Monday, June 30, 2008

NSE Stock Portfolio: 6 months into 2008

Generally, I haven't traded much this yr, not because of lacking opportunities, more because of a busy schedule elsewhere and an evolving strategy. From buying and holding for the whole presidential cycle, I am now more inclined to buy, and hold as long as the stocks are meeting the short-term mini-goals i.e. FY profits etc.

  1. During the January clashes: Equity@125, TPS@58 and Barclays@65
  2. Nation Media Group@326 just before it announced its results
  3. A few Safaricom during the IPO
Switched: after its Q1 results, sold-off my whole Barclays portfolio and switched into Equity@250 and Access Kenya@33.50

Overall Portfolio: Also includes ARM, KCB, NIC and EA Cables.
Overall trading from H1 2008: Very good returns....

Running the ruler over:
  • Nation Bank of Kenya
  • Safaricom while waiting to see if it'll get cheaper than ksh7.40.

PS: The above is my own personal stock-trading account. For KCIG, we outperformed the NSE for H1 2008

Concentration or Diversification

Assuming a normal market (i.e. with known risks and exit mechanisms), investors tend to get torn between concentration gains or dispersion of risk in their stock picks. This is an understable dilemma where the market is volatile, has unknown risks and difficult exit mechanisms for example due to limits on withdraws or illiquidity.
Lakini if you are an investor at the NSE and have been for a spell (typically an investor who has traded over a full presidential cycle), the above dilemma is more one of concentrating your choice to picking stocks that give gains vs dispersing your gains. If you understand the market, then the only excuse for holding a portfolio with more than 6/7 stocks at the NSE would be as part of the legacy of trading in it for a long-time such that you've picked up gems over time. If then, some of the those gems will have turned into tramps and you should have disposed off them by now.


Toronto has a population of around 5m. Yet today it runs a double-decker transit system (i.e. train system) for its 1m daily passengers. If you ever traveled on the transport in London and specifically the underground (tube) and overland trains between 7-9am and 4-7pm, you'd appreciate how visionary it is for Canadians to build their system with double-deckers carriages in 1919. In London today, the solution of catering for almost 3m passengers a day has been to build completely new railway lines, a much more expensive venture.

A visionary is described as someone who sees into a future that doesn't presently exist. Some of the visions could be utopia, others can be grounded. A nation, a business, a church, a club and even in the different facets of our lives as individuals, all need a vision. So much so that the Bible is categorical, "without a vision, the people perish". A good analogy is setting off from your home without knowing where you are going.

At a national level, we have lots of examples of visionaries. In modern times , General Macarthur started with post-WW2 Japan, a new type of leadership, but effectively, Lee Kuan Yew in Singapore was the first to do this as native of his nation. Lee was Prime Minister of Singapore for 31 years until 1990, but completely transformed it from a 3rd world developing nation to a 1st world developed nation complete with nation ethics. His was visionary leadership that realised two things. Not everybody knew what it took to become a developed nation and even if they did those who needed convincing would take up too much time and energy. 2ndly, and more importantly he need to do and was able to carry Singaporeans with his vision. His visionary leadership has been copied successfully by Deng Xiapong and the communist leadership in China; Mahathir in Malaysia and lately Kagame inRwanda.

At company-level, Henry Ford, Bill Gates, Toyoda and even our own Equity's Peter Munga and James Mwangi have been visionaries who have transformed industries and of course their own companies.
At club level, James Gachui had this to say about why they founded TC.
At individual level, we have people like Alexander Bell (father of the modern telephone), the Wrights Brothers, Steve Jobs.
What these visionaries/visions have in common is ability to extrapolate the present into the future and focus on achieving and bringing that future into being. It gives what they do a direction.

So do you have a vision? What is your vision as investors? Does Kenya have a vision (in my humble opinion, we have 5 yrs to get our institutions right otherwise it'll take a Kagame-type visionary to get us on the right path)? Does anybody in Kenya have a vision of its future?

Sunday, June 29, 2008

Kenyans must continue to do and talk more politics

Many have argued that the Kenyan society is over-saturated with none-stop political actions and discussions from one election to another and is unhealthy for democracy.

Looked at casually, this argument can be plausible.
From a keen business point of view, such none-stop politicking often accompanied by toxic innuendo is unhealthy for business and growth as it often creates a climate of uncertainty and unpredictability.

But there have been other fraudulent arguments advanced against continuous politicking by none other one than pnu. However, there call is openly disingenuous and masks their intent of impunity, deception, grand corruption, tribalism amongst other ills. This has clearly been demonstrated by their disregard of the rule of law, Anglo-leasing, Mobitelea, Grand regency, and the disrespect of the displaced people sagas which have pushed Kenyans to the peril of self destruction.

This brings me to the reasons why Kenyans must continue to do and talk more politics.
For those enjoying the current democratic political and business environment and those that might have forgotten how it came about, it is worth re-visiting the early 80’s up to the late 90’s and observe that this era was driven by none-stop politicking.

Most recently the Kibaki government attempt to impose an illegitimate constitution against the people was thwarted by Kenyans none-stop political actions and discussions. Similarly, the attempted theft via Anglo-leasing and the intentions of the international mercenaries(Armenian brothers) were halted in the same manner.

The current Zimbabwe’s predicament is also another reminder of why in Africa doing and talking politics notwithstanding the likely damage to business and development is actually healthy. Zimbabweans are described to be generally easy to accept people. From the time Mugabe begun to ruin their country few stood up to him and even now when the country is on its knee even fewer are willing to bit the bullet for the masses. Majority are said to be disinterested in politics and this has been blamed as one of the reasons Mugabe has got away with it for this long.

You need not revisit our former colonialist 17th Century political battles and debate to understand the benefits of none stop politicking to shape up the country. Just as late as the 1980’s often referred to as the Thatcher era, it was characterised by unionist strikes against government control. During both periods the British people were politicking none-stop.

Back to Kenya, another significant reason for none stop politicking is the failure and bias of the greatly compromised governance institutions i.e. judicial, legislature and the civil society i.e. churches. The purpose of such functioning bodies is to safeguard against the government excesses.

Thus, due to institutional failure and compromised civil society and notwithstanding the short-term damage to business and growth, more political action and discussion is good for Kenya and Africa at large as this mitigates against bad leadership and more importantly provides an autonomous forum for the masses political empowerment and consciousness elevation.

Saturday, June 28, 2008

Plus ca change, plus c'est la meme chose

During Kibaki's first term, the first two years saw all the scandals because guys who had financed the 2002 election campaign had to be repaid. And this term, it seems will be more of the same.
Grand Regency- sold at Ksh2bn under "private treaty", but this was the value in the 1990s. If you had bought plot in the 1990s (even 1999), today it'd be worth at least 2.5 times as much regardless of where you bought. Ask how I know, I bought some acres in Naromoru in the late 1990s for 100k each and its going for 250k. The assumption must be money was poured for the election campaigns in return for lower than market sale of Kenyans' assets.
Alcazar-It turns that a significant proportion of the FFI's in the Safaricom IPO were locals laundering their cash. Although my opposition to selling Safcom to foreigners most based on equality reasons, clearly stuff like this would have been harder to do.

And the worst of it. This will happen on both sides of the coalition...

Wednesday, June 25, 2008

Budget and the NSE...

Unlike last yr, this yr's budget only contained one genuine pt of excitement for the NSE. The reduction of the import duty on cement was done for good reasons. GoK is struggling with building houses fast enough; private sector is struggling with the costs involved in even buidling low-cost housing. Hence targetting greater supply of cement. The 3 local companies are doing well enough and should be able to compete in their own right. Several issues for me, however:
  1. Is ARM's spilt of its business into two subsidiarioes related to this budget announcement? I.e. its chemical/industrial minerals business is very competitive (I think it has 70% of the market from memory). Its cement division probably has around 25% market share. So won't it make sense to sell it?
  2. Lafarge holds all the cards and I'm surprised it hasn't pushed hjarder to get a bigger stake in the weakest of the 3 cement companies which is East Africa Portland
  3. Reducing cement costs is only part of the piece and GoK must started looking at encouraging guys to grow trees aggressively

Otherwise, raising capitalisation to Ksh1bn for banks was a non-event since most are comfortably above this. That for the broking community was a step forward.

In other news, Safcom is finally moving into my buying territory (i.e. below Ksh7.50). Its disappointing how an IPO that looked to have had good execution has been bungled. Imagine there is even a significant group of investors whose orders weren't even entered for the IPO!

Anyway, Equity continues to put smiles on the faces of its shareholders, while bystanders continue to sneer. The hallmark of intelligence is how often you don't repeat the same mistake. Buy Equity so you can be telling your grandkids about how you were part of a banking revolution...For those fearing the August date when the lock-in for the principal shareholders ends, the question is this, if you had 10m shares which you wanted to dispose off in a share that normally sells 300k per day, would you;

  1. Throw them all into the market, thus halving your gains?
  2. Look for an investor who can buy them from you...?

Monday, June 23, 2008

Stockmarket Governance

Although CMA is nominally in charge of the stock market, we must admit that they way it currently operates is almost certain to continue causing us problems as investors at the NSE. Right now we have three issues that I am trying to figure out. One is the issue of refunds which has been a pain since KenGen IPO. One can understand that CBK wants to start doing its job of inflation-control and can't do so until it has a realistic picture of the money supply issue.

But changing the rules of the game on the 80th minutes is a no-no on a football pitch as it should be on the stockmarket. We now have a backlog of cheques and refund issues that will probably take KenGen-type of periods to resolve. 2ndly, you can't have a situation where the institution whose importance to the stockmarket is almost on par with the CBK in its area operating in complete darkness. Why pray doesn't CDSC have internet or email contacts?

MPs: The recall clause would be timely

Its the law of the land that if you earn, you pay tax. Unfortunately, in our uniquely Kenyan way, we've told the guys that make the laws, please decide whether you should pay tax or not. They are not stupid and and being extremely egoistical, have decided that they won't pay tax.
Imagine a situation where you decided what hours you worked, when you worked, what you worked on and what you got paid for it?
About the recall clause, I believe this was probably the only thing that was thrown out of the Bomas draft. And yet, its probably the most necessary right about now.

Bwana Warugongo and Ephraim Maina, we are watching and listening...

Sunday, June 22, 2008


Does the NSE or CMA have a policy on payment of dividends especially around:

  • within what period dividends should be paid?
  • how they should be paid i.e. in this day and age they should be done via EFT?
  • escalation steps when they don't get paid by the company
  • when they don't get paid by the broker into the investor's account
  • do they ever enforce it?

The answer is no.

Lakini, looking at the way firms are dealing with dividends and given that the NSE is a fairly ineffecient market anyway (i.e. in most developed markets, dividend p;olicy does impact share price perfomance over the long-term as opposed to the NSE where investors may trade speculatively to pick up divs before taking off), the NSEshould now come up with clear policy around the issues above. Otherwise we have a situation where KRe announced a div on 29th of April appaertaining to 2007 that will be paid in September!

The maple leaf country

To recharge my batteries, we trotted across the pond to the maple leaf country (Canada to you and me). The journey was actually 8 and half hours i.e. similar to what it take for the London-Nai run due to the 5 hour time-difference between. Incidentally, Maina Kiai landed on the plane behinds us and we also caught downtown. He is very pessimistic ("neither side is serious", "they are on ceasefire", "Raila is no longer interestred in the constitution review now he knows he is electable", "Kajwang is a..." (you get the drift). Mind you, pessimism is a requirement for the job he is/was doing. I also learned that Ottawa is the capital city of Canada. Lakini Toronto has more of the capital feel. So what were my likes and dislikes of the journey:
  • The vastness of Canada. Ontario, one of its 13 provinces is twice the size of Kenya. It takes 4 hours by plane to cross Ontario.
  • Ottawa is a beautiful place. You drive for 5 minutes and you come across forests. And there are lakes everywhere.
  • Canadians are very courteous, although London is not a good basis for comparison
  • The houses. They are huge (most have a basement with space for two or 3 bedrooms) and cheap.
  • Meeting Kenyans in Canada. I don't think you ever get a feel for a place until you meet fellow wazalendo who let you in on the country. Many are doing fairly well too very well.
  • The bilingual nature of the country. Everybody must learn French and English upto age of 16. Which means most speak two of the languages spoken in half the world.

Not soo impressive...

  1. The size of the cars. Ok, they do get a bit of snow over there, but is the monster GMC Yukon necessary for the run to the drugmart? Most peeps look like midgets because the cars are so huge.
  2. My bubble antenae was on the up. Everywhere you go, there are new houses being built or recently built. Who is going to live in them all?
  3. Food is expensive, even more so than London
  4. Petrol prices change on an almost daily basis. Curiously, most oil distributors tend to have exactly same price as their competitors. No wonder a price-fixing investigation has just been launched.
  5. GST, PST and other point of sales taxes. Imagine you've noticed a ka-sharp suit going for around 130 Canadian dollars. You rush to the exchange bureau come back and they tell you that will be 145 dollars. Still an attractive price but very inconvenient.
  6. Jet-lag, first time I've suffered from it and didn't enjoy it...
  7. Twanging Kenyans. Assimilation is all well and good, but twanging mixed with schrubbing is disaster...

Tuesday, June 10, 2008

After IPO's the likely next craze

I understand there are many private placement opportunities currently going on a need to know basis. However it appears some companies are willing to come out in the open like this to give everybody a chance which I think is a better idea as it attracts diverse interest plus give an opportunity for exposure and scrutiny.

Recently, Transcentury were undertaking a private placement but now I understand they have opted for an IPO instead sometimes in 2009.

Probably amongst the tricks for a successful private placement like co-op bank etcetera is the exposure to a wider audience and letting it run for a longer period and setting it at an affordable price. Hopefully, those in the closet will heed this trick.

As exemplified by returns from Equity, co-op which participated in private placements the latter still is, could this be the next craze after the IPO’s?

Downside to some of the placements are that some are a higher risk, yet to be regulated by the sleepy CMA, getting the financial statements takes longer also with some, getting hold of, or disposing off the shares is a much longer process.

However, doing your research can mitigate against most of the shortcomings.

Stockbrokers: My take

So far I use 3 brokers who have very contrasting approach to order execution; customer service; corporate governance; communication channels, internet and honesty.

Order execution: Many brokers dislike price-limit orders, but D&B even more. Orders take long especially if you only deal with one person. Send to their shares email account for faster execution. Then they can be executed within 24 hours. They'll also make wrong orders so you have to be vigilant.
Customer Service: Varies with the person you deal with but generally speaking, D&B barely put up with retail investors. They prefer the likes of John Kiarie, who deposit loads of money no questions asked. Dividends will take long or never be credited into your account unless you chase.
Corporate governance: Make it your point to know who is the CEO and the owners of a broker. I know Mohamed is the CEO, I know Jimnah is a shareholder, but does he own the whole of D&B?
Internet: D&B has the best online system I know of among the brokers that I deal with.
Communication channels: Email response can be erratic.
Honesty: They wiggle around when they've made a mistake.

AIB (formerly Ashbhu):

Order execution: Excellent mainly because of Nina, its operations manager. Will normally execute within 48 hrs at the latest. I believe its one of two brokers that offer "prompt" board trading.
Customer service: Will respond to most queries, but tend to be non-existent when it comes to some queries.
Corporate governance: CEO is Peterson Mwangi and he is very available. I know who the 4 principal owners are. AIB also publishes accounts for all to see at its office.
Internet: Online accounting is still non-operational months after I complained about it.
Communication channels: Email response to most issues is very quick; generally responsive to suggestions.
Honesty: When there was a mistake in my order, they owned, corrected the mistake immediately and took a hit on their own account. However, called and was told they were not doing Celtel Zambia IPO, only to find out that they were involved.


Order execution: Quick response
Customer service: Respond to issues but tend to be very silo'd so can take long
Corporate governance: CEO James Murigu is very well-known and affable by all accounts. Don't really know the principal owners.
Communication channels: No known email account, but telephone response is good.
Internet: Online accounting is patchy at best.
Honesty: no comment as no issues have arisen yet.

Monday, June 09, 2008

Safaricom IPO: 47% on 1st day

Safaricom closed at Ksh7.35, just inside my maximum buying range. Because a proportion of our investors are speculators, I expect to be able to buy the stock at prices below Ksh7, although that will depend on the efficiency of my broker/s. Many in this group of investors will panic and try to get the gains before they disappear.

The price also means that the few investors who were able to access their shares have locked down 45% (after charges) of profits for 3 months of work. Thank you to the BBC for doing a positive story on Kenya. It must have choked some guys there. The original story evenshowed that the mighty BBC is not afraid to make monumental gaffes. ButI forgive them because, like many Kenyans, I know we'll be the largest economy in Africa.

Martha Karua is of course my choice for the next president of Kenya. She calls like it is and you know where you can go if you don't like it. And she did on Sunday. The one thing, Kenyans must promise themselves is to ignore politicians (ironic I know given I am quoting one), but what I mean is that they shouldn't be the ones to dictate how Kenyans live, react et al.

Friday, June 06, 2008

Hongera Adan

While BBK's financial perfomance is nothing to write home about, Adan's actions in helping net one of the NSE's large criminals is nothing but commendable. Gavakiah was probably trying to be too clever by moving customer's money into his own account. He forgets that in countries with strong money-laundering and know-your-customer laws, a bank can become liable if it has not taken appropriate action against such occurrences. The case will hopefully prove that you can eat, but not at NSE investors' expense.

So far, Stella Kilonzo looks to be doing a good enough job and it'd be disappointing if Kimunya didn't for once do the right thing and appoint her to the job fully.

Thursday, June 05, 2008

Is G.M food panacea to current crisis?

Since their introduction to the world in the 1990’s by the American’s, Genetically Modified crops have continued to elicit arguments about their human and environmental safety.

As the words suggest G.M crops difference with conventional crops is that their DNA has been scientifically altered or enhanced so to say, to make them more nutritious and climate specific etcetera.

Amongst their advantages are said to be that animals such as cows can be genetically modified to grow faster with less food and produce more milk with certain minerals i.e. vitamin C added to it. You can also increase/decrease the nutrient content i.e. the Vitamins. The GM crops are said to be economical for large scale farming as they take shorter time to produce. Moreover, farmers require less pest/herbicides in GM fields thus saving money. Similarly, the crops can be modified to be drought and salt tolerant or less reliant on fertilizer hence increasing productivity.

However, albeit no problems have been reported with GM crops, opponents argues that not enough research has been done on them and the fear is that their long-term implications are unknown. Such fears are best illustrated by the once thought in the 80’s to be safe cattle feed that later in the 90’s led to mad cow disease (cjd-the human form).
Opponents are further concerned about Animals/human food GM mix-ups as it happened in America where crops modified and restricted to increase animal productivity were found in the human food chain.
Yet, another persistent risk has been on the likely harm and poisoning of the birds, bees, caterpillars and butterflies food chain as a result of the GM pollen built to be resistant to certain pests/weeds.
Some have argued that the unintentional cross-pollination between GM crops and natural/wild plants could lead to the extinction of the latter or it could lead to creation of super weeds and super bugs that are indestructible.
It is widely accepted that the Capitalist corporate America who have patented the seeds technology and accompanying materials i.e. fertilizer which goes hand in hand with the seedlings are the driving force behind the GM agenda with the aim of maximise their profits. This brings to mind the implications on the poor of patented HIV and other medicines raising fears of similar replications with the G.M crops.
For those used to the commonly in third world, simple granary storage of seedlings or harvest i.e maize, beans for a rainy day or next plantation, forget about it, as G.M produce and seedling deteriorate under such methods and requires modern facilities i.e. freezers, and temperature regulations. Modern biotechnology is used which requires highly skilled people and sophisticated and expensive equipment and laboratories hence unaffordable for small-scale farmers.
Evidently, opponents points that since the crops DNA alteration is done using viruses and bacteria’s it is likely to lead to significant increase in allergies, toxins and diseases to human as little research has been undertaken in this area.
Notwithstanding the aforementioned arguments, GM crops are unlikely to be the panacea to current food crisis’s that have led to astronomical prices and threatened to engulf some countries; so far over 15 countries have witnessed food riots. The U.N. Food and Agriculture Organization lists 22 countries as particularly vulnerable, majority are in Africa.

Many experts’ points to very influential but ignored underlying factors that have triggered the current crisis amongst them are;

-The unreformed and distorted world markets
-Climate changes
-Rapid population growth.
-Unreformed traditional farming methods.

Mother Africa is a victim of the above four with limited influence/control on the first two issues but able to urgently address the other two yet as usual many are unresponsive and waiting for the disaster to strike. This is illustrated below.

Zimbabwe was until recently Southern Africa breadbasket but today a basket case wasn’t tragically comical for Mugabe to rant at the Rome UN food summit about U.K responsibilities on the current Zim’s predicaments? Does he genuinely believe his words? Talk of Freudian denial and reaction formation. Anyway, U.K response was swift and clear i.e.: "Robert Mugabe going to Rome for the food summit is like Pol Pot going to a human rights convention".

Tuesday, June 03, 2008

Equity 4th AGM

Equity Bank's AGM is on 25th of June. Key date. I'm looking for a proxy to attend on my behalf.
For ma-fans of the stock, check the IPO document from 2 years ago here and the '07 annual report.

Bonds vs. Equity

Eleanor Kigen's columns are usually on point, but this one comparing an investment decision between Equity (the bank) and T-bills, was almost errm... unanalytical.

She fell into the classic trap that all new investors fall into when they discover P/E. You layer it on any type of stock or investment without thought. Price earnings ratio must have context to have meaning. P/E comparisons only work if you are comparing companies in the same sector and probably those that have the same size (if you are being pedantic). So just because Equity had a P/E of 250/6 and the T-bill had 100/9, doesn't make the T-bill a better buy. The T-bill will give you 9% at the end of the yr and Equity will probably give you 30%+ (in a bad yr).

More generally, Bonds v Equity debate has been there almost as long as both assets have existed (there is even Effecient Asset Allocation theory for your bedtime reading). And the verdict from those who analyse these things? Over any economic cycle, equity investing will always beat bonds.

In the context of our 26% inflation, 9% is actually a loss.

A tough one, say you have a Ksh100k, would you invest it in Equity or T-bills?

Monday, June 02, 2008

Safaricom IPO Allocations: the 20% that got away

First the bare essentials:

Retail: 21% i.e. will get 420 shares if you applied for the minimum amount

QII: 31% so will get 31,000 if applied for the minimum 100,000 shares

Dealers: 31% same as retail

Employees: 84% that marriage idea would have worked for somebody...

Foreigners: 15%

The first pt is that the share was clearly over-subscribed by all sections. Despite being favored by the dvp method, QII still threw high applications.

The pt however is that, with the small allocations that will be thrown our way, the retail section will be highly unamused. Many of us said all along that this was a Kenyan-made and should only be sold to them (not even E Africans!). So as of now, we'd have received 20% extra. Ghana floated a bond without selling its crown jewels and we should have done the same...

Finally, Kenyans have the cash and GoK must have ways of mopping it up to reduce inflation.
How about Kenya Pipeline, Kenya Ports Authority, Britak or even Mainat & Co?

Sunday, June 01, 2008

Happy Madaraka Day

45 years. So what do we have to show for it?