Thursday, February 28, 2008

Results Update

BBK announced frankly disappointing looking numbers and will be the worst among the listed banks (blog on this later). However, if one adjusts for the Ksh1bn spent on new branches and increasing ATMs, the numbers look okish. Apart from bad debts in 2008, the other is issue of concern is that potentially, there will be continually higher staff costs from the additional 4,000 staff.

StanChart has pleasantly surprised with a 32% rise from 2006 driven by FX and Other commissions. Moreover, its been a great year if you are a shareholder of StanChart because adjusting for the shareprice differences, it has a superior div yield and its share price appreciation
 is similar to BBK's . Even better for us NIC shareholders.  NIC hit 63% rise.
Bamburi saw very strong results on 34% rise in turnover but had Ksh2m wiped of its cashflow due to clinker expenses. It paid a very good dividend for the yr though at Ksh6.

Also announcing interim and others were KPLC, EA Portland (54% down on costs from Clinker), KRe got hit by higher claims but saw 9% rise in PAT due to lower tax rate ; KPLC saw flat turnover and hence slight PAT rise (4%).

The future kenya?

I pray these two fellas won't have to be dialoguing/mediating/conferencing et al whenever they need to agree on policy, ministerial posts, ambassador postings. I pray that after almost 6 yrs of confrontations, guys like akina Martha and Raila will agree to drive Kenya forward jointly. Its a good day for Kenya, but a thousand steps start but by one step...

Thursday Shorts

Oil prices continue to rise (now past $102 per barrel and almost £1.10 per litre in some of London's pumps) and that is now a problem everywhere because in addition to concerns about global economic slowdown, we now need to add on inflation-concerns. Things are also not going well in the US with foreclosures almost doubling from a yr ago. It means that consumer spending will remain subdued. The market for credit derivatives of any kind is dead is a dodo probably according to the head of UK FSA. Thanks to rating agencies and over-generous pay-package. Hector, stick to bureaucracy because you clearly don't understand the mentality of investment bankers, if they can't make it, they'll invent it. Money I'm talking about.
I know there is such a saying as "while in Rome do as the Romans do", but it's a worry how many Kenyans in the Diaspora are passing away like the natives- either horribly or alone. Finally, wikileaks lives on at -lakini its sad to note that Kenyans are carrying their asinine rumour-mongering there too.
Before the current disaster, I was a skeptical East African and Central province investor. No more. Macharia Gaitho is one of the few balanced (which apparently makes him pro-PNU) columnists around.

Tuesday, February 26, 2008

After work drinks

Back when I first landed in London and didn't really know anybody, I kind of appreciated after-work drinks because in addition to getting free drinks, one could get to socialise and get to know a few watering holes without having to use an a-z. Today with family, 50hr working week that masquerade as 371/2 hr weeks, I can't stand them. Alas, in some companies you hear that this is one of the ways of granting yourself promotion. How is that possible? Networking at work should be about being a good team player with good interpersonal and influencing skills who is demonstrably able to deliver why working with others. Besides if you don’t gel with workmates during work-time what kind of gelling is done hen you are 7 pins to the good?

What think ye?

I must admit I am disappointed that despite having some very good minds in both camps, PNU and ODM haven't been able to agree on the way forward. Looking coldy at the issues, PNU should be aware that ODM want power and ODM should be aware that PNU want to stay in power and are already in power. So why not show flexibility so both sides get to live another day? I think our politicians are cursed by an almost uniquely African politics problem-you can't succeed unless you lack morals and principles.

Monday, February 25, 2008

What stocks I my investing in

Shanga has asked me what stocks I'm investing in at the NSE. Firstly a general comment about the current stock-investing environment. Its tough worldwide. Reason. Hotmoney aka money from western funds; sentiments about the US economy and of course, credit crunch are all making guys run around the world stock markets like headless chickens. Thus making quick bucks is not an option. In some markets, only risk-takers and those with a one yr+ view are buying.
As for the NSE, the positions I've taken so far this yr have either been based on companies with long-term prospects or for defensive reasons. By defensive I mean averaging. I haven't sold anything yet this yr because apart from Equity, the others haven't reached fruition and I believe they'll.

TPS- Because despite the tourism issues and the fact that 67% of its revenue is from Kenya, nobody does hospitality better in the whole of East, Central and Upper Southern Africa than Serena.
Athi River because it has a good base to go forward. And its not exclusively dependant on revenues from cement.
EA Cables, because Mugo the CEO is not yet 40 and has plenty of good ideas

  1. Fibre-optic to take advantage of TEAMS, SEACOM and other under-sea cable projects coming online from 2009 onwards. And of-course, copper is expensive
  2. Regional expansion. Most of its turnover growth for 2007 came from outside Kenya
  3. Linchpin of Transcentury, therefore has strong shreholder support
  4. Any price below Ksh40 is a buying ooportunity for this stockDiamond Trust because trust me its going places.
Barclays for defensive purposes and also because its very tempting when its under Ksh65 as it was a
few weeks back. EABL for the dividend tu.
On my watchlist remain AccessKenya and KCB.

Friday, February 22, 2008

Bomas/Wako Draft was waffle

Its one thing to want to correct anomalies, its another to pick up a sledgehammer and swing it at the anomalies. The constitutional anomalies that plague our nation can and should be resolved by addressing its weak points. The Bomas/Wako draft was long on words covering every nook and cranny but anybody who has seen good
constitutions will tell you that they are based on principles rather dealing with every minutiae. After spending Ksh10bn+ last time, one would have thought that we'd have a more rational approach to constitutional issues. Let’s ask ourselves:

  1. Is the current constitution wholly bad? If it is, then lets look at whether we can write the sections that are deemed most important first.
  2. Is it certain sections that offend? I think this is the more likely scenario with the executive section being the main one. In which case, we can have a focused debate between the so-called activists and Parliament and a committee of eminent legal and public minds and come up with well structure 3-pillar executive.
  3. Is it only one section? In which the debate would even be better focused.
  4. Can we change the constitution through minimum incremental reforms? Most definitely.

Wednesday, February 20, 2008

Landmark French case, Obama, BBK

A landmark anti-corruption case is in the offing in France. France probably has the most sleaziest politicians corruption-wise in the West. The majority of its recent prime-ministers or presidents were involved in corruption cases. Chirac with shenanigans in Paris when he was mayor, Mitterrand and his era marked by top officials having to be fired and so forth. Suffice to say, African corrupt leaders used to feel right at home in Paris. Not anymore, activist lawyers are supporting African Diaspora in France to launching cases against Omar Bongo of Gabon; Dennis Ngeusso of Congo; Compadore of Burkina Faso; Obiang of Equatorial Guinea and the old man of Angola dos Santos. All live a life of luxury and whats more, many never thought they would get caught so they'd flash £300k here on a car, buy two or three flats in the most expensive street in Paris etc. And charge the expenses to their respective Treasury Ministries. It doesn't they'll be jailed in France, but all those assets could be seized and used to fund the citizens
 of their countires. Beware m-o-1 and your corrupt Kenyan pals.

Obama looks like he is edging his way into the Democratic seat, but there is some way to go. However, should he win the dirt from the Republicans will be one which will make you want to bust a move on your TV. Should he have Hilary as his VP? Personally I don't think so because the republicans would have her for dinner, breakfast and lunch.

As I expected, Barclays announced poor results for 2007-in the context of an economy that grew at almost 8%. A 24% rise in its income was wiped out by an almost equal increase in costs although some of the costs were one-off costs in re-opening branches and setting up some new ones. However, rather than take the opportunity to legitimately increase provisioning for bad debts to anticipate this year’s inevitable rise, it actually reduced provisioning! Incredible.

Tuesday, February 19, 2008

KQ, minted stockbrockers, REITS

It doesn't rain, it pours is apparently KQ's new mission statement. OK, things have been tough because of the political quagmire, lakini, its managed to lose practically its top management with no CFO; HR director(i hear there was a change); commercial director; no flights manager; no technical director. Do they all know something that we don't? Now even Paris flights are a
are likely losing it money. I have posted before on its pre-crisis issues. I passionately believe in KQ, but we now need a change of leadership, because that is where
the buck stops. Let it get someone who can steer it through the next year operationally so it'll be ready as the economy takes off.
For every Francis Thuo and Nyaga stockbrokers, there is a D&B and CFC, two brokers that though not on the straight and narrow take home some serious revenue from buying and selling yours and my shares. Stockbroking should be the one business in Kenya that should bankable year on year if you don't do anything stupid. Truly, IF is a big word.
It’s pleasantly surprising to see that Rutleys still plans to go ahead with its property fund and may even list as a REIT
if and when CMA wakes up from its slumber and decides to allow them. Bora Capital another property fund venture has gone quite despite interest from
many including in the Diaspora.

The State of the Nation

As a Kenyan with families in all but the North Eastern province, the events of the last two months have been appalling and sad because I feel like some parts of Kenya are now out of bounds. My late grandfather (a man ahead of his time in many ways), used to say that for him the best thing about Kenya was that it widened his horizon. One of his favorite pictures was some church function in Kavirondo (I believe this is an old name for some part of Kisumu). And that is a big part of what Kenya represented to me. The belief that I lived in a country of such rich diversity. Right now, you get the feeling some peep think they can do without others which unless they are planning to retreat cave-man style into their tribe, is just talk. Global is the way to go. In any case, next time we are home, we'll have to plot how to visit relas and that’s sad. It’s also sad that we don't have leaders-and if they are there, I have missed them. We suffer from ethno-plutocratic politics i.e. money and tribe speak loudest. Even a crisis of this magnitude has not brought out one unifying leader.
As a farmer, I'll continue to earn some crust but for how long if we can't get ourselves in order as a country?
As an investor, I've continued to take positions in stocks that I think will weather any change in conditions for the next couple of years. For reference purposes, I've looked at stocks that existed pre-2002 and how they performed. I've also taken positions in stocks that i think are worth a risk based on how agile they are strategically. I can do both strategies because I have a 5-year outlook. Viewed very realistically, I can't see how a grand coalition will work. In my humble
opinion, the worst thing that Kibaki has done since 2003 is to trash that MOU because that would have ushered coalition politics into Kenya. They are the future, because
not even a dictator can rule Kenya and ensure economic growth.

Friday, February 15, 2008

NSE update

NSE has gained 10% on its opening position on Monday as investors see the light at the end of the tunnel on the political front. Given;

  1. its the results season and bumper dividends, bonus issues and even rights issues are expected to be announced
  2. other longer-types of investments are on-hold because of the ethnic cleansingthe NSE should bounce back to its 5,500 level IF a mutually agreeable position is found next week.

EA Cable announced 41% rise in its PBT, against a background of rising copper prices and increased finance costs due to its loan for its new plant in Industrail Area. At current share price, there is an instant 10% gain to be made over the next month not to mention a DPS of 90 cents. Fibre optics will be here next yr, so its also worth it for medium and long-term investors.

Unga announced yet another earnings warning, no surprise given the RV upheavals.

Sassini is begging the CMA not to fine it for being late with its annual results. Kwani? Its as if it didn't know that year end had arrived...

Friday Shorts

On my list of dream IPOs for 2008 are Kenya Pipeline and KPA to float 30% each this year. Additionally, I'd like to see KPA float a 15 year bond to help finance some serious expansion of its capacity. Perhaps deepen the port as well as have a proper 24 hour service. That is the only way it will achieve its goal of being in the top 20 in the world.

Due to looming slowflation (i.e. slowing economic growth vs. rising inflation), we’ll probably end up with two more interest cuts in 2008 rather than the three I expected.

An interesting spat is going on between M7 and one of his opposition MPs, Beti Kamya. She called him an non Ugandan, which is the Kenyan equivalent of saying Wambui is Kibz second wife.

Are the thousands who were internally displaced part of the current jaw-wagging between the protagonists in Kenya? What can we do to stop this dichotomy in believe between “there is a nation called Kenya”, but “this area is for my tribe thank you very much”? Why should we all as Kenyans bear the costs of resettling them? Shouldn’t it be the case that those who displace should bear the costs via their CDFs?
After all, respect for private property and seller vs. buyer rights are at the heart of a functioning economy.

Monday, February 11, 2008

What is so difficult about doing CMA's job?

This is a post that I've been meaning to do for a while but I think the timing is apt. I actually thought that Nyaga Stockbrokers was the one that was bankrupt when rumours started last yr about a broker having liquidity issues. Its problems with itchy fingers have been well-known since 2006.

A few things would make sure that brokers/listed stocks never fail. We now have a CDSC and a WAN network which means data gathering is an easy IT affair as it should be. With this in mind, CMA should base its most of its broker monitoring around daily returns from each broker of:
  1. Trades done by volume, stock, value.
  2. Trades for a 1,000 or more shares or Ksh50,000+ in value
  3. Cash balances in and out
  4. Settled and unsettled trades
  5. New accounts opened and closed
For stocks,
  • quarterly earnings update must be adhered to
  • firms must give a rough estimate of their forecast earnings for the forthcoming yr
  • earnings warnings update must be done if a stock is going to see a 10%+ downward deviation from its earnings forecast
  • a quarterly update of any changes in its principal shareholders must be done
  • persistent downward fall in share price (10% in two days) must also be explained.
If CMA can't do the above, lets dissolve it and have its duties moved to a single financial services regulator.

Rejuvenating our economy

Treasury has taken the unprecedented step of publicly asking Kenyans to submit proposals for the forthcoming budget.

I have started a thread at stockskenya to generate some ideas on how we can help our economy get back on track. And even ideas on reforming the economy.

Please put some non political ideas on the thread as an investor or a positive Kenyan and we can send them to the finance ministry. They may not take notice at the ministry, but its also a way bringing us back to being part of the +ve solution.

Thursday, February 07, 2008

Who is Hellios LLP?

It’s a private equity group founded by two Nigerians (sounds suspicious already doesn't it?). The two are however successful investment bankers/private equity deal makers in their own right having worked for Texas Pacific Group-among the largest private groups in the world with funds under management of $30bn+.
Babatunde Soyoye, the MD was also MD for TPG Europe. Tope Lawani also worked with him.

Main Investors in Hellios:
CDC with $50m repreent the UK interest; OPIC also with $50 represents the US and IFC with $20m represents world Bank. Others with undisclosed 
sums are Soros Fund; TPG and our own Transcentury with 1% holding. Its total funds under mansgement 
are circa $300m

Major Deals:
Investment in First Monument Bank of Nigeria
JV with Portugal Telecom
Sold its joint holding with Actis in Flamingo to James Finlay
Took 25% stake in Equity to be disposed off no earlier than 2014.

So apart from the fact that its a Nigerian-led outfit, what are the issues?

An attempt on Kimendeero? Wonders never cease.

Liquidity in the economy

Over the last two or so years, we've seen lots of money swirling in the economy with the main impact being inflation of;

  • consumer goods

  • the price of assets such as real estate and stocks

At the NSE, this manifested itself in higher market cap as well as high P/Es for good to very good stocks. A lot of the liquidity came from two sources, namely

  1. Banks throwing money like confetti at borrowers

  2. Diaspora rushing in to invest into the growing economy

The good thing is that with the exception of hot money brought in by foreign stock investors, little of this cash has left the country. Some will hopefully be used to help the displaced. Some will be used to absorb the higher cost of living (mainly supply-driven). The rest is waiting for these two knuckleheads to make peace so we can go on and invest.

Wednesday, February 06, 2008

The NSE & the Kofi mediation

As a general rule, I find an over-concentration on politics not only  soul destroying but also reminds me of that primary school saying that empty dembes make the most noise. Thus with our great nation dominated and adversely impacted by siasa mbaya, the adverse effects are being felt on our economy.

With 44% of our population classed as being below the poverty line (i.e. earning less than a dollar a day), the urgency of getting our economy growing constistently for like 10 + yrs, means that if a complete overhaul of the constitution is what it'll take to avoid the 5yr need to slaughter the "outsider" communities, lets get it done pronto. I was speaking to a friend who is in the insurance industry back home. On a normal month, he'd expect to write between ksh1-2m of new business. In Dec, he actually had one or two contracts of around that amount ready to sign in Jan. As it is, he hasn't written anything in January. Which is ironic given the prevailing situation where many businesses in Eldoret and other towns west of it are finding that the only way of redeeming their investments is to go for the Ksh1bn thatKibz announced. Reason? Many didn't insure their businesses. Tell me,when you have a business perhaps transacting ksh1m per month or more, shouldn'thave insurance especially where you have stock?

The bourse continues to sway back and forth and is now reflecting the fears and uncertainties about the direction Kenya's economy will take should are solution not be found. What remains on my stockwatch: AK, EABL/BBK ( for defensive purposes), EA Cables (who is its competitor for the fibre optic market?) and as always Equity should it breach KSh120.

As an aside, changes in the NSE matters to different people in different ways (an oxymoron I know). As an investor, when you want to know the value of your portfolio, you don't pay attention to the index movements, but to what you hold. Hence, I tend to follow the market cap number more closely than the index itself. For stockbrokers, market turnover matters most because that is what dictates their commission. For pension funds and unit trusts, it's the index. For hedge funds it's the volatility of the index. To gauge market sentiment, have a look at the volumes being traded (although its better to look at bid vs. ask). Long-term prospects are another matter.

Anyway, in my etravels, I picked up three articles worth a read. By the way, I think it's true what they say, if you repeat a lie enough times,it become a truth. Sample  George Bush and weapons of mass distraction in Iraq; the myths about who dominates who in Kenya. In all this I forgot that out of Kenya's 44 yrs of independence, m-o-1 ruled 24 of them...
  1. David Anderson article on kenya's siasa mbaya
  2. That article about RV's warlord
  3. Senegal president's take on Sino-Africa relationship.

Tuesday, February 05, 2008

TC listing

Transcentury aka G29 are finally coming to the market! Many will recall that they had tried to do a private placement in November 2007 which they then pulled (lets put it this way, it would have been hard for any investor to commit Ksh335m to an entity that was aligned to one of the presidential candidates in a too close to call general election). The good thing is that as with all IPOs, they'll have to let it all hang out as it were. So we can put down some of the myths about who owns TC-i.e. the 40% that is not widely known and what do they own. There is also the myth about how highly leveraged they are-having seen their books up to 2006, I can confirm that they had one long-term loan of Ksh350m (accounting for around 10% of its balance sheet) and reserves of around 800mn.
Meanwhile, there are now Equity-esque type rumors that EA Cables, in which 75% of TC's investment is in, is facing a liquidity crunch. Cables invested Ksh1bn to build its new factory and HQ in Industrial Area and apparently it’s the financing for this that has led to the liquidity crunch. I might be wrong, but the facts don't stuck up.
Why would you be looking to list when your largest investment which happens to be publicly listed stock is in financial trouble? Bottom-line: Should they as its suggested list before June, this would be a shot in the arm for our bruised NSE. TC's returns in the last two or so years have been phenomeno.

Friday, February 01, 2008

Friday Shorts

The French have a healthy contempt for the English and the Anglo-Saxon economic model. Jérôme Kerviel is thus a hero in France because he brought down the model in France. In the UK, they are saying he went berserk because he was working long hours for a Frenchman-30 hours per week.
Check this though, according to the FT;
  • Check this though, according to the FT;
  • Kerviel’s positions' loss before being discovered ($1.5bn)
  • SocGen's loss due to sub-prime write-offs ($2.0bn)
  • SocGen's loss due to unwinding of Kerviel 's positions ($3.4bn)
  • So who should be fired and in the dock?

KQ has done the right thing by seeking to cut its costs in a period where its seeing 15% capacity in its planes. Anyone running a business will tell you, profit equals revenue less costs. If revenues are falling, you cut costs to maintain profitability. Should it get to Ksh40, it'll be tempting to get into.

Here is a paradox, I keep hearing that Nation's balanced approach to politics is unpopular and has led to lower sales, yet every time there is a breaking story you can't get into its website? Que?

Speaking to Nak-based cousins last weekend, I was worried by how fatalistic they sounded about the wars in their backyard. Both are businessmen so I really thought things were done for our economy. Lakini something tells me we may have turned the corner after we stayed at the abyss and didn't like what we saw. In which case, this was a prime buying week at the NSE. Imagine BBK at Ksh64!

EasyCoach's cancellation of its service to Western Kenya and resultant job losses, makes me question the whole barricade brigade. Who will suffer most if you can't get goods or services into your region?