Thursday, October 30, 2008
But will this do as hoped and prevent these economies from a deep recession. Not if history is anything to go by. In the late 80s, the Nikkei was at around 40,000 (contrast with today's close of 9,000), real estate prices were stratospheric (average house prices in Tokyo were $2m). With such over-heating and everybody putting pressure on Japan to cool its economy, interest rates (that underpinned much of the bubble like today) were raised. And the wheels came off the economy and the Nikkei. The bear lasted almost 14years. This was despite interest rates being cut to and remaining at zero for years; massive gova spending in all kinds of fancy schemes. The main problem was that low interest rates couldn't be passed onto consumers because the banking system was broken with banks saddled with bad debts, undercapitalised due to the same as well as decimated shareholding portfolios. 2ndly, up until this bear, Japan had been a job for life type of economy. Job insecurity made consumers save more despite zero interest rates!
Today in the West, the economies are in the main driven by consumer spending. Consumer spending has been financed by cheaply available credit (in form of credit cards and overdrafts) and home equity financing. Both have now dried up as banks seek to aggressively reduce their balance sheets. Home equity apart from being a source financing, has been a source of security in the same way job security was in Japan. Therefore this is where Western economies must concentrate their firepower.
The prospectus can be found here. Browsing through it, I couldn't help but note that Co-op is just another bank perhaps in the mould of NBK. The young CEO has done a good job so far, but the future is probably going to mean more of the same. The capital raising IPO will fund:
- IT: New core banking system that will hopefully reduce cost income ratio
- Branch expansion
- Mortgage financing: This is capital intensive business
- Re-capitalising its investment arm
- Connecting Saccos-I've always wondered why Co-op doesn't concentrate on creating its own banking network with the Saccos
- Visa card franchise
- Regional expansion: Idea has legs but others are already ahead
Bottomline: Ask yourself the following two questions:
- Is it the cheapest banking shares (half yr comparison is attached) on a forward P/E (not just 2008, but 2009, 2010 etc) plus dividend yield basis? Don't forget to add in 2% selling fee...
- Can you, if you want/need to, exit above ksh9.70 (break-even point)?
Wednesday, October 29, 2008
My local team seats on top of the English league. And for once we the fans are worried. We've gone 18yrs without winning the title so we can do without false dawns. I'll only mention those words if the great Liverpool football club is on the same station come next March...
Tuesday, October 28, 2008
Centum (ICDC) and TC, the two Kenyan anchor shareholders have been battered in the stock markets reducing their leveraging opportunities. The bear markets will prevent all but foolhardy foreign investors coming in.
Hope we are not back where we were two years ago trying to hatch midnight deals.
- Meanwhile, sugar firms saga drags on...
- Grainhandling contract at coast when we'll really need effeciency-drags on...
- Econet-perhaps next March?
- Is TEAMS still coming on-board next April?
- Veep house-are you telling me our esteemed VP has been sleeping rough while awaiting his 76-room mansion?
They are the not only ones. If there is anybody who feels hot in the investing world, it has to be hedge funds. Most hedge funds actually promise absolute returns on your money (of course they are not an accessible investing avenue for joe public). Many are now heading one way. Down and out. And are behaving oddly too. VW was today ranked as the the largest company in the world by market cap, thanks to hedge funds scrambling to cover their losing short positions. "Some in tears", is not something I ever thought I'd read in the same sentence as hedge funds.
As this guy avers, trying to forecast the bottom (a key entry for many) is an exercise in futility primarily because the market is emoting. There are very few traders out there who are being logical about how they trade. All they know is that they've to cover their losing positions. WB can afford to put his few coins into the market now and watch them flow down. Fundamentally, he has made it. For some of us who are making it now, chasing prices downward is a bit like this annual exercise they do in Gloucester where they chase a big mountain of cheese downhill. Every year, you get many breaking legs and hardly anyone ever catches the cheese.
Interesting the silence on the Co-op IPO which kicks off this Thursday for a fortnight. You'd hardly know it from the deafening silence in all blogs and investment banks. Only AIB sent something via its customer clerks. One consideration is that Safcom IPO despite the all the hype is now trading at ksh3.10.
NSE conspiracy of the day: Was Murigu pushed or did ill-health finally decide for him. The evidence for a push is that practically all the brokers are in the painful grip of losses made when attempting to become day traders. Also as the pioneer of the otc market, he'd surely have wanted to be the launch it. Against that, he has been unwell for a while.
Saturday, October 25, 2008
Once the bubble bursts, assets reveal their true value. The question is which of these two value are true for the NSE index shares. If the true value is the one we are seeing today, we are in a bad spot. However, I am more inclined to think that most companies' true P/Es are in the middle somewhere anchored by the growth in their profitability. The question then moves on as to whether in the face of a global slowdown (shrunk markets for our products, lower remittances, more expensive imports), their profitability will be sustainable in '09 and 2010.
Bottomline: Based on the above ,I predict that the NSE won't touch 5,000 before June 2009.
Thursday, October 23, 2008
Financial perfomance specifically cash flow. Is profitability revenue or cost driven? If its cost-driven, you are likely to suffer redundancy under the first in first out rule. 2ndly, getting spending of any type approved will be a beaurecracy nightmare. If its revenue driven, is it sustainable?
History of financial scandals: If it has been involved in scandals, this will be repeated. This is very true especially in the finance industry. UBS (the one with the largest amount of write-offs currently), has been a victim of LTCM, hedge funds and now credit crunch. Similarly Lehmans.
Does it try to get you take a paycut? They don't value you as highly as your employer. 2ndly, they don't care if you leave within 12 months for a better paid job.
What is its position in its sector i.e. is it a niche player, a big player or declining?
If you value work-life balance, try and set your interview before 8 in the morning or after 530 as that will give you a good idea.
And your prospective boss:
Does s/he understand the firm and where its going? If s/he doesn't, chances are s/he is unambitious and won't be staying long in the firm.
How long has s/he been in the company and has s/he progressed or any inkling of ambition? 5 years means s/he has experience, 10 years that s/he knows everybody and will stay there unless redundancy or retirement claim him. If he has been doing the same job for 5 years, worry. If s/he is new then you get to learn the firm together.
Does s/he ask the obvious questions i.e. about any gaps between jobs; fast-changing between firms? Job related queries?
Does s/he answer your questions properly? Remember your prospective boss is also trying to sell him/herself to you.
Wednesday, October 22, 2008
Who gives Kibaki/RAO the authority to forgive their henchmen for crimes they didn't commit against the two?
The credit crunch impacting the banking system seems to have been largely been slowed down with sovereigns becoming the counterparties (the 3m LIBOR is down though not that significantly). However, global stock markets will continue to take punches because there are as yet no plans to slowdown the erosion of home equity as house prices fall in US/UK in particular. One of the more innovative ways would be to lengthen the period before repossessing or auctioning homes. Another, now being discussed in the UK is for gova to encourage councils to buy up more homes and utilise them for welfare housing. Either way, capitalism now needs a helping hand from govts otherwise the recession will be deep and long.
Mark Mobius' enthuasism for emerging markets is still going strong despite decoupling now being seen as another failed theoritical model. What he doesn't mention is that risk managment is now the number priority for many banks in the West (and one of the few areas that is doing new hires rather than replacement hires). Add to this, these institutions are ordinarily supposed to take a bigger capital hit for all non-OECD business. Draw your own conclusions. For sure emerging markets remains more attractive and funds will be poured in. Not this side of Xmas though.
Tuesday, October 21, 2008
82 nominee accounts for one client with the same broker! And peeps wonder why brokers are collapsing and insider trading (front-running, short-selling) is rife at the NSE? By being able to assess this amount of funds and shares from NSSF, DSL would straight away start trading using the shares. However, most dealers just like the rest of us have no idea which way the market will blow and are inevitably caught out when NSE goes through a bearish session (such as March 2007 when FT collapsed and the current one). So why is NSE keeping DSL open for business? Beyond losing their jobs, will the NSSF board be punished if funds are lost?
Roads are once again a major life-taker. The reason is that Ndarathi Murungaru and Ali "Koffi Olamide" Makwere are not Michuki and hence haven't been able to maintain the good work he started. Will Makwere lose his job?
Saturday, October 18, 2008
-BAT, Crown Berger, Kakuzi, Kapchorua, KQ, Kenol, Limuru Tea,
Rea Vipingo, Sameer, TPS Serena, Total, Unga, Unilever, Williamson Tea-
So what is going to turn around the NSE?
- The global fear factor: is obviously something we can't really do much about. Those thinking that investors will switch into frontier markets are dreaming for the time being.
- Inflation-Means less disposable income therefore less to invest. Unlikely to go below 20 (key-level in my humble opinion), this side of 2008.
- BS broker shenanigans: This week's announcement at least shows somebody understands the impact this has on the NSE. Trust us Kenyans to know problem, its cause, its cure, and still sit around like lemmings. It'd help if us investors highlighted issues encountered openly. That way, those affected will be a smaller number.
- Supply: Okay CO-OP we've known about, but it might be nice to postpone any pending IPOs or supply increasing corporate actions for at least an yr.
Listing date: to be confirmed
Price is: ksh9.50
Minimum number of shares: 1,000
Retail allocation: 66%
Shares to be listed: 701m
Valuing Co-op at: Ksh17.5bn
2007 EPS: 0.84
Historic P/E: 11.31
Average NSE Banks Historic P/E: 16.9
Annualised 2008 EPS: 1.35
Forward P/E: 7.06
D-v-p: to be confirmed
Recommend: First chance to get full subscription
Friday, October 17, 2008
Thursday, October 16, 2008
- Qualifying for first time and having a chance for most us to see the games down in South Africa.
- Having an indegenous Kenyan (rather than a foreign mercenary so beloved in other countries) take us there.
Tuesday, October 14, 2008
Should the opposite occur (post IPO-price falls below listing price), that is where it gets interesting (or not);
- The loan book: Assuming the system worked perfectly, Equity would have received all the refunds from the 25% oversubscription (I have increased this because Equity lent to Safcom employees who had a much higher subscription), and 2ndly, assuming that the loans were not extended for other purposes, then the loan book that we are concerned with is between ksh5-9bn. Of this, good speculators would have disposed at a profit and paid back their portion-lets assume 20% were able to do this i.e. we now have between ksh4-7bn. Then those who panicked once share started falling so as to avoid having to find the bucks from elsewhere, I'd say another 30%. Thus leaving us with around ksh2.5-4.5bn. Of this, I'd say you have those who are more than happy to pay-off the loan and hold onto the shares for the long-term. This would probably be institutions or the high-net worthy. My estimate of the loan that Equity would effectively have to account for would be around ksh4bn as a worst case scenario. This then its holding in Safaricom. However, do note that is a big assumption to make i.e. that so many investors couldn't find the money to pay their loans. And also that this doesn't represent non-performing loans in the strictest sense of the word.
- Income impact: Equity is likely to see loss of interest and commission from selling Safcom shares. Using Ssem's interest rates, we have ksh0.5bn of lost income. However, the income from Safaricom IPO was always one-off (and hence why many have discounted it for Q3 and Q4).
- Capital impact: In accountancy terms, any unrealised gain or loss on assets never touches your P&L, but goes into your reserves. However, the unrealised gain or loss is counted as part of your capital. Equity would therefore take a hit on its capital equal to the reduction from the ksh5 listing price i.e. ksh1bn if shareprice is ksh4 on 31st of Dec.
Bottomline: Income impact relates to one-off downside, but there is a definite capital hit.
1. skillset/qualifications that you have because during a bull season, there will naturally be a scarcity for those skills
2. raw resources because economies grow/expand and consume more of all kinds of resources
3. shares, properties and more liquid forms all rise
During a bear season, those who hold cash plant big time as they are able to pick assets at throw away prices literally. So the paradox is essentially that during a bull, you have to amass cash and during the bear season, you have to buy up assets.Translated correctly, you have to get out of the bull at an opportune moment and effectively keep that cash handy for when the bear comes along. Hence WB's famous saying about being greedy when others are fearful (i.e. during bear) and vice versa. It does mean that;
- a successful investor needs to be able to spot the peaks and troughs
- in which case, selling off and running away from the bearish markets is counterproductive because it means you can't spot the turning pts
- a better strategy is say if you have a particular portion that you set aside for saving and investing, you half or say go to a 1/4 of this portion as investing amount. You therefore keep tabs on the market and have the cash you'll need when the bear hits the trough
- spread your buying during the bear season and only invest one-off lump sums during the bull
Monday, October 13, 2008
Lo and behold, today "its under management of KPMG" an euphism for being under receivership. I still worry about Apex because of its leverage and AIB because things are not good.
Seeing many say its good to diversify, moving brokers or having more than one broker at a time is not a bad strategy.
The title alludes to WB's famous saying about only being able to tell who was swimming naked when the tide goes out i.e. when markets fall.
They say loose lips sink a ship. No soon as a US offical started ruling out adopting the UK policy than the US markets dived downwards before Poulson quickly reassured that this was not the case and they recovered.
So will MS fold given the Lehman-like pattern its followed this past week? No. US govt has now learned that Lehmans was a "tbtf" investment bank so it won't be allowing any others to fall.
Kudos to the BBC for doing a full week featuring the Maasai Mara. Lakini I wish it would also focus on other aspects of Kenya that are good.
Ati there are 44,000 evangilical churches in Kenya? And two applications for new ones per day. Is this what is known as prosperity gospel? Church and money. Infact, church and vices now seem to run together.
Kenyatta day is named thus because its supposed to remind of sacrifices made in the past in which case why not call it something relevant like Freedom Fighters day? Na m-o-i day? What is it all about? Ama Kenyans just love these days off? Wish we had half as many in the UK.
"Unataka soda ngapi?", this guy seems to be asking. I remember last yr, a KBVL truck overturned near Karatina, guys camped by the roadside overnight with cups getting sozzled.
Saturday, October 11, 2008
Safcom continues to be the victim of our so-called NSE foreignisation policy. Some muppet at D&B thinking only of the commission to be accrued never realised the other side of the coin i.e. decoupling can be good for a small stock exchange such as ours. So will the NSE be taking up the new fad of halting trading for hours if not days? It all depends on how much the brokers will put their selfish interests before the wide market. If commission is king (as I think it tends to be), then there is no chance of us copying the "take a break" route. My preference would be we continue trading and even bring in CO-OP. I might be tempted to widen my net and look at other stocks in such a situation. I have price targets below which some stocks become too cheap not to buy. Imagine even BBK is now becoming tempting if it goes below Ksh40. ARM though remains impervious to any of the bearish stuff and I think it will rise next week following this announcement which will scale up its cement business.
Speaking of Coop, with a week or so to go before its due start date of October 20th, nothing much has been heard. I received a questionnaire some time back from D&B, but that is all I've heard. I really hope its floated now as it might be the only chance we get of a full subscription.
Thursday, October 09, 2008
Wednesday, October 08, 2008
2ndly, this is a retrospective step mean to cure known toxic stuff in the banks balance sheets as of now. It like the US zillion game doesn't tackle the underlying depreciation in assets which is the main cause of the toxic stuff. We won't get to the stage that we have a normal banking system until lending and deposit holding is behaving normally.
Finally, we still need some of securitisation for the mortgage market to grow. When will this happen?
UK Stockwatchlist: RBS, rbs. Goodwin will deliver some upside...
Tuesday, October 07, 2008
Technology is a wonderful thing. This weekend I was having a look on google earth at some of the maps they've put together and you get can some places in some very good detail. I was surprised though that you could see Nyeri well, but not Ngong or Karen. Googlemap isn't much of an improvement on this.
So how many banks will be nationalised (fully), by the time we are through these seismic shifts? Practically every EU country now seems in the throes of panic about whether this or that bank is going to have a depositors run on it. Many of these banks are going under because of serious neglect by regulators during the sunny days. In the UK, the regulatory regime adapted was to only visit the so-called strong banks every 3 years. So why can't they just leave them to the same neglect now?
And how is our banking sector doing? I have concerns about NPLs (given the background of high inflation and the Jan issue). However, Fitch is surprisingly perky about the sector. Still would like to see consolidation, but thinks this unlikely in the short-term. One thing I agree with it, we need to see the likes of BBK and Stanchart listing more of their shareholding.
GoK will now do away with the 30% requirement for the telecom sector. I guess it probably doesn't matter that much given the sector is pretty competitive, but I hope this isn't changed for other sectors.
Foreigners are however running back home to preserve their flanks against the global tsunami.
Won't it have been easier if GoK had thought about removing this VAT charge before raising the electricity bill?
Monday, October 06, 2008
The issue is simply this. The wholse funding market has pretty much collapsed as banks don't want to lead to joe blogs bank ltd which then collapses tomorrow. So far, the collapsing banks are those with high dependancy on such funding. Hence why why all the big ibs have either collapsed or changed model to allow deposit-taking. And why mortgage lenders are also on the rack. Again, many are merging or collapsing.
Next comes other economic sectors. Iceland banks for example have use wholesale funding to fund Iceland business which have then come to buy retailers in the UK. You couldn't make up what is likely to happen next...
Application dates: Sept 29th to October 23rd
Price per share: 470 kwachas (around Ksh9.50)
Minimum application: 1,000 shares
Shares on sale: 229m + 25m for emplyoees = 25.8% of total
Allocation announcement date: Nov 17th
Shares listed on: Nov 17th
Its not the best of Zambian shares on offer perfomance-wise. Zanaco is majority owned by Rababonk (A Dutch bank) and this its major selling point because it now has steady and banking-wise management. Prospectus to follow shortly...
Likewise the stockmarket.
So you can discern the seasons at the stockmarket?
Nyeri: A good starting point would be to avoid getting sucked into the unplanned growth and expansion that plagues Nai. The growth of slums and posh estates arbitrary needs to be controlled before the population gets to 1m or more. For a provincial headquarter, the town is a laugh and reminds me of those small towns you see in the US/UK all with same cross-shaped two roads one always being called "main street" (and "high street" in the UK). In Nyeri's case, you get one tarmacked road that winds its way in and out of the town. The town should go for a fully-fledged university based around the Kimathi Institute with supporting industries perhaps based on plans to build an internet or electronic village. A mzungu's view of the town (complete with mispronunciations). More impressively, the town now has a website though lacking in any useful content.
Malindi: The tourism is the main and growing industry but this town has a lot more potential than even Mombasa and could again act as an economic growth hub. The Mombasa-Malindi road would need to be improved and widened as would utilities around the town. As with Nyeri (ok and possibly every other town in Kenya), it suffers from a lack of planning such that this will have an effect in long-run if not contained.
Kericho: Before the recent happenings, I had seriously thought of buying a plot in Kericho town. If you haven't been, make sure you drive through this town. It really is one of the most beautiful places for me and very calming too. This is the only half-decent video I could find.
At a macro-level, if you shouldn't put all your eggs in one economy, neither should our economy. One of my biggest wishes is that given the dearth of planning in Nai, GoK, councils and indeed the local population in various towns and villages.
Thursday, October 02, 2008
Revenue collected by KRA doesn't tally with what is recorded as having been received at the Treasury.
A lot of the spend from the districts is only noted at the bottom of the accounts with no back up receipts or invoices.
The accounts as recorded don't agree to bank statements for most of the ministries.
And on it goes...
As luck would have it, the first "black" president will need FDR Roosevelt’s kind of leadership to make his mark on the US. Briefly this is what awaits Obama on his in-tray come January 1 2009:
- Economy in Recession: According to experts, the recession may last as long as 2 years i.e. roughly the time it'll take for the housing market to stabilise and start rising. In which case, most will have forgotten that this was Dubya's handy work and blame Obama. Unless he can do the radical surgery in his first 3 months aka the honeymoon period.
- Useless wars: 5 years ago, the war in Iraq made sense(mainly because Americans were frightened into thinking it did). Today, with 4,000+ dead and $1trn spent (another cause of the current downturn?), I doubt if many give a care. Ditto Afghanistan where Osama is still unaccounted for.
- Emerging Rivals: China and Russia will continue to challenge in the economic and military spheres respectively. US needs to be a lot more intelligent about how it deals with both and especially Russia.
- Nuclear proliferation: It’s difficult when you make yourself the authority on who should hold nuclear bombs. It requires consistency which is clearly not there e.g. why India and Pakistan but not its neighbour Iran?