Friday, May 30, 2008

Friday Evening Shorts

I am a student of history because one learns a lot by studying history. Reading the series on late and feared Kinyottu and especially his “work” around the Kenyatta death and also reading Scott Mcellan serialised memoirs, you realise that one, there is a lot of criminality that goes on under guise of national security; maintaining stability et al. Then you find that a lot of these guys in power treat those positions like private ventures. And then the sort of information-hoarding that goes on to allow these manoeuvres to be done.

Oil is finally on its way down after the markets cottoned onto the bubble that was being artificially pushed up by oil traders. Long-term, oil prices will go up because current estimates are that in China alone, car ownership will grow from current 600,000 to 2.9m by 2015, lakini the current doubling of prices within a yr has no basis.

Who rates rating agencies? Good question by the
FT ...

ESOPs are all the rage among the listed firms at the NSE. As in the UK/US markets. But different drivers. At the NSE, it’s cleverly trying to buy employee loyalty by tapping into the new found love of shares…

One my prayers maybe answered as Kenyans turn their love of politics to shares. Stockskenya was down this afternoon as guys tried to find out their Safaricom allocation. Mind you, stockskenya and Nation which I think are the two most popular Kenyan websites seem to be suffering lately either from
too much traffic or just slow IP connections I don’t know.

AGMs-Bankelele alongside BDA has been some stirring work for us in the Diaspora on this. One of the more eagerly awaited AGM’s is the Equity one. There will be three issues that investors will hopefully bagger the board on. A cheeky about the intentions of the principal shareholders i.e. will they extend the lockdown? I don’t actually expect this to have much of downward impact apart from that caused by perception. Reason, it’s very difficult to sell 20m shares in one go at the NSE. 2ndly, with Wanjiku’s bank share edging towards KSh300, can we have a 1:3 share-spilt? Thirdly, 6 months down the line, how is it going to revive HFCK? Fire Ireri?

Finally, whatever happened to
financialpost-at least the online version?

Thursday, May 29, 2008

Safaricom: My Post IPO Strategy

Can be summarized in one word. Buy. Nothing else will do given I have a 3 yr strategy on the stock.

In the short-term, the counter's price will be pushed downwards and pulled upwards by broadly similar factors.

Loans: With something like 30% of the Ksh191bn having been financed by loans, guys will be wanting to offload ASAP so they can minimise interest charge. Some will also hold out for gains so that they can break-even against the loan, its interest and associated charges.

Subscription: Because of the oversubscription, I'd say retail investors will get hammered and will be lucky to get over 23%. Of the remaining 70% from above, I'd say 20% will sell because these are miserable number of shares to get. The rest will jump in for more.

Refunds: I expect this to be a protracted process not unlike KenGen. The application volumes and the fact that the brokers don't learn, means guys can expect refunds to still be coming in a yr's time. Thus this may mean they sell to get some cash so they can cope with inflation.

Results: Although the 2007/8 results were slightly below expectations by around a Ksh1bn at PBT level, this was still a good performance that will ensure guys will jump into the stock that on a P/E basis of 14, is undervalued by NSE standards.

My strategy is driven by one simple thing, despite the fact that Safaricom is a 15-20% per yr growth company, it'll do an AccessKenya i.e. whatever happens in the short-term (next 3 months), it will be at around Ksh15 in a yr's time. Any price below Ksh7.50 will see me jumping in. Beyond this price, it'll just depend on how my growth stocks are doing.

How to keep Kenyans interested

Having seen the success of Safaricom IPO, I hope GoK and every investment body realises that;
  1. There is too much idle cash in the economy. Hence the inflation of 11% before the general elections. Interest rates are not the panacea they because that will stifle growth. Lakini ways must be found to tap into that cash.
  2. Kenyans by the millions will invest in profitable opportunities. Again the pyramid phenomena of 2006 & early 2007 and success of even funny IPOs like Everready is testament to this.
  3. So, the alternative strategy is to offload more of its holdings in various parastatals. Two that immediately come to mind are Kenya Pipeline (PBT has increased from Ksh524m in 2002/3 to Ksh2.9bn for 2006/7) and Kenya Ports Authority (made Ksh2.5bn for 2007). Kenyans can relate to both and they know that they are profitable.
  4. There are many projects that only lack funding because they've not been priced correctly or have no exit routes. The ever-present road-building. Why not use tolls and create a company that Kenyans can invest in? There is electricity generation; Nairobi upgrade (you don't sell an idea by calling the "Zero" draft!).

Tuesday, May 27, 2008

UK Life: Today

What differentiates us Kenyans from my current hosts? Basics. Please bear in mind that the UK doesn't have a written constitution. It's never had one. Yet by doing basic things correctly, they've run half the world at one time; still dominate the financial sector world-wide and are generally in the top 10 of every good measure. Basics are things like time (is the clock on your mobile or that expensive watch for decorative purposes?), courtesy (thank you, please) etc.

What info does the govt hold on you? Well, the other day I was applying for something and discovered that the UK govt not only knows who my mobile provider is, how many loans I do or don't have and when my parents got married!

Being a Kenyan who is still a Kenyan abroad presents a lot of problems.One feels the need to constantly be around Kenyans; you run after "Kenyan" events mainly held in dodgy hengs (I can only remember where I could take family friends for "nyamachom-Lincoln's); to visit Kenya often; to keep in touch with folks back home; read about Kenya; invest heavily in Kenya (often into bottomless pits courtesy of your relatives) et al. Some of this costs a lot. So what is a good solution? Marry a Kenyan...

The English are a strange lot in some ways. Unless you drink a lot and often, you may never really get to know either your work colleagues,neighbours and even (dare I say it) church colleagues. So how you to do you build the rapport so you can work/live effectively with them? Pray that you have/get a sense of humour. An English sense of humour...

The "mohican"-an ugly hairstyle the first time round is now back this time being the hairstyle of choice among the young black-men of UK. Class (or lack thereof) it seems has no color barriers.

A guranteed of making your sure your kid underperforms in the UK is to send them to a comprehensive school. The teachers will pick on them; indiscipline will give you nightmares and education is rudimentary.

NSE Update

KenGen continues to disappoint. 2 years after its listing ushered a new era at the NSE, the company looks like its at a standstill. Note that even if you take off the depreciation hit it took for interim 2007/8, you'd end up with flat y-o-y growth. And I don't it has much by way of pipeline projects that will increase power output.

Merali companies, of which there are 3 at the NSE are notoriuos for under-delivering. As Everready heads to Ksh1, Sameer also has issues. Its blaming likely lower profit on events in Jan-Feb. Does that mean 1 quarter makes up its whole year? Sassini also saw lower interim profits despite only a small fall in turnover. I guess there goes Merali's plan to list one company per year...

When the CFC-Stanbic merger was announced yester-yr, there were some including me who were very excited. Over the last yr however, I've been re-examining the group and can see it has issues. The CFC Life business is seriuos drag on the it and the bank is not excitely firing on all cylinders. For Q1, group saw a 10% fall in PAT, due I suspect the fact that CFC Life continues to get hit by over-reliance on the NSE. The bank with a 10% rise, also underpeformed relative to peers.

Is it to take another look at StanChart? Notice FY saw 32% rise in PAT, comfortably above peer BBK and almost on a similar level to KCB. Then Q1 saw another jaunty 25% rise primarily driven by FX fee growth. But is it sustainable? I reckon I might just get some shares so I can find out at close quarters... After all, most other banks have seen furiuos balance sheet growth over the last yr and if the economy comes off the track, NPLs won't be far behind.
DTB is ofcourse a favourite bank share, 28% growth in Q1 is respectable.

Monday, May 26, 2008

Unravelling RVR deal

Not to say I didn't say, I did here. A 25-year deal to some unproven company is unheard of. Whether in Kenya, Singapore et al, you have to copy the best model for delivering good rail transport. In the UK as an example, rail is seeing aturn around because those tendering the business are being evaluated on pre-agreed measures regularly and several have seen non-renewal of their contracts due to non-perfomance.
I think its early enough but long enough to see that RVR has struggled to deliver so far. The deal should be cancelled and offered to several companies hwo can compete to manage the Nairobi to Mombasa route; Nairobi to Kisumu route and Kisumu to Kala routes seperately.

GoK can then think about tendering the same for routes in and out of Nai i.e.serving the sourrounding suburbs and near towns.

CMA's proposed revolution @ the NSE

  1. Capitalisation- Good idea
  2. Regular reporting- Interim and annual accounts should be audited. NSE has Kenyans abroad who invest there, hence quarterly, interim and annual reports should also be published online on the broker’s websites.
  3. Separation of ownership from day to day business operations: Not sure how this is going to work in practice because without day surveillance, its possible for the CEO to act as a messenger for the owners.
  4. Limiting ownership to 25% for each broker/ibank: How will you be able to ensure that proxies don't hold ownership on behalf of original owners?
  5. Fitness and propriety: How come there is no mention of required standards for staff working for the brokers/ibanks? For example, there should be minimum qualifications for dealers etc.
  6. Tied agents: The requirement that an agent can only act for one stockbroker is retrogressive especially if we are moving to a situation where retail investors will be unable to access the brokers directly
  7. Insurance indemnity: Good idea.
  8. OTC for shares: When if ever do you intend to introduce over-the-counter trading in SME shares? Kenyans want to invest in shares and as Safaricom IPO shows, the apetite is there. Why not introduce OTC for companies such as CooP, KPA KPL, New KCC, NSE, TC and others that intend to come to the market at some point?
  9. Commodities: Again why no introduction or clear regulations of this market?
  10. REITS: Kenya needs REITS like a man in a desert. Why know basic guidelines?

Internet Content

As of next year, Kenya will have faster internet conncetion. Yet today, its hard to find new websites that are Kenyan in content. Today a feature a couple more that are:
Brighter Monday is a job sight with a difference-a website dedicated to advertising vacancies back home rather than to abroad. I'm surprised that Nation with all its adverts hasn't ventured this way yet. One of the guys behind BrighterMonday is a KCIG member, but even then I'd still mention it. Most of the revenue generated is used to fund a charity for orphans that the guy has set up.

Zinkdigital are the guys behind the nellydata masthead.

And finally, is the website of the moment for us stock investors having seized the wide gap left by nellydata in provision of free live market data. Btw, is the CMA nervous or what in that interview with Rich?

Monday Shorts: Part deux

Ok. Somebody break it down to me. How do Kenyan singers breakeven selling VCDs at Ksh250? The albums tend to be 95% excellent songs. Many include dancers and multi-locations not to mention the instrument players. So how do they break even? In the, UK you would have to wait 3/4 years or more before you can buy an audio CD for less than Ksh600 and it will mainly be filler.
Inflation at 26%! Kimunya should be in jail for trying to downplay its impact. Really? Well, not quite because inflation was at around 11% pre-elections, but has gone up to supply-side issues. In normal circumstances, the right reaction would be to raise interest rates. Right now though, that is the last thing that our economy needs.

Safaricom IPO has attracted Ksh191bn which is circa a third of our annual budget. This tells you that Kenyans really do keep cash under the mattresses; GoK is missing a trick but not bringing KPA, KPL, New KCC into the market asap and by not thinking about bonds for roads.

Does Standard work overtime on the worst headline everyday? Mara its Raila being isolated mara its guys losing Land. Guys, try some sweet tea before going into the office.

Is "Everybody Hates Chris" the funniest comedy series ever? I think so-watch a snippet.

Monday Shorts

Mugo Kibati's impending departure from EA Cables doesn't sound right. The MIT engineer was airlifted from NY to come and turnaround the then underperforming cable company in 2004. Apart from the profitability growth, he has managed to make EA CAbles a competitor in TZ and further on. The company has just completed a factory that will strategically position it for the incoming fibre optic. So his departure now seems odd and might be due to:

  1. The cashflow rumours being true, and thus he is taking the flak or running off before the proverbial hits the fan

  2. He sees bad times ahead.

I expect price to drop steadily until a statement is issued on the way forward.

Company's only ever spilt businesses into distinct subsidiaries as opposed to strategic business units if they are planning to sell. Is this ARM's (thanks Bankelele) intention? Note that ARM is primarily a manufacturer of chemicals.

Britak's retention of its highly-rated CEO for its investment arm was a shot in the arm for its plan to do an IPO-which I hope is very soon.

Excellently researched piece on NMG (a share that can only grow further).

Wednesday, May 07, 2008

Bumper Q1 Bank results- why not BBK?

Banks like Equity, KCB have defied predictions by professional and amateur pundits about their Q1 2008 results. Equity saw 81% yoy growth driven by Ksh1.1bn income growth, which is crazy given that Q2 will be a phenomena. KCB saw 63% growth with a humongous Ksh2.1bn growth in income . Not so BBK with virtually unchanged PAT from 2007's first quarter. Though income grew by Ksh1.6bn, Ksh0.8bn of this was eaten by additional staff expenses and the rest by operating expenses i.e. more branches? So why oh why did I bother buy so much of this BBK stock last year rather than even NBK? Chasing mirages, that's what...

Safaricom IPO: Foreigners only paid Ksh5.5

Very, very, interesting... What should it tell you as a prospective investor? One of several things
  1. Foreigners weren't as mad for Safaricom as Kenyans-perhaps the Jan-March crisis didn't help.
  2. FFIs didn't think they'd be able to make money in Safaricom if they bid over this price
  3. As I guessed, this is likely to be the one investor section that just about fully subscribes into IPO. This shouldn't be a big concern because I suspect a chunk of this will probably have been done by Vodafone anyway and 2ndly, I don't think many Kenyans were thrilled at foreigners getting any of Safaricom.
  4. Morgan Stanley probably did a targeted marketing of the IPO rather than widespread.
  5. I think its excellent news for those of us who are targeting the secondary market.

Tuesday, May 06, 2008

NSE catch up

There are many good reasons to still buy some NMG shares. There is an additional one with when one has a look at its investor briefing . Having young leadership should make its mark on a business and I hope I don’t speak too soon when I say that 18 months after his appointment that started off with nation-gate, Linus Gitahi is making his mark on NMG. It has a very clear vision “Media of Africa for Africa”. Clear leadership is also being seen at Business Daily. Yes it’s had its goofs, but even at Ksh50, I had to get a daily copy when I was home. Nation despite being the victim of usual anti-kikuyu BS, has on someday something like half the content as adverts. The job supplement looks like NMG goes picking anybody who wants to advertise. Over 3-4 years, one can’t go long on both capital (share appreciation growth) and income basis (one of the best DPS at the NSE). Placed alongside SGL and Scangroup as media-type stocks, NMG is still way ahead.

The fate of KQ should now become an issue of national concern to rank alongside the direction of KMC, KPA (IPO-please) and KPL. In retrospect, Titus Naikuni, KQ’s CEO joined KQ (Feb 2003) when the hardwork in terms of getting on it a profitability curve had already been done. since things started astray at KQ
, he has tried typical MBA-speak things i.e. sacking a manager here and there; closing off some business routes, dismissing big accidents and mishaps (135 for last year). Continually however, all I hear from any of its passengers is “never again”. Isn’t it time the buck stopped at the CEO’s desk?

It is entirely correct that questions have been asked about Equity share price and the extent of insider trading. It does happen at Equity, but its very widespread at the NSE and even the UK, National Bank’s share price went to 60 from 40 last June prior to Kimunya confirming GoK’s paying off Ksh20bn debt. Other classics are EA Cable, BBK to name but a few. The UK's FSA suspects that upto 30% of M&A deals have some insider-trading going on. The problem is far worse for Equity because some of this negative press overshadows what is a remarkable performance by a “made in Kenya for Kenyans” solution to banking. I was shocked to see that Equity is financing Access Kenya’s shareholder offer of home-internet. Equity offers a variety of loans to the one group even I fear lending to. Small-scale farmers. And so forth. The moral of the story is that investors must buy on fundamentals alone and do so for medium to long-term gains. When you have BBK on a P/E of 20.42 despite PAT growing at annual rate of 8%, then buying Equity at a forward P/E of 21 looks cheap even at current prices.

And whatever one can say, buying HFCK at anything over k35 (i.e. P/E of 54) is not fundamentals-based. Yet.

I like the look of Access-Kenya. Pre-2007, the group had less than 1,000 corporate clients (this is now just over 2,000). On the back of this, its doubled turnover and bought some interesting players into the group and having had the measure of the market (40,000 corporate clients in Kenya and only 12.5% have internet; something in the region of 325,000 households that can afford internet and only 5% have internet) are now set to take advantage by investing in fibre-optic at source and its delivery to end user households. Still, its website isn’t exactly the best even in Kenya is it?