Wednesday, December 31, 2008
It was the year bankers proved they were human and there was no better blogger at explaining how human than Robert Preston. This is a compelling read of the week the whole UK banking system was a hanging off a cliff.
Thank you to Koffi Annan (I am sure at the end he must have beeen thinking how do Kenyans cope with these guys?) and Kikwete for the peaceful solution.
And to ”our cousin” Obama for another positive.
There were also positives for Kenya in the sporting arena with Harambee and our runners at the Olympics.
From a personal pt of view, the 2nd half of 2008 was fairly challenging. I lost some close relas and a friend. My employer went bankrupt. I know many others went thru far far more challenging circumstances so as I look back on the full yr, I thank God for being in my corner kabisa and bringing us thru…
As a blogger, I am sure there are ways that I could improve the blog and I really welcome any suggestions/topics from readers...
2009 is shaping up excitingly for me
I want to wish you all a happy, prosperous & adventurous 2009.
Sold: In the money (NMG, TPS, ARM, NIC) & Out of the money (BBK, EA Cables)
Switched to: Equity, Cash
Hold: Equity, AK, miniscule KCB (2,500 shares) & Safcom & Cash
Bought: Dar es salaam Community Bank
Bought: Pamodzi Hotel
Theme has been to move from diversification of risk to concentration of gains. Has it worked? Yes and would have been even more fruitful if I had kept to one of my golden rules of never adding more shares unless the price of the said stock is lower than my average cost so far. I got punished for buying AK at Ksh33.50 thus driving my average for it to early 20s and Equity at Ksh301 and Ksh250 thus driving average to mid 120s.
Overall for the year: average i.e. below 30% gain. Had to rush out of BRIC nations just to stay in the money and NSE has been so-so but thankfully my offloads were all in July/Aug time.
Other investment decisions:
Good ones: Missed out on SIB’s private placement. Having opened a trading account and just about to send the funds to buy some shares at Ksh120, I once more request ed a copy of its accounts. Still not received even today. In the meantime, I now hear that the initial placement failed and subsequently the shares were retailing at ksh30!
Tough ones: After sweating to set up the investment club, I decided to move on because of strategic differences. So why I my still blogging as KCIG? Investment club changed its name.
Bad ones: Hesitated when was Equity was Ksh116…
Investing resource: Thanks Aly Khan for the live prices streaming. Some of my last minute price adjustments relied on the live feed.
Key learnings: Self-discipline, early bird mentality and thereafter liquidity and investors confidence are the key ingredients that turn good company/market fundamentals into investor bounty.
Tuesday, December 30, 2008
The transaction equates to 15m of Equity shares or 3.88% of its total shareholding which I believe falls under the 5% threshold upon which Equity is obliged to lay bear the details.
It'd however be of interest to the shareholders and I am sure the NSE at large, if the details of the transaction were to be made public. For the FTSE, I think the threshold is something like 1% before this information is revealed.
Several other shares also saw foreigners exit for what I believe are year-end book closure purposes.
Saturday, December 27, 2008
In other news, NIC is going into TZ. It has put in a bid to acquire 51% of Savings & Finance, a medium sized bank in TZ. A word about TZ banks. Most tend to belong either to community groups or certain locales. They therefore rarely have the extensive branch network that one will see with Kenyan banks (only three have more than 10 branches). S&F only has 3 branches but these are in the main towns. NIC becomes the 3rd Kenyan bank to step into TZ after DTB and KCB.
The battle for the Mutomo coal deposits continues. Why do investments such as these which will provide much-needed employment take so long to get off the ground?
And finally: Xmas away from Kenya tends to be a fairly downbeat affair especially when as I did I spoke to relas back home who were just finishing some mutura. So its just as well that Mr & Mrs Muiru have made sure Kenyans can at least get some of their favourite foodstuffs locally via their Wahu Foods shop. Wishing them much success...
Monday, December 22, 2008
I blog about Africa or more accurately Kenya, because despite living in the UK for 10+ yrs, I am the quintessential homebody. You can take me out of Kenya but you can't take Kenya out of me. So today I blog about Kenya and Africa because its one of the best cures for homesickness that I know.
I blog about Kenya and Africa because I want to strongly counter the negative vision of Africa that the West and its media likes feeding us. Some of it maybe true, but there is much more positive stuff that they could also report on, but don't have the gumption to.
- What about the Kenya/Africa that has produced Mpesa the first of its kind in the world?
- Or even Equity, a bank that has literally turned Kenyan banking upside down so that banks are now genuinely interested in the low working class?
- How about the upcoming fibre optic cable and consequent explosion in internet penetration?
- The rejuvented economies of Ug, Angola, Mozambique
- The peaceful, democractic and prosperous Botswana
- Or the fact that for every Kenya/Zim election fiasco, there is a Ghana/Zambia election pass?
I blog about Africa because it’s the future, most other places have already peaked and we are just building up...
I also blog as a way of networking with fellow Kenyans/Africans and specifically those interested in investing and growing our economies.
And now I pass the button to:
friend and fellow blogger, Ssembonge;
missing in action Pesa-tu/Realist;
And new comers Hatua and Huduma Bora
Saturday, December 20, 2008
Centum on Monday-you'd have made 15%
Rea Vipingo would have lost you 12%
Does this mean NSE recovery is underway? Well, maybe-ish (I know, i couldn't get more ambiguous than this). I have noticed a recent trend in IPOs that just before they are listed to trade, the NSE always goes up. Some of this upward trend might be circular trading which is meant to generate cash to allow investors to buy into the newly listed share. Fundamentals are also looking a bit more stable but only if we assume that recent gova moves of reducing banks cash reserve ratio and to contain inflation by lowering the cost of feeding on ugali and also lowering electricity costs will work meaning that investors can be a little bit more positive about 2009 earnings. Volumes remain patchy illustrating the fragile confidence of majority of investors.
Sasini posted very "good" numbers. Until you took a closer look and notice the biological assets pick-me-up. One of the reasons that many financials were/are against IAS39 is because by forcing them to mark to market various assets, your P&L goes up and down like yo-yo especially in the transition year from boom to bust as 2008 has done for Sasini. IAS41 which governs agriculture companies has a similar effect. The best solution would be to do the mark to market but put the appreciation in their revaluation account which has the same impact on capital anyway. Something in your financials has to reflect what you did for a given period and an asset revaluation doesn't.
Isn't it time KenGen stopped its annual whining about its ksh75m AGM costs and just emailed investors the annual reports?
Still don't understand why the Mpesa audit and court is happening now?Co-op: Lands on Monday. Recalling Everready pre-Xmas IPO two years ago, I don't expect violent movements either way though sellers may try to force the issue. The interesting play will be when class B shareholders can immobilise their shares and start profit-taking in earnest...
Joint venture opportunity: I am looking for somebody with knowledge or working experience of doing credit ratings or credit scoring to work with on a joint venture. And you are currently based in East Africa.
Tuesday, December 16, 2008
In June, everybody recognised that the credit crunch was real and here to stay. Suddenly some of the fundamentals that underpinned the initial rise in the price didn't look so strong. These were BRIC's growing middleclass and possible Middle East escalations. Then the speculators starting having to find funds to support capital requirements for losses elsewhere and of a sudden we had a drop off the cliff.
However, what does the future hold for oil prices? The price direction will in my opinion depend on the following:
i) Substitutes (ii)Reserves (iii) New oil fields (iv) Drilling technology
(v) Political dynamics in the ever exciting ME (vi) expectations of BRIC recovery
(vii) OPEC production decision
Bottomline: The current price is below the equilibrium if you look at the average price in the last couple of years (I believe the prices prior to April 2007 accurately reflected fundamentals). As such, I'd expect prices to go back upto to $60+ by Q1 of 2009.
Monday, December 15, 2008
Appropriately for his name, he has really Mad (e)off with his clients money. The list of his victims reads like the who is who in banking:
- Santander-one of the few strong European banks, has been buying up falling UK banks on the cheap
- BNP Paribas
- HSBC-May yet have to do rights issue if this carries on
- RBS- now knowns as UK National Bank
- Unicredit-Italian bank
- Nomura-now known variously as Lemura or Nohman after buying half of Lehman Brothers
- Man-One of the largest futures brokers and investment managers in the world
- Reichmuth & Co-Among other Swiss private banks that gave Madoff $4bn+
- Any self-respecting new yorker who was filthy rich and wanted hedge fund blagging rights
Its been the kinda of year that would make any self-respecting banker keep schtum about how he earns a living. The key learning for any stock market investor in anything apart from govt paper. Avoid anything you don't understand. If it looks like gold, glitters like gold-its still not gold...
Centum does (in my humble opinion), need to reduce its NSE holding and diversify to the rest of the East Africa region.
Wishing him all the best in his new role.
Saturday, December 13, 2008
- This is wrong. Next we'll get arrested for wearing t-shirts saying we can't stand Kibaki and internet sites will be banned.
- Media bill: GoK has tried to bring in this for a few years and its finally had it passed in bunge by 27 mps this week. Std raids and the like will now become common under guise of national security (which incidentally is the words Michuki used in 2006). Hidden under there is a piece allowing Posta to open your letters.
- No tax paying MPs: Ksh 600m generated from this tax revenue could now have been used to fund the so called "ugali" subsidy. Yes they've not been paying taxes for eons, but given the credit crunch, they can for once be like common wananchi. And please, don't tell us about how they've invested to get to Parliament. Parliament should be about serving the people who elected you not getting a return on your outlay.
- 42 cabinent ministers: And we are surprised we have a budget deficit?
- "Ugali" subsidy: Who will willingly pay ksh72 when they could pay Ksh52 for the same packet of ugali? I haven't seen a worse "bandage" fix.
- Mau: Very sad that this has even become a point of contention.
- Brokers in trouble: This is not breaking news but lower volumes are now manifesting themselves in brokers laying off staff and being massively in the red. Licence renewals are due shortly so lets wait and see how many Stella Kalonzo witholds.
- Everready not ready: Profits down by 118% due to lower sales. Cash flow looks better though still positive and it'll be helped by lower Zinc prices. Why doesn't just sign an agreement to do distribution of Chinese batteries? Centum still has a stake...
- Kenya Pipeline is finally contemplating listing. Good news... Though the 2008 numbers aren't making good reading, the dividend is something else.
Macro thoughts: I was puzzled by CBK's move last week given its rosy pictures and also current inflation levels. Jimnah's widely publicised article now makes the CBK action add up. The economy as I've intimated is in trouble. Some of his ideas make sense (expansion of public works), others are just self-serving and hypocritical (he was lead broker/advisor et al on Safcom IPO) and others don't make sense (controls on offshore investing). Bottomline, gova is broke so opening t-bills to a wider audience makes sense. Inflation remains a concern because there is no real evidence that agricultural supplies are improving and oil prices do remain sticky. I expect the economy in 2009 to grow at a similar to this year.
Friday, December 12, 2008
Thursday, December 11, 2008
As of now, I am only aware of one strong credit bureau (CRB Africa) which seems to already have been accepted by banks and has had a foothold in Kenya and several other African countries. Ug recently kicked off the process but given its banking industry is some years behind Kenya's, it remains to be seen how useful it'll be.
The other important service which will hopefully grow out of this regulation is credit rating of potentially-listing companies, saccos, local councils and important but not listing companies e.g. Uchumi, RVR, Kenya Pipeline etc.
Wednesday, December 10, 2008
- Banks:who offer next to nothing for fixed deposit accounts.
- NSE: With a guaranteed 7% per year, some investors might run away from the choppy waters of the NSE
- Real estate: Possibly especially when one takes into account initial outlay
However, its not an investment option for those wanting to grow their funds aggressively but only for safety purposes.
You'll need to open a CDSC account with CBK , you can buy t-bills once a week (I think its every Thursday) and you get interest paid every 3 months.
Want to know more? Go here...
- Paying farmers market prices or improved prices: The two are not necessarily the same but, we can't expect that farmers will farm at a loss for even 2 or 3 years in a row without abandoning the whole thing altogether and joining their brethren in the slums. In particular, young generation who are naturally drawn to lights will have fewer reasons to choose agriculture over urban setting if the industry doesn't pay. The milk industry wasn't revived by writing off debt, but by paying famers for their milk on time and decent prices. From getting ksh9 per litre every 3/4 months, they now regularly get late teens or early 20s per litre paid at the end of the month.
- Encourage the growth/stabilisation of co-operatives: 3 words. Economies of scale.
- Commodities exchange: There is nothing special about a tea/coffee exchange/auction market. We should also have one for any other agriculture commodities that we deem important for our economy. Starting with maize...Probably not useful for perishable goods but can be captured as a signal. Would be useful in meat/milk sectors.
- Streamline the industry: the mushrooming middlemen phenomena will lead to a fragmented agriculture sector. Economies of scale is no respecter of industry. If farmers can't or don't want to grow together, they will be brought down separately.
- Growth of traditional foods: knowhow of how and when to grow is still there. However, there are reasons they've been abandoned. As an example, growing up, sweet potatoes and arrows roots were in abundance. No so today because arrowroots for example perform best in near swampy conditions which have dried up. Cash has also played a role. So why not create an active market for these crops. I've never seen Uchumi, Nakummat stock traditional foods (millet, sorghum, ndengu (until recently), arrow roots, cassava). This despite the fact that so many like these foods as shown by their love of traditional (tribe) nights at Pan Afric and elsewhere.
- Promote Kenyan crops: cookery programmes that show peeps how to cook certain crops will encourage their consumption
- R&D: Kenya has 20% of land that is arable i.e. farmable without significant intervention in form of irrigation and the like. To feed Kenyans, we must produce more per acre at a rate that keeps up with our population growth. We are not doing that. We are doing the opposite in fact. KARI was setup in recognition of the role of agriculture in our nation. Who evaluates KARI? What it its success rate in developing and disseminating the following to farmers:
-drought resistant crops and animals
-higher yielding crops that require less fertiliser
-fast growing trees that don't require the water uptake of such trees as blue gum, but give the country the same resource i.e. rain capture, usage potential
-all year round crops that feed the nation. Maize can't be grown unless in the rain season or harvested unless its hot. Any way of reversing this?
-popularising traditional crops
You'd be surprised that a lot of the above are in its targets, but I didn't see the corresponding side i.e. what has been delivered?
Monday, December 08, 2008
For experimental purposes, once the service comes to London (I've no idea why they chose some elementary place like Reading), I'll send some chumus to somebody huko mashinani to see how well it works.
I believe, the direct route was opposed by banks who know they can't compete. Most charge no less than £18 per transaction (Western Union even more e.g. £21 for £200!) forcing many of us to find ingenious ways of getting remittances home. My favourite is opening an account I don't need for a rela home and giving them the card. Exchange rate is lousy but otherwise its free!
Presumably Safcom will get a cut of the fees, with majority being shared between WU and Vodafone.
- Financial lifeline: Where possible look to save/invest 6 months worth of salary when employed. This should be over and above regular savings and investments. This applies to anybody that is dependant on employment for 95% of their income so not just families. Having such financial back up will cushion the shock of suddenly losing your job or even having your breadwinner pass away.
- Practice financial transparency: Many of us know of families where the passing away of the breadwinner has lead to financial hardship because the said breadwinner kept financial dealings secret from his/her spouse. What about cases where one of the spouses is suddenly discovered to have amassed debts running into millions or thousand of pounds? It also lightens the decision-making when situations are critical i.e. job loss or death if whole financial situation is known.
- Insure big ticket items: Big ticket items is an Americanism that means items that take up a high proportion of your monthly/annual income. For us Kenyans, medical expenses can turn out to be a huge expense. Insure your family and your parents if you can afford. In the UK/US, building stuff can turn out to be expensive e.g. heating systems, building repairs. One should also vet insurers wisely to avoid lengthy claim period.
- Make a will: It may never happen, but we all know of cases where somebody has passed away very unexpectedly and leaves a financial mess because coupled with financial (or other) secrets, he/she didn't assign beneficiaries to her/his financial estate. It does not have to be detailed, just name the beneficiaries.
- Long-term financial plan: Having some goals for the next 10/20/30 years e.g. type of house, education, leisure activities, work/life balance will help you as family figure out how much and when to invest/save. It reduces the impact of the unexpected on your financial life.
- Loans: For consumption are to be avoided. I'd go as far saying that loans for anything apart from your home are to be avoided. Unless the margin is guaranteed.
- Save aggressively in good times: Bears repeating, but if you are aiming for (1), you will have to.
- Financial knowledge: You don't have to know eps, p/e, but it would help if you knew the implications of a cut in interest/mortgage rates on your financial situation.
- Record your expenses: And Income: If you've ever gone to a decent/good bank for any form of credit, it'll ask you to provide income and expense summary. The reason is simple. Knowledge is power.
- Live within your means: Goes without saying it, but if you are used to dressing in Burberry, Calvin Klein funded by your 15 credit cards when times are good, things will be very thick for you when the economy heads downhill. Saving well means you are living within your means by default.
- Additional sources of income: if you are employed, look for consultancy work or start your own business. If you are in business, diversify.
Saturday, December 06, 2008
DPL Festive (yes, same question I asked) plans to do a small ksh500m IPO in Q1 of 2009. The bakery firm is planning to use the proceeds to expand and apparently posted 40% rise in profit before tax for its last financial year. One of WB's rules is that you should at least have sampled or know the products of the share you are about to buy... And read the prospectus when it comes out.
Mumias did its usual song and dance excuses after profits fell again. I am sure its an excellent share with great potential, but I'll change my mind about it when I at least see lower costs.
9 month CFC Stanbic results are now available and shows PBT at Ksh746m. Apparently, it was very difficult to get the separate 9 months numbers for CFC and Stanbic and add them together to give us the comparative year on year piece.
Olympia saw PBT fall as it moves to re-position itself. Yet again.
Macro view: Several developments this. Inflation is now upto 29.4%. Despite this, CBK lowered banks' reserve ratio (to effectively give banks room to lend more to the wider economy) earlier in week! If you recall, inflation was running at allowed 12% in 2007 and at that time the issue was money supply. The only reason I can think of CBK doing this is it anticipates inflation dropping drastically in 2009...Oil prices are down and so is electricity and food, but will inflation drop that quickly especially now more money will be circulating in the economy?
Friday, December 05, 2008
Its unlikely that banks will pass the whole cut because of concerns about
- the need to attract savers to offset the freeze in the wholesale market
Those who are likely to benefit from the rate cut are
- Businesses with variable rate loans whose cost will be reduced therefore easing the pressure on profitability from lower sales
- Homeowners whose mortgages have interest rates that are variable, discount variable, and those that track BoE rate. Average house prices are just £200k, so somebody may save around £200 per month. Some of this will go into consumption.
- Business mortgage holders. Ditto
- Credit card holders. Uk gova is already mouthing off about many credit card providers who have been increasing APR despite interest rates going the other way. Any cut here will again feed through into consumption
- Weaker £ will help exporters.
Thursday, December 04, 2008
Let us be honest about geothermal electricity. This has been talked about for a decade now. The reason for non-implementation is largely due to the large initial capital outlay that is required. Given competing priorities for bond funding, KenGen may struggle to raise well-priced sufficient funds via this route.
KenGen says it has around 18% spare capacity at any given time. The spare capacity is the gap between its generated units and those bought by KPLC. Lets agree two things:
Wednesday, December 03, 2008
As an investor, you need to be aware of this important buying point. Yes there was a power cut, but this is a Ksh0.8trn business so there is no excuse. It should have a business continuity plan that among other contingencies, takes into account what happens when there is a black-out, terrorist attack, floods etc. It may never happen, but it can happen and if value your business you need to plan for those once-yr/decade events.
The other broader issue, is that it seems that ATS never underwent a robust user testing. Because its a processing system, you'd expect it to have been tested for huge volumes (such as Safaricom which led to a break), low volumes, certain NSE levels, certain price inputs (this would void the almost monthly price "funnies").
Unusually, the hitch didn't result in a hike in the NSE so maybe the previous coding that breaks the ATS at NSE levels below 3,100 has now been fixed.
PS: Like I said here, the NSE is very straight forward business. Its a a bit like our tourism, be supportive of it and peeps see the potential and attractions. Mess it around and all over sudden it becomes a curiosity rather than Kenyans' calling point for their investments and savings.
Food security is simply a state where food is easily and adequately available and there is no fear of hunger or starvation at any time.
Why is having food security policy important?
- If we produce more food, food prices will go down and Kenyans will be able to spend a lower proportion of their income on food. This will in turn mean more disposable income for among other things investing in businesses and stock markets; setting aside savings which banks can tap to loan and grow the economy. As consumers, we'll also move to higher value goods again growing the economy.
- Livelihood. In this post I mentioned that one of the rural push factors was farming poverty i.e. a state where farming can't progress you. As a farmer you therefore move to urban areas to earn a living. Its clear that even with only 35% of Kenyans in urban areas, we can't cope going by the proportion that is residing in slums. If Kenyan farmers can make a living from farming, it'll slow down urban migration giving the economy time to provide adequate housing and utilities for the urban population.
- Economy motor: There are countless examples where agriculture has become an important motor of economic growth.
- Gova expenditure: A large portion of contigency funding is now going towards buying imported maize and other foods. This could be spent on development projects in a scenario where we had food security.
- Balance of payments and foreign exchange. If we have to spend our fx earnings on food imports, that adds further pressure on shilling which has impact on imports as an example. The opposite and more compelling would be where we had grown enough to export. Note that given the state of our neighbours, we can easily be providers of the aid food.
In another post, I'll talk about some of the ideas that could form our food security policy.
Tuesday, December 02, 2008
In the UK, banks lent £459m in Ocotber in mortgage loans, compared to £1.5bn in September and £8bn in October 2007. They are now in danger of strangling the housing market completely. And next? Will come repossessions which will then prolong the recovery of the housing market without which consumer won't spend meaning economy recession lasts longer.
Stock investors are being so cautious that markets are now finding new lows on a weekly rather than monthly basis.
Still you get the occcassional "foolish optimist" who calls every new market low as the bottom. Some even have new theories about markets being 6 months ahead of real recovery.
Market will only reach bottom when the housing market does.
Saturday, November 29, 2008
Centum saw PAT down 17% for its half year to September vs.. prior year, not too bad given NSE was down. If CEO was still the same, it might have been worth buying at around ksh12, but now its worth waiting to see where it goes. Notice the very negative cash position. It bought Longhorn, but also made some disposals. Still, I now understand why the dividend was postponed to January. James Mworia who takes over in two weeks time clearly has his work cut out especially given Mwangi left due to strategic disagreements and we are stuck into sub-4000 levels for 2009 at least.Its a buy for me if below ksh10, though there are probably better prospects in the medium term.
KRA came up tramps to make Total look good ahead of its expected purchase of Caltex .
Chris Mwebesa was appointed CFC FS CEO (I wondered why the share has been tanking-apart from the interesting 9 month results which I haven't seen). Bamburi's CEO has also left . Looks like its that time of the yr.
Macro-view: Water rates go up in the new year, maize (our staple food) prices seems to have broken the gate and are on an upward stampede and oil prices remain sticky. So looks like the only way inflation will go below 20% in the first half of 2009 is if its revised (I sense it already has) and some items are removed from the basket. We are walking into economic problems with our eyes wide open. 4 key words for 2009. Food policy. Policy dynamism.
Food Policy: There is a great opportunity to start on a new blank canvas. Just copy and paste the polciy on milk.
Policy dynamism: We nrks are often accused of westernism, but if gova could just react a bit quicker for example on the budget deficit (rather than stealth rise in interest rates) or inflation (was already high last yr), we won't be in this tight situation.
Friday, November 28, 2008
Before monetarist economists tookover the world in the early 80s, auditors and indeed accountants were generally just that. Peeps who did audit and accounts. The new economic era saw them downgrade these vital functions and effectively become consultants. They sort of figured there was no growth in just doing their core jobs. So what you then got if you employed an auditor to review your accounts and give you the greenlight to publish your accounts was a
- firm sends its trainees to look at the accounts and ask the questions. Most although they have some accounting knowledge would be very irritating. No knowledge of your business, of your accounts, processes etc. So you would get basic questions like why did your income grow from last year? Why do you recognise such revenue? These would be the same questions every year because they would be new pack of trainees!
-you'd then get a senior manager who'd on the basis of the information gathered pass your accounts but propose a series of improvements or audit points that he/she thinks you should make and further that the firm can recommend ways of doing this very cheaply.
-But it'll cost you for the additional time. This is the consultant piece which most (and especially the big 4) make their revenue from.
However, with a recession and one driven by credit drought, auditors and accountants will need to be careful that they don't sign-off accounts only for the said company to collapse the day after as has already happened severally. But qualifying accounts comes with a rider, the firm could lose that auditing contract. Still at least, they will have to start earning their money....
Tuesday, November 25, 2008
Stepping back from boring theory, the big practical drivers today in these exchange rates are tourism, remittances and trade (exports and imports) in that order. In fact for tourism and remittances, US and UK rank 1 and 2 respectively in terms of the fx earned or sent into Kenya. A basic look at the financial news today will tell you that both nations are suffering equally from similar issues. Similarly trade patterns with the two won't have changed so fundamentally in a period of 5 months. So what is driving this divergence?
If the other factors are moving tghe same way, this leaves one player I haven't mentioned. The key driver is in my opinion, the fx market-makers and dealers who trade (sorry speculate on) on fx movements.
Further reading on similarly puzzling fx rate movements between Canada and US.
- Is our business community ready? Are they utilising IT to modernise the way they do their business? Where is the increased Kenyan-based business content? Why haven't the number of listed firms with a commercial website increased since 2006?
- Is govt ready? I keep hearing about computerisation project, but why is it still difficult to locate land maps and the like? Will Kibz be able to work the videolink in his office? How about data protection especially as it pertains to publicly-held records?
- And mwananchi? I know sales of computers, laptops and associated paraphernalia going up massively, but are guys learning e-commerce as a subject? Or html and related languages? Are entrepreneurs queuing up to push aside none ecommerce business models?
Monday, November 24, 2008
- You have to be perfect. Quite the contrary.
- You are weak. No. I don't think anybody would say Obama is weak.
- You are a know-it-all. If you are one, I don't think you'd believe in God.
- You have to be religious. Wrong. Believing in God is first and foremost a personal choice i.e. doesn't involve any rules. Being part of a religion can be one way of sharing that personal believe with others and does involve rules.
- You have to give up on those things you love like getting drunk. Nope, its a personal choice based on your believe.
- Its must to believe in God always. God doesn't need you to believe in him.
My believe is simply my way of thanking him for all the many things (good and bad) that he has seen me through.
So if you don't believe in God, what do you believe in?
Saturday, November 22, 2008
- The weight of the budget deficit is now starting to tell and I expect rates to go up slowly if only because CBK is being cautious with t-bill issuance.
- Higher rates mean higher repayments mean higher loan default rate.
- Inflation is not going to come down below 20% before Q1 and only if concerted eforts are made to tackle it. Means reduced investor wallet.
- Oil companies are showing usual sticky pattern in reducing fuel prices which keeps manufacturers and others expensing higher
And ofcourse western markets haven't hit bottom yet. They'll do this when we get quicker action on assets. 2ndly, GM and other US motor companies are now on the cliff edge. Honda is feeling the effects.
Bottomline: I still expect the NSE to touch October bottoms before we close 2008.
PS: From last week, Safcom announced worse than expected results for H1 with previously unexpected hits from loan (gave an fx gain but it could be an fx loss another day). Total finally got some bucks from KRA which helped double H1 profits while Marshalls' went the other way.
Friday, November 21, 2008
Thursday, November 20, 2008
Clearly two things need to happen in short order insert get out clauses (after two yrs of underperformance as an example) and secondly to have a more robust oversight system that picks up when things are going wrong. This time we've wasted two yrs.
One worry I have about the use local solution providers, it'll be difficult to get them out. They know how to wine and down the powers that be. 2ndly and relatedly, they'll be unable to take the hard-headed decisions that will allow them to make money e.g. rationalising the employee population because they know how to play the game.
One day, we Kenyans will learn to grab these opportunities to make radical changes.
One positive thing though. That was done quickly...
Ssem seems to have been aware of the green pastures Mwangi was moving to.
Wednesday, November 19, 2008
He is probably one of the few politicians in Kenya who understand international PR...
Firstly P/E stands for price earnings ratio and is calculated as
current share price divided by either
the most recent annual earnings per share
forward/estimated earnings per share based on the most recent interim or quarter numbers as per these.
More importantly, a P/E is the premium (fee) you put on a company's earning growth potential. The only other corporate action that should concern you as a shareholder where P/E is concerned would be dilutive moves such as rights issues (which you are unable to participate in) or even the kind of preferred share deals that the likes of Barclays and GS have been doing.
If my average P/E on KCB is 14, it says that I think that all things being equal, I expect KCB's share price to rise to 14 times the price I bought at over my investing horizon. Thinking about that for a minute. It implies that KCB has to in effect double its earnings for 7 years consecutively.
2ndly, P/E also tells you how much goodwill/hype the share has generated from fellow investors in the market. This is an intangible reputational element in the shareprice that can change overnight. And that is why some rank P/E low among their share analysis tools.
I have a couple of ideas about who should replace. One is a very competent NRK who was denied the CMA job for political mathematic reasons.
Its not a difficult job. It’s a plain-vanilla trading book for shares and bonds with not that many deals per day. One can easily monitor positions on a daily basis and be able to give feedback on any funnies the day after. There are not that many brokers, so again doing due diligence on their operations is not back-breaking.
There'd be a lot of very quick wins in terms of changing the bourse workings to bring back investors and especially the all important retail sector.
It'd be an easy job for one to look good in.
You'd have to be very very incompetent to oversee the collapse of 3 brokers in a benign environment.
I am not saying Mwebesa was incompotent but...
Tuesday, November 18, 2008
On the other hand, price will be down all the way.
Poor marketing and IPO process (I had to abandon my application because the easiest I could buy some was to open a nominee account-which as you know work like a dream for brokers), adversely affected the outcome. And all the drama sorrounding Safcom and brokers didn't help.
Malawi Telcom is a contrast...
Since the credit crunch started lenders have pulled back credit lines. This means that among other things, first time-buyers can't find affordable mortgages at current house price. Neither can buy-to-let buyers. These two sectors have fuelled growth in house prices over the last decade. This means that sellers have to cut house prices. They in turn have lower deposits for their next homes, cue more price cuts until we get to negative equity. At negative equity,every mortgage borrower has to find additional capital to get a mortgage. Then? Both first-time buyers and those moving homes have to save more. Which means less spending.
This also has implications for Kenya Estate for Diaspora funds that find their way home into real estate. Real estate in Kenya has since 2002 been funded by 3 sources;
- Diaspora or NRKs (non-resident Kenyans)
- cheaper and accessible loans
- and savings in that order. And possiblly NGOs and foreign real estate funds (funded via savings and real estate equity)...
Monday, November 17, 2008
- Safarcom would have been a better IPO listed as 2.5bn shares at Ksh20 each; it was listed as a flooding 10bn shares each worth a very cheap-looking Ksh5.
- Co-op could have been listed in a similar manner to Equity at say Ksh30 with fewer shares; it now has 3.2bn shares each worth ksh9.50.
- Potential shareholders look for two things price appreciation and dividend. Most can forget about a Safaricom dividend.
- Capital raising measures: One of the reasons that companies list is so that should they need to, they can raise capital via the stock market. Can you imagine Safaricom doing a rights issue or Co-op? Both would most likely flop unless offered at a Ksh1 each.
- Administrative cost: Flooding the market shares means you also have to flood it with investors cue admin costs.
Thursday, November 13, 2008
Unless you compare with stock-led oil industry i.e. crude oil prices and petrol prices. Everytime crude oil prices go up, petrol prices go up almost straight away. But there is always stickiness when crude oil prices go down. The reason is two-fold. Stocks and secondly, pure profiteering.
In the banking sector, the Central Bank interest rate sets the signal for which way interest rates should go. In a perfect market, a 25% fall in Central Bank interest rates would instantly be reflected in borrowing and saving interest rates. If not the full 25%, then at least 15% with the 10% covering administrative costs...
Following the largest interest rate cut by BoE of 150bps (1.5%), most banks are saying that they can't reduce borrowing rates. Last Thursday's 150bps cut and equivalent fall in LIBOR should have led to a minimum cut of 50bps allowing for pure interest margin and administrative bps. Those that have reduced their rates (basically those needing capital from gova), have also stopped offering BoE rate tracker products to new customers. This despite LIBOR falling by a similar margin.
Banks are unwilling on unable to cut their rates by as much (and some not even at all) because
- Many want to reduce assets. By not offering lower priced lending products, they keep customers away. Also risk-averseness is now the name of the game and lower prices are now associated with growth in assets and risk.
- Cost of funding: Despite BoE best attempts, cost of funding remains high in wholesale funding market and inaccessible for some of these banks. HBOS, the largest mortgage lender with around 20% of the UK market is now seen as a basket case to which wholesale lenders will only lend to after its takeover by Lloyds TSB is completed.
- Broken funding models: In the old days before CDS tookover from sensible banking, most Treasury Divisions in a bank had a rolling hedging strategy that involved profiling of the maturity of its various lending products on offer at any given time (say monthly) and finding funding hedges to match that book through the yield curve. These days, doing such a hedging strategy can't be modelled let alone be used as its flout with difficulties because most banks have erroneously sold off loans whose downside somehow still sits with them.
The situation is not unique to the UK. In the US, banks are similarly pulling back from lending leading to a vicious circle in the housing market that is then negatively infecting the whole economy.
That is why I think that despite the mountainous sums given to banks, the end-game solution to this crisis lies in the housing market.
Monday, November 10, 2008
Interesting piece in the context of politics. But also stock markets. How many of us stock market investors can genuinely confess to not knowing what is going in the market like 50% of the time. Because you see if we did know what was going on even 85% of the time, we'd all be billionaires like WB who does. By this I don't mean that we don't know our fundamentals but there is as I intimated in my simple equation the other day, a lot variables in the market and saying you know how all those players will react to situations or what their strategies are is like saying you know what everybody is thinking. Unlikely...
A cut in interest rates of 1.5% should be seeing many homeowners and prospective ones smiling. But no. While most banks have passed the cut onto any holders of their variable-rate mortgages, they have also withdrawn any BoE trackers thus closing off prospective house buyers. The rest are dragging their feet saying they can't make the margins even wihn Libor falling! Gova's work is really cut out.
Tiomin discovered tatinium in 1995 in Kwale, got a contract to mine it in 2002. Almost 7 years later it still can't get started. Ignoring the idiotic ways of the ex-president and Kibz, can't they just tell Tiomin its not going to happen because we really don't need the jobs. Don't forget there is a ready market for the product (hence the Chinese interest).
In the UK, they have News of the World a scandal-filled tabloid, but I reckon even it won't be able to pull a story like this (so humorously told despite the sad situations that we Kenyans get ourselves into to get makaratasi)... Wakenya aibu ndogo ndogo.
Saturday, November 08, 2008
Who between long-term investors and traders profits more over a market (bull, bear, bull) cycle?
Standard is venturing into Radio.
Scangroup completed the sale of a stake to WPP.
Friday, November 07, 2008
After 4 or so yrs break, I am now commuting using the London underground aka the tube and I now realise what I've been missing. Not...
The tube carries 3million+ passengers a day and you feel like most of them are on your journey to and from work. So what joys have I been missing?
- Morning blues: If somebody is going to throw themselves under a train, is it too much ask that they don't do it at 8 in the morning just as rush hour kicks in? Or even better, do what most do when they can't stomach going to work, just call in sick and stay at home...muppet.
- Water-phobia: Some passengers are principally opposed to washing themselves or brushing teeth. Very painful for fellow passengers.
- The plodders: Those that can't work at 50mph shouldn't bother with the tube. Take the bus to work.
- Potato syndrome: Canada a much younger nation than the "Great" Britain, has double decker trains. A good well planned idea for avoiding being packed into trains like potatoes in a sack. Unlikely to happen in London but badly needed otherwise the "oshiya" are the future.
- Free-riders: Its not funny or clever to bump and grind into your fellow passengers so as to avoid paying for a train ticket. The windy-buses is a better option.
- Keep fit regime: You walk up 100+ stairs in one journey. I've lost 5kgs already...
Thursday, November 06, 2008
The NSE like most developing markets has drivers that are "localised" as well as the normal drivers that ones sees in every other market. You can do all your due diligence in terms of evaluating the various shares on offer, but if you don't understand these drivers, you'll be left hanging dry like many have been by the current bear.
The normal drivers are:
- The presence of institutional investors: Specifically NSSF, company pension funds and principal/anchor shareholders who tend to be in the market for the longterm. With the exception of a very few, most principal shareholders are foreign (a key reason for encouraging strong investment clubs). They stablise the market and without their presence the NSE would not attract...
- Fund managers: Who in the main are target performers given this is the onlyway they can mobilise the funds and fees that go with the business.
- Fundamentals: The economy, other LEPEST issues pertaining to the country, the counter's industry, the performance of the counter, the future outlook for the counter, peer review of the counter against industry rivals, counter's swot all fall under this category. The two types of investors above will usually invest on fundamentals. Others will use technical charting.
- Foreign investors: Without proper data from the NSE, its impossible to confirm what proportion these form, but my intuition confirmed by articles such as this as well as the timing of the recent slump is that they play a key directional role especially in the blue chips.
Other drivers that are more common to the NSE and are as important if not more are:
- Brokers: I've said a lot about them, so all that can be added is to understand how the NSE still works, you need to go back to its operations pre-2002 i.e. the New Stanley price setting era. A broker will decide when to execute your buy/sell order (forget about all that jazz about the CDSC queu system-the order has to get into the system first); a broker will decide whether to short-sell or front-run your order. A broker will decide what the allocation in a right issue will be and can also decide when you get your cheque or whether to play with your cash.
- Retail investors: Apart from the other NSE, no other market in Afrika has a higher proportion of investors who are retail. Retail investors mean footfall and therefore broker commission. Furthermore, many operate on rumours and peer reviews or on recommendations from brokers. Others buy in for "divindend".
So to respond to Maishinski, one can do all the analysis, fundamentals and charting, but without being aware of these other drivers, you may need to always go long-term. As an example, I've bought Equity at various prices starting at ksh134 in 2006 and even at ksh300. Even though my average remains low (around ksh126), I was on out of the money last week for reasons unassociated with fundamentals...
So your NSE share capital gains formula maybe summarised as follows:
Cg = F + FI + II + FM + R - B
- Focus: So breakdown the 10% GDP pa target into SMART objectives that everybody can focus on every yr and motivate the people
- Planning: So that resources are directed to the appropriate areas and bringing together different strands of development so for example no increases in energy prices that impact manufacturing industry.
- Compelling leadership: That says this what and why we need to do it, this is how we are going to do it, this who is going to do it.
Can you imagine Kibz, RAO, UK, Ruto, Ababu getting us there?
If not, why not hire PWC or some of other executive search companies to get us a CEO who can do the job for 5 years...
Wednesday, November 05, 2008
Congratulations to the US for showing Kenyans that colour, tribe, race should never be a judge of ability.
For every black person who has had the direct hurt of racism inflected upon them
For every black person who has had to be twice as good as their white colleagues to overcome his colour.
Today is your day
For me and my family, whatever sort of President Obama will be (and I am sure he'll be a success), today he has done enough.
Tuesday, November 04, 2008
A US president is important not to all not just for what he/she can but how they do it. Willing to listen to weaker parties when you don't have to is ultimate show of strength. Obama will listen to what the world has to say...
Finally we can't away from it. 53 years after Rosa Parks refused to be treated as a 2nd class citizen on a bus because of her being black, Barrack Obama is asking white America these two questions today:
- Do you accept me as your equal in America?
- More important, do you accept that I am equally capable of occupying the White House and leading this great country to a more successful future?
Monday, November 03, 2008
It therefore hurts when you witness the politicians attempts to keep us from forging ahead together. Some of the idiotic stuff from adults on this has been embarrassing. Charity Ngilu should know that you have to take responsibility for your actions no matter who you thought you were doing it for. As for that thug Ephraim, you should know that if I take your eye out because you took mine out, we'll both be blind and in the wrong. Hopefully all 10 will end up in the Hague or pariahs like Mugabe. In 2003, I remember saying to my cousin that ignoring the MoU was the stupidiest thing that Kibz ever did on many levels. I have a nasty feeling that ignoring the Wako report will mean payback later in a similar manner. Implementing it is the easier option...
The economic downturn has had its positives. Oil prices are slowly dipping below £1 per litre and hopefully grocery prices will follow downwards.
Interesting debate on pesticides. The EEC is proposing to ban a lot of pesticides which have been seen to cause cancer and infertility (note for you NEMA). The UK gova for some weird reason is supporting farmers who don't want the ban and have now started the familiar scary tactics (food prices will triple story)...
Barclays is willing to pay more to private investors than give in to gova?
Saturday, November 01, 2008
Results announced in the last week:
KCB- up 69% yoy driven by strong F&C and strong jaw effect between costs and income. Flat vs. Q2.
DTK-up but can't locate its results
KQ-down 63% yoy, but a commendable perfomance in respect of growing revenue in the first half despite everything. It must get its customer service and hedging right to recover. Really needs a new CEO.
ARM-up 15% yoy on similar turnover growth. Cash flow a bit stronger after loan.
Equity- up 277% yoy for the 9 months driven by Safcom IPO and Ksh0.2m higher than my forecasted fall from Q2.
HFCK-up 36%, Equity has a 20% stake and is in my view, unlikely to take a bigger chunk of HFCK for the time being.
Elsewhere, EA Cables appointed James Mworia, a young guy from TC as its new CEO (apparently).
Thursday, October 30, 2008
But will this do as hoped and prevent these economies from a deep recession. Not if history is anything to go by. In the late 80s, the Nikkei was at around 40,000 (contrast with today's close of 9,000), real estate prices were stratospheric (average house prices in Tokyo were $2m). With such over-heating and everybody putting pressure on Japan to cool its economy, interest rates (that underpinned much of the bubble like today) were raised. And the wheels came off the economy and the Nikkei. The bear lasted almost 14years. This was despite interest rates being cut to and remaining at zero for years; massive gova spending in all kinds of fancy schemes. The main problem was that low interest rates couldn't be passed onto consumers because the banking system was broken with banks saddled with bad debts, undercapitalised due to the same as well as decimated shareholding portfolios. 2ndly, up until this bear, Japan had been a job for life type of economy. Job insecurity made consumers save more despite zero interest rates!
Today in the West, the economies are in the main driven by consumer spending. Consumer spending has been financed by cheaply available credit (in form of credit cards and overdrafts) and home equity financing. Both have now dried up as banks seek to aggressively reduce their balance sheets. Home equity apart from being a source financing, has been a source of security in the same way job security was in Japan. Therefore this is where Western economies must concentrate their firepower.