: The boss always had his own office with shutters to keep up out plying eyes. Then came open office plan aka the call centre layout with bosses having to whisper into their phones, today they get their own offices, but the door is kept open and there are no shutters..
  13. Relations: Having relations in the work place was de rigueur. Today its actively frowned on and due to its potential to turn into a sexual discrimination/harassment court case, is a sackable offense if undeclared.
Somethings have remained the same though.
  1. IT helpdesk: The "switch off your PC then switch it" response on again is still a cover all for any problems
  2. The pain in the backside work colleague: Who reaps where they haven't sowed, has jokes that he laughs at but no one else does, always late for meetings etc still exist

Friday, November 16, 2007

Barclays & the Credit Crunch, Political Savvy

Since the credit market started falling apart in May/June time, Barclays has been at the heart of rumours in the financial markets about their losses. Some went as far as to say that its losses were such that it would need Bank Of England's help. Which it did one day as paranoia took hold of HSBC. Its share price has fallen by around 20% since August (with a 10% fall just last week). The reason for the rumours is because BarCap its investment banking arm is mainly a fixed income house and has grown massively in the last few years. So jana, Barclays rushed out an earnings update to confirm a loss of £1.3bn far less than the £10bn that was rumoured. And with a big sigh of relief for its shareholders...

Although many refused to heed warnings about the pyramid schemes and were thus burned, the Sasanet investors seem to be an exemption because the scheme started off as a legitimate business. Fortunately for Mike Chege & his brother, most Kenyans for all the pelepele noise-levels on politics, lack political savvy. In the UK, the investors would have gotten together; roped in a couple of MPs;  done a large million petition and had their pictures taken outside 10 Downing Street (the prime minister's office) presenting him with a petition. The next thing, the Chege's of this world would be in jail for fraud with all their assets attached to claim back investors' money.

Wednesday, November 14, 2007

Kenyan Banking: Even more deals...

The next stage in the evolution of our banking industry is definitely on with bank after bank either recapitalising, chasing new ventures or markets or looking for partners to take them to the next level.
In a major/ surprise/shock/disappointing move, Equity will seek capital help from an outside firm. The move is puzzling because I think the NSE has a lot of liquidity if that was what Equity needed if not just now , next year. My guess is that its partly political insurance and partly a reaction to BBK's
move last week.
NIC has also confirmed the rumoured move for Solid Investment one of the smaller brokers at the NSE. Following its failure to get the Francis Thuo seat, I think this move even more than that of Renaissance will really shake up competition at the NSE at least in the next 6 months or so before demutualisation.

Sasini joined BBK with its own Ksh600m bond. At this rate, Safcon may end up being undersubscribed...not.

Marshalls, City Finance, Interest Rates

Marshalls (of the Ketan Somaia and K Pattni-fame), went up 30% yesterday. I am assuming this was the usual pricing errors that the NSE is prone to, because I know there is a 10% daily limit on price rises.

Two stories in the BDA (best addition in the market by far this year), caught my eyee. The City Finance takeover by Baraka Fund. Hopefully they'll be able to do as good a turnaround as that done by James Mwangi at Equity
and TC at EA Cables. One wishes we had more of these Kenyan funds or TC-type ventures prepared to go risk venturing into non-performing firms that have the potential. Because what usually happens is the firm end having to go to some foreign banks 
or firms for the cash.  The CEO of the Fund had the same position at NSE and was a corporate director at BBK before then. He also part-owns Asbhu Securities which again has enjoyed a turnaround of sorts.

The on-going spat about who is to blame for the lack of corporate bonds in the market is unnecessary, investors go where the returns are. 3 things are also missing. An independent CBK to work on monetary policy (move the 
regulatory arm to KFSA), "headline" recognised and agreed interest rate and stable monetary policy over a period of 5-10 years.  Until and unless interest rates stabilise to within a particular range, it will always be difficult to do fixed paper (preferable for most corporates) and that in turn means investors don't want to go expecting 15% and end up with 8% within a few years. 

Monday, November 12, 2007

NSE roundup

KCB saw 41% y-o-y increase in PAT for quarter 3, largely driven by growth in interest income of 32% and slower growth in expense of 17%. However the time to check Odour's progress as CEO should be Q1 2008's results. I have no doubt he'll perform though.

StanChart, the laggard among the large banks saw flat PAT yoy growth. For your reference, a bank should always be making at least double the economy's growth rate. The pity of it is that this is happening under the watch of its first Kenyan CEO Etemesi.

NBK started seeing the benefits of the bond interest payments from GoK paying off its debt.

Mumias crystallised some of its plans to generate-revenue from power by signing a contract with KPLC. MSC also closed the offer period on its 2 for 1 bonus share issue. For my money, its
 best purchase price given recent share price history would be under Ksh10, that is unless COMESA extension happens first.
TC announced a private placement. The interesting question is why they are doing it so close to an election.
Finally CFC-Stanbic merger is all but a reality as it enters its final stage. StanChart, your days are numbered.

CMA: Some good news at last...

I can't recall ever reading anything positive about Edward Ntalami's stint as CEO of the investment regulator. Hopefully, GoK will think long and hard about the man/woman who will steer us forward for the next 4 years. My suggestion would be to go for somebody from CBK who has a lot of experience or more radically, use this opportunity to launch the touted FSA that will regulate the whole financial industry.

Friday, November 09, 2007

How can we improve the quality of Kenyan education?

A well educated labor force is one of the cornerstone of 10%+ economic growth. It is also a force for socio-economic equaliser and democracy.
  • Social economic equality by giving all the opportunity offered via education to skill up and find jobs they can do. Its also part of trickling down the economic benefits of growth by removing costs that the poor incur.
  • Democracy because a more educated populace will be more aware of their rights.
The envisaged provision of no-fee education from 6-18 years of age in Kenya is a step in the right direction. However, it's a quantitative step and one that needs to urgently be backed up qualitative measures to ensure that Kenya's economy is getting a workforce educated to a level commensurate with its needs. One of the major complaints with the implementation of free primary school is that it has lead to overcrowded classrooms and thus unsustainable teacher:pupil ratios; diminished quality of facilities. I envisage the same issue once secondary schooling becomes cheaper. Thus schooling from primary to university may suffer unless qualitative steps are taken. A couple from me:
  1. Increase funding especially via CDF, LTAF and a special education fund.
  2. Encourage regulated private sector provision of education. They should sponsor 1 pupil/student for every 10 fee-paying ones initially
  3. Raise the cut-off pass marks at KCPE & KCSE. Note that reducing fees means that we'll now be looking at a larger population.
  4. Introduce a core number of subjects and optional subjects at both KCPE & KCSE levels.
  5. Introduce the concept of high achiever academies that will act as feeder schools for the private sector.
  6. Make commercial research institutes the backbone of science-based degrees.
  7. Channel diaspora ideas and funding into education. Not because they know better, but they like the private sector will always have a different take from those on the ground in a +ve way.
Any others?...

Wednesday, November 07, 2007

Financial market developments in Kenya

A couple of interesting initiatives coming out of the woodwork.
  • A single financial regulator would be great because it would enhance consistency in regulation across the financial sectorThe current situation where the banking industry is ahead of the game means systemic
    risk is not adequately covered. It should also be easier to close loopholes such as those seen where by pyramid schemes were registering themselves as saccos. It does however require brainwork in bringing about a cohesive framework of regulation. The original FSA was started by the UK in 1998 and combined 8 sub-regulators. Subsequently countries such as Japan, Sweden, NZ, SA etc have all copied the concept.
  • REITS (real estate investment trusts) will also debut at the NSE. I covered these in previous post. Suffice to say that i think that used in the right-way, they could help finance housing projects across urban Kenya
  • Finally, bank of the decade so far is tentatively feeling its way into Sudan. Surprised it didn't try Ug first. Its model is very suited to Ug where they also have an enterprising culture.

Tuesday, November 06, 2007

Credit Crunch claims Chuck, 2m foreclosures in US

With $11bn write-off of sub-prime mortgages, CitiGroup became the largest victim of of overzealous selling of mortgages in the US. Projected foreclosures or property repossessions in the US are the 2million over the next year or so. This may well lead to a recession unless Fed rates come down considerably which will perversely make the dollar even weaker than it is. This will have the benefit of making US goods cheaper and exports into the US less attractive.

At the NSE, KQ, and tea/coffee exporters will be impacted by this weaker dollar as will our diasporian friends who send remittances back home.

Monday, November 05, 2007

Media Season

The general elections heralds a great revenue harvesting season for newspapers and general media and this one is no different. ScanGroup, NMG and Standard should all benefit from the season. Price is not everything. Many of us when buying stocks will normally look at the price and say, aah, its too expensive. This applies very much to NMG. Despite rarely trading at less than 240 (with exception of brief market-wide blip in March/April) this year, the stock has found buyers impressed not just by its bottom-line, but the future Nation Media Group.  It has outperformed Standard over the last 6 months and ScanGroup over the last two.

 In one year, NMG has moved into UG with TV, brought a business newspaper into the country, launched a cheap newspaper Metro to compete with Nairobi Star, launched daily shorts of its NTV news on you-tube, removed entry requirement apart from its premium content. In any other year, this would have been unprecedented but coming in the same year as the general election, is awesome. In addition to the above, NMG also runs NTV, Easy FM and a publishing house. 90% of its revenue comes from newspaper sale and magazines. It now has presence in TZ and now has a vision for the whole of Africa. Despite some "issues" when new CEO joined, NMG saw 24% rise in its PAT for first half of the year compared to prior year and should comfortably beat its previous 3 years' annual growth in PAT.
Standard Group continues to lag in the shadow of its bigger expansive brother and perhaps some misguided steps. Despite this, the STG saw profits double in 2006. It also awarded patient shareholders 1;8 shares
which seem not to have materialised yet. The group also owns KTN, Baraza and PDS, a publishing arm. STG was upgraded into MIMS in Feb thus making its shares more marketable. STG has also invested in its state-of-the art printing press which should considerably reduce its printing costs. It has revitalised its management.
STG continues to suffer on several fronts however, staff turnover is high and its flagship TV arm recently lost a whole set of its stars to Citizen. Secondly, advertising revenue which it never had a great deal to start with has been reduced by its perceived anti-current regime stance (I wonder why?). However, increased circulation and viewing figures should give it bumper figures.

Lastly, ScanGroup. The group has since its listing gone on a spending spree, restructuring of its staff reward scheme to include loyalty shares aka employee share options and expansion to regional and continental markets depending and widening its product offering. Its shares suffers from nervousness about staff loyalty (very important in the adverting world where clients accounts will be managed by one or two creative-types) and generally too much supply of its stock. Again, this season should see increased advertising revenue and give it a typically bumper second half. Long-term, the group's activities this year should mean increased revenue in coming years though concerns remain on its cashflow.

Friday, November 02, 2007

How much should you invest? Look at your earnings curve.

While many of us concentrate on investing wisely, how many of us ask ourselves "I my investing enough"? And how do you know if you are investing enough?
  1. One way is of course by setting yourself some goals, e.g. somebody wants to make $1m by the time he is 40, another enough to be able to retire at the same age and then working backwards to where you are now.
  2. Another may simply match interest rates or stockmarket indices.
  3. Another way is to match your spending, so every Ksh/$S/£ you spend, you put another in your investment/savings.
  4. You can also set yourself a target that mirrors your earnings e.g. 30% of your income.
One of the ways that you can figure whether you are saving enough is also to look your future income streams based on your age . Align this with research that suggests the earlier you start saving/investing, the more you can expect to reap in the long-term. As this article by Gathunuku suggests, saving higher when you are younger definitely pays.

Kenyan Politics

Despite having an interest in politics, one of the reasons (apart from maintaining the decorum of being part of a group),  that I choose not to pontificate about my position on this candidate or the other can be summarised thus.

The pair of shoes I now wear is durable in various types of the weather but pinches my toes in places and is ugly looking. However, when I consider the alternatives, ones is nice-looking from far, but is very expensive and will definitely pinch worse than this one and the other is expensive and will pinch a little. See the dilemma? The other thing is that very few peeps are unsure about who to vote for and many don't the meaning of the word "objectivity" so how can we have a debate?