Monday, March 31, 2008
In the context of 2007, every bank should have seen at least 10% growth owing to an economic growth rate of 7%. And that is to stand still. BBK and KCB show the advantages and disadavantages of being huge. Being huge, you can lend big, but then in Kenya you need to lend small in order to generate the volumes that we'll give above average profit growth. The other issue is that it takes a revoluntary leap for you to see the profit growth that
would make shareholders flock to your shares. BBK is a worry in this respect. A 24% increase in net interest income from higher lending was wiped by the costs required to get it that growth. Could that be KCB several yrs down the road? It has to grow aggressively outside Kenya.
Apart from Equity, the other stand out banks in the above list are CFC and NIC and DTK. CFC is of course presently the only universal bank in Kenya, but seems to be suffering from because its banking division was actually profitable in 2007 but it made a loss on group basis because of its life business. Both DTK and NIC are building themselves niches and doing so profitably. The branch expansion to increase customers and geographic reach will mean that they can both continue to
see profit growth over the coming years.
I know some of us whose heads are stuck in political sands won't be happy or are never happy unless their party/tribe is in power, but PLEASE, the level of ignorance being displayed about Mobitelea/Safaricom is astounding. Someone keeps on saying, "its better to keep quite and be thought a fool than to open your mouth and remove all doubt".
Ssem has done some good analysis on the IPO. You don't have to agree with him, but its informed analysis.
Saturday, March 29, 2008
As an investor you want invest in profitable and growing companies. As a human being with a conscience (hopefully), you want to do what is ethical. Being a hypocrite is not ethical. Of the 11m mobile subscribers, 9m use Safcom. Yet most have known about the Mobitelea issue.
There is no doubt about it. Vodafone bribed m-o-1 and his peeps so as to gain a foothold in Kenya back in 1999. It was not the first company that did this and moreover this was the practice going back to Kenyatta days. For example, Biwott's ownership of Kenol/Kobil originates from this route. Some maybe aware of the Turkwell dam kickback issue. What has set Safcom apart is its success. Seeking to know about this issue is important because we have to start being transparent. We can go through Parliamentary Committee route or even via Vodafone Plc. It must not stop there, if there is legal evidence of the true owners of Mobitelea, the shareholding should revert to GoK.
In the meantime, Safcom shares are on offer, buy them. Lakini, I won't complain too much if you boycott.
Thursday, March 27, 2008
Every time I see these reports saying how much the diaspora is remitting home, it reminds how much we Kenyans lose out by voting the way we do. Despite being a major exchange earner for country, diaspora tends to be treated as one would a tenant, pay your rent and shut up. Many a politician has talked about granting us duo citizenship, but its been words. The other key requirement is that we be allowed to vote via our embassies. Again, just sweet words... as Kimunya responded in 2006, we need to organsie ourselves into some kind of organisation so politicians can see the voting potential. Otherwise, send your money and shut up.
On Mobitelea, this remains an ambigous issue. Demanding that we know who Mobitelea without going the whole hog and looking at how the shares were acquired and even transferring of the stake to GoK if it was
acquired illegally, is abit like demanding a taste of someone's food just for the sake of it.
Getting into the NSE as a broker is far harder than being declared an insolvent NSE broker. Strange world indeed...
Wednesday, March 26, 2008
You have to feel sorry for those Bear Stearns employees who owned a third of its shares. Most of these investment banks basically force you to take their equity (i.e. its part of your bonus upende usipende). 2ndly, you can't sell the shares for at least 5 years. So you may get to year 3 in your career at Bear Stearns (this is when most peeps leave) look at your equity-holdings and discover you have something like £20/30k worth of shares. So you are like, I'll stay on until year 5 hoping to grow the stake to a well rounded £50k. On Monday morning, you learn your stake is now worth £5k or less. The lesson is all those profits sitting in your CDS account are just like a mood swing until you sell the shares and pocket the profits.
Tuesday, March 25, 2008
- its now 3.4bn shares for retail investors. Cue inevitable oversubscription.
- unless you have Ksh30mn, you won't be able to buy as a foreigh institution
- only CMA can register you as a QII-these get 2.7bn shares
- the thing lists on 30th of May-refunds will take a while after that.
- spilt your bucks into two. some for safcom ipo (it'd be foolish to reading about it in the newspapers) and the other half in the put in the normal counters.
- Economic & Planning with an assistant minister specifically to manage CDFs
- Foreign Affairs with an assistant minister for East Africa
- Home Affairs (internal security, provincial administration & defence) with an assistant ministers in charge of Internal Security and provincial administration
- Constitutional Affairs with an assistant minister
- Health with an assistant minister
- Energy and water with an assistant minister for water resources
- Information & Communication with an assistant minister looking after internet
- Roads & Infrastructure with an assistant minister looking after roads alone
- Local Government & Urban Planning with an assistant minister in charge of urban planning
- Housing with an assistant minister for slum clearance
- Employment & Diversity with an assistant minister for Ethnic,Gender and Disability
- Trade & Industry with an assistant minister
- Education & Research with an assistant minister for higher education & research
- Agriculture, Land, Environment and Natural Resources with 2 assistant ministers, one for agriculture livestock and land and the other for Environment & natural resources
- Regional development and co-operatives with an assistant minister.
- Special projects with an asistant minister for youth and sports
In my humble opinion, the introduction of CDOs just over 20 years ago led to today's credit crunch. It introduced a “don't-care” attitude among retail banks as they could now give a mortgage with minimum due diligence, sell-off those mortgages to their own special purpose vehicles or to an investment bank's one and then use the same funding to sell some mortgages. At some point in the last two last years, most banks had 100% mortgages. Eventually, there was no one to sell the mortgages to and that’s when things came to a standstill last year. Rating agencies didn't help because they were required to credit rate the CDOs, but did a shoddy job.
With the fiasco still live, many retail banks have reverted to lending mortgages and other products only when hey have the funds to do so. Worryingly,
this now means that Bank of England interest rate cuts are not being passed onto customers as many banks are trying to use interest rates to attract savers. One paradox. Mot savings products in the UK have a cap of £250 per month i.e. if you want to save more than £3,000 a year, you either have to open additional saving accounts or go for a no interest saving account. Unsurprisingly, banks are struggling with funding.
Thursday, March 20, 2008
The foreign exchange movements will wipe out your gains:
Depends. On how long you are investing, currency used and timing. If you send funds for an IPO such as Safcom for speculative purposes using one of the strong currencies, you definitely lose because the Ksh will strengthen pre-IPO and weaken post-IPO as others do like you. For the long-term investor, as the economy grows, then ceteris paribus, the Ksh will strengthen, i.e. you'll gain twice. Or you could keep the funds in Kenya.
You are crowding out resident Kenyans:
Probably. So are you if you are in real estate or helping someone set up a business i.e. BS. Kenya needs your foreign currency/capital badly. And if you to make have a buck to send it there, investing at the NSE is your route
Its not easy to get a good broker:
Yes. Go for the obvious ones (D&B, CFC) and ones that meet your initial needs until you have found your feet.
It’s an illiquid market i.e. it’s hard to buy/sell shares when you want them
Yes. It’s not the FTSE or NYSE. There are like 49 stocks being traded and most have around 30% of their shares that are actively traded. That said....
Shares take long to execute:
Depends. On what quantity you want, the share you are looking to buy and your price vs the prevailing market price and timing. Typically, you can get 10,000 KCB shares in the same day if you've priced them within range of the previous day's high and low provided its a normal trading day i.e. there are no events affecting KCB's price or the NSE. By comparison, you'll be waiting for days to get 1,000 NMG shares.
There is no online trading:
True. But you can do your orders online (for D&B anyway). The actual issue is that Kenya doesn't ye have the legislation allowing Kenyan banks to use encryption for online transactions.
There is a lack of information about the listed stocks:
True up to a point. The last two years have seen an explosion of information websites from NMG's Business Daily, StocksKenya, brokers research teams to various blogs. On the other hand, a combination of unclear corporate governance legislation, CMA incompetence and firms' lack of awareness of shareholder value mean many barely have functional websites let alone providing updated information.
Its not easy to send money to a broker:
Apart from D&B, I don't of any other broker that has a correspondent bank. So this might be a tricky one if like me, you like to see an audit trail in your payments.
The trading charges are very high or unknown:
Myth. You get charged 2.12% if your order is under Ksh100,000 and 1.82% if its over Ksh100k. The tricky bit comes when your order even if over Ksh100k can not be executed in one go. Then you get charged 2.12% for each separate order.
The brokers will take your money/shares:
It’s been happening since the CDSC came along and even before. However, I don't expect it to go much longer because even GoK will get tired of it (otherwise, we won't get the foreign investors we want to come to Kenya). If you have relas/friends you trust in Kenya, pay them a apportion of your dividends and once a week the will go and demand a printed of your account from either your broker or CDSC.
Brokers will ignore your price requests:
True, if they are crooked, they'll. Others will ignore your order altogether if you ask for a price at 50% below prevailing one unless you know something they don't. Typically, ask for a price ceiling i.e. "at no more than". For most brokers, the order remains live for a month and then you have to re-order again.
Brokers only pay attention if you have loadsofmoney to invest:
Several brokers, Kestrel among them have set thresholds for the type of client they want. I think D&B should do the same because it practices it. However, some of the smaller brokers (e.g. Afrika Investment Bank) do deal with investors equally.
Capital gains tax is not applied when you sell your shares:
True, but you get 30% charge on dividends.
Wednesday, March 19, 2008
Stock trading is essentially easy if you pay it the right amount of attention.
Previously, I ignored media stocks at the NSE and elsewhere because for one the industry seems to be in a state of flux. However, after reviewing NMG stats, management, shareholding and strategy I bought some last yr for the general election. And how they've paid off-almost 40% gain; Ksh10.50 dividend and now a spilt! Now I'll actually hold them for the next 4 years and sell at the end of 2011 or whenever the general election is called.
With the dearth of leaders in Kenya, John Githongo should be invited back forthwith to continue where he left off. This time as head of the unfortunately abbreviated KACC. I heard him speak juzi, and its not just that he has a very very good grasp of the Kenya's issues (just start him on land or urban issues) and can articulate them well, but he has also thought about possible solutions. And as with his prior stint, he'll deliver. His only crime in the eyes of some is that he refuses to align himself with any tribal chiefs.
Because most stock markets are now very spooked, any whiff of the word "couldn't pay" are met by heavy sell calls. HBOS, a top four UK bank got caught up in that line and saw
a 17% fall within minutes. The FSA is now warning peeps not to spread rumors. Sounds a bit like M-o-1 used to do a few yrs back.
Great to see some light at the end of the tunnel for the tourism industry.
Looks like the Kenyan taxpayer will shoulder an even heavy burden that he did before the elections. 34 ministers and there is talk of assistant ministers, are we serious?
makes you wonder why there were fears unless it was having problems settling positions.
The problem is that this is now no longer a stock markets issue. Many banks are no longer willingly lending
to each without adding a premium. This then translates to each bank having less funds to lend to the
joe public. In turn means that interest rate cuts will not have the intended effect which is to lower the
cost of borrowing for mortgage borrowers and credit card holders, the key drivers of the economy in the West.
Its a paradox that the financial ministers of the big economies need to figure out. Not to mention commodities-related inflation.
Monday, March 17, 2008
Northern Rock started just like this. Rumors for a couple of weeks that
it couldn't get funding in the market. Govt stepped in but couldn't stop
Bear Stearns issues stem from both its business model, but also its
attachment to various hedge funds and other "exotic" products that are
now busy going belly-up e.g. Carlyle Group that had to abandon a $10bn
fund recently (apparently it has a leverage of $1 asset for every $33 in
debt!). Bear Stearns operates on leverage, now viewed as toxic in the
current market. So can it survive?
More importantly, isn't time we saw the much longed-for unwinding of
these CDO/CDS positions so that those that have to close shop can do so?
No govt (even with concerted global action) will be able to underwrite
almost a trillion of the stuff. And not all of it is hedging bad assets,
some is on prime mortgages.
Friday, March 14, 2008
Safaricom IPO (OFS) is finally upon us after years of procrastinating and politicking (how come nobody is saying anything about Mobitelea?). Firstly, the numbers:
Number of shares offered: 10bn
Market value of shares offered: Ksh50bn
Minimum share application size: 2,000
Allocation for foreign investors: 35%
For Kenyans and East Africans: 6.5bn shares
Share application dates: 28rd March to 23rd April
Shares listing date: 9th June
Safcom PBT: Ksh17.2bn for 2006 (will probably hit Ksh20bn+ for 2007); 9.5m subscribers which equates to almost 85% of the market
EPS (assuming '07 PAT of Ksh15bn): 0.375
- The potential growth is still there, because only 1/3 Kenyans are using mophos today and one would imagine that this will grow to 50% of the population if the economy picks up its 2002-7 momentum
- Beyond growing subscriber population, Safcom will be able to leverage higher ARPU from a proportion of its current population
- Safcom will (if it hasn’t already) go for a full licence so it can also enter the internet provision market
- Don’t forget mpesa
- Price forecast: May go to Ksh12, then down but will steadily rise ala Access Kenya
- Kenyans will be chasing Ksh6.5bn, equating to around Ksh32.5bn i.e. a sure oversubscription maybe of around 50-100% given the stock on offer
- All brokers will struggle to cope with applications-Kenyans typically wait till the last week.
- Its not yet clear how Nyaga’s customers will be treated given the broker is down, but it represents an opportunity for others to take over 200k customers
- Assuming refunds will happen, beware that some of your cash will be held up for 3 months minimum.
- Assuming that Kenyans spend around Ksh40bn on the IPO, the NSE will be drained and may go below 4,500. A buying opportunity? Maybe.
- Whatever happens, another Ksh32.5bn will be in the NSE, does it mean counters may be depressed for longer than the IPO period? One for good investors to ponder
- Given the anticipated liquidity crunch, I hope GoK introduces dvp to a wider investor population other and has more than one bank involved in the process unlike KCB’s position in previous IPOs, otherwise the banking sector will suffer temporary liquidity issues.
- Unless the process is better handled, it could be an opportunity for some broke broker to eat.
- It'll remind the outside world that Kenya is indeed capable...
Thursday, March 13, 2008
As the convulsions keeping on blowing through the financial world, a wind chill is passing through London which still holds the financial centre mantle. Practically every investment banks has made a portion of its workforce redundant primarily the mortgage desks and its now spreading to back office. It'll shortly start hitting the high street banks. The issue is that since investment banks and others have discovered that they can't write-off their CDOs/CDS books without shutting shop, they've decided to sit on the stuff until the housing market in the US improves and that is not going to happen this yr. This then means that they can't underwrite IPOs, M&A, loan arrangements deals et al. Tough days. Most firms either use FIFO (first in, first out) or look at the highest paid when deciding on redundancies.
The scramble for Nyaga and other weak brokers will be intense among those banks that have been wanting to get into the business. I think Equity has got to be favorite for Nyaga's license especially given that most of the investors with Nyaga are from its natural playground of Central. If Equity with its customer base gets a license, its game over for many retail brokers.
Kiarie's move from BAAM is a big loss to it. He actually built the business from ground-level. I'm surprised BAAM let him go easily. He is the type those old-moneyed like Wairegi like employing i.e. very competent at what they do and not political.
Does Kenya have a food policy? What we are seeing in countries like Egypt, China could be a harbinger of food shortgages to come...
Hence this message to those PNU politicians in their expensive Italian suits, money made from dubious sources and Ksh8000k going to their banks every month trying to sabotage the recently signed Accord:
- Think: This Accord offers you the best of both worlds. How? One of the reasons for Mzee nearly losing his seat is failure to connect with most Kenyans. Raila does that better than any of you currently. So cut the jealousy and lets grow Kenya. After all, most of you profess to only be concerned about the economy.
- Shut-up if you have nothing peaceful to say: I once heard somebody say that the prisoners who get the most out of prison are those who adapt quickly to the fact that they are in prison. Whether you like it or not, this Accord is how we will be governed for at least the next 2 years. Watch Kiraitu and learn.
- Remember: Tribal nonsense is what got us the happenings in January 2008. So give it a break. We don't want anymore Kenyans getting killed over your ability to forget the past almost overnight.
- 5 years is a short-time
Tuesday, March 11, 2008
- with our economy projected to double in size every 10yrs, i.e. double electivity demand
- Rural electrification project underway and whose effect on demand has not been quantified
- population growth not slowing down
Hence the need to bring solar energy into national energy policy. I'd envisage that the easiest and more efficient way to institute the policy would be to concentrate
on consumer rather than industrial demand. A few years back when I was planning to build in chags, I was quoted Ksh50,000 for
solar panels to electrify a 3-bed house. That might be out of reach for most Kenyans, but I believe there is where a national policy
would come in inform subsidies, tax breaks where imports are required and even promotion of
solar farms. As a matter of urgency, GoK should require all new houses being built to be solar powered
(or at least, to have certain mw being produced by installed solar panels). It can then systematically require
other properties to install solar panels to produce given mw.
Already seeing the opportunity, a Chinese company is
buidling a factory to manufacture solar panels in Kenya. Other articles on the same, by Afromusing and BDA.
Monday, March 10, 2008
Identifying what needs to be done is the easy part,
- Financial services regulator with a remit to look at all deposit-takers
- CDSC must been given the power to police trades and become a different audit trail
- Stockbrokers must file daily returns that reconcilable to what is held by CDSC
- NSE must de-mutualise
Doing it isn't easy because it should have been done last yr,
but because FT found a buyer, the unpalatable steps were not taken. It’s a bit like our political scene.
Talking of which, don't some peeps like Muthuara and Martha realize the kind hole Kenya was in last month? Muthaura needs to go to his farm and enjoy retirement while Martha can become our first female Rais
but needs to pick up the populist lessons from the golfing Raila.
Thursday, March 06, 2008
- having a cabinet that includes all the tribes in Kenya is tribalism itself;
- having all your cronies in the cabinet is cronyism and low-level corruption;
- having such a huge cabinet shows we’ve not learned anything from last yr
After yrs of virtual meltdown, coffee prices are on the up. Will coffee farmers at home benefit?
Well done to Arsenal on beating AC Milan in style-tough coming from a Liverpool fan.
Yvonne Ndege of Al Jazeera is in the firing line after a recent programme exposing some guys who help underground Kenyans with the required “makaratasi” for the UK. In the UK, you have 6 types of Kenyans living here:
- those who got papers by getting employed by companies here-very few
- those who got papers via family (marriage, parents)
- those who got papers as asylum seekers including a significant proportion who did so by assuming other nationalities
- students plus perpetual students
- those who got papers through the underground channels
- those who live on the underground
I’d say 50% (much lower than 10 years ago) of UK Kenyans fall into the last two groups and it these who‘ll feel most aggrieved because Yvonne’s programme turns the spotlight on them.
Monday, March 03, 2008
How important is succession planning? Its now part of many firms' business continuity management aka disaster recovery plans. In almost every facet of life, one needs to think about will whatever I'm doing stop when am not there? Some of this is also about securing your legacy if you have one. Its good career management. It a form of risk management. Its good business as it ensures a firm stays dynamic rather forever changing philosophy as it acquires new CEOs.
When done well, it can mean a stress-free pre-vacation and post-vacation period in a workplace. Imagine how smooth transition in Kenya's politics would be if we had leaders who felt secure enough to create many successors.
Many find difficult to do.
- Its especially difficult to do where the role has no routine for example being a CEO or a president. You can however get peeps to deputise for you or even just be by being an effective role model.
- In other areas, you many not want anybody to know everything that you do for example the front office of an investment bank or commission based roles. Here you may have your clients and with the motto being there is no"i" in team, succession planning tends to be put to the back burner. To combat this some companies will have what they call principal and associate roles where there is the guy who gets the clients and the one who does the follow-up and in effect has to as much about the client.
- Insecurity about your job, your perofmance will lead to questions like, won't so and so take over my job/role if I teach them how to do it?
If Kibz, RO and other politicians can change the habits of a lifetime, Kenya will be an African economic powerhouse by 2011. The upside of this is that the NSE will outdo its 2002-6 performance, as foreigners start chasing the frontier markets in earnest. The downside is that firms are now getting competitive and in every industry, listed companies will feel the heat.
If your chosen firm doesn't have any plans for East Africa to start with, then it'll struggle
to grow beyond being able to handle compe in Kenya. The 2nd important reason is to reduce the Kenyan political risk on your chosen stock which will be there in 2012 (if there are no elections in 2010 which I hope). You need stocks that can effortlessly grow come funny politics or not.
Both TZ and Ug are growing are at roughly similar rate of around 5% per year.
Ug is probably the easiest market to access grew at an estimated of 7% for and has opportunities in construction; banking; large infrastructure projects and the clincher, possible oil wealth.
TZ remains largely untapped and possibly hostile to Kenya but the EAC economic zone will overcome the latter.
Further on we have Rwanda and Burundi. Rwanda is working furiously hard to become an investment haven despite the smallsize of its market and language barriers, is seen as having huge growth potential. If Kabila can breakaway from his father’s habits, there is not enough space to write about Congo's potential especially in commodities. Ethiopia with the 2nd largest population in Africa and an economy averaging 9% presents opportunities in agriculture; huge hydroelectricity potential; potash deposits and of course historic tourist sites.
In terms of stocks already expanding regionally, EA Cables; NMG; EABL; KCB ; Kenol; TPS and DTB are at the forefront of this trend.