Portolio- 6month retrospective

This was me in Dec, I am here today:

Kenya:

Equity-remains unchanged. In any case I've now got many due to the spilt. Didn't really take advantage of the low of Ksh93, but would if it came around again. I like the focus on on augmenting regional income to 40% of total in the next 3-5 years.

Access Kenya- added some at Ksh20 and some at IPO price (was just great to see at that price). My average is now a healthy Ksh16 ffrom almost Ksh25 at one time. Will hold for a couple of years in the hope it get s bought.

Cash- still keeping some for any really attractively priced share.

Overall NSE view:

For anybody that was trading, the first half has been fabolous hunting ground on the NSE as I will show in a later post. My gut feel is that there isn't much momentum for the 2nd half of the year due to the bonds, possible IPOs (Consolidated, NSE are both slated for this year as is the bread maker) and I get a feeling that El Nina might be on the way.

Uganda:

Interested, in expanding portfolio from just Clay.

TZ:

DCB is a hold for a few years. In any case,I'll have to go to TZ to liquidate.

Zambia:

Sold Pamodzi Hotel at an fx loss of around 25%. Very illiquid share that I had bought with the thought of getting some kind of share spilt. Wapi.

FTSE:

Opened share trading account in earnest. Hoping to stay there until results season in 2010.

March and April were the wow months. Got via Barclays in mid-March doubled up in a couple of weeks, got out; got in again made another 50%. Jumped to RBS made similar.

May was the ouch month. Lost half my gains while pretending to be a day trader, full-time busy office worker, parent et al.

June was mostly boring until the last week. Up 5% down 5%. Very tedious especially when you are trying to get back to buy and hold.

Have learnt a similar amount to what I learned in 5/6 years at the NSE. A bird in hand is better than two in the bush; stock markets are legal pyramid schemes; get in when no one is interested; ignore broker recommendations; be fearless in buying and ignorant of past sell decisions.

Looking forward: have been tempted by China, oil, efts and will bite one of them. Plenty of other investment opportunities though the window is closing rapidly. Great business ideas but to need create time for them.

About the trees- again

You know things are bad when it get FT's attention. And stockskenya, NTV's and whoever else atention. Wangari Maathai has been talking about the fact that we need to plant trees since 1980s during the era of the unmentionable. Those days she was like Noah of the Ark-fame. Are we going to wake up and avoid the fate of the many who got drowned making fun of Noah/Wangari Maathai? This time by hunger?

When was the last time you planted or encouraged somebody to plant trees.? Why aren't we getting touchy about deforrestation in Mau, Mt Kenya, or the Tana River (and the Qatar) land grab? Or the drying Mara, Uaso Nyiro rivers. Yet we can cry ourselves hoarse BSing about some dead musician/p who won't add sukuma wiki or Kenyan grown maize to our plates. Swine flu which dominates the headlines today has got nothing on the coming drought or fights over land and water. Where is Michuki/Kimendeero when his purposeful leadership is needed?

Difference Europe & Africa- Lets plant trees

If you go thru most of Europe, these countries are all green. Sure it rains often-its more likely to rain than be sunny in the UK on any given day, However and imho, while there is a big part played by geography (Gulfstream and areas of high pressure), I think the regular rain is partly driven by the fact that these guys really plant trees.

I was thinking that it'd be great if say 3m Kenyans each decided to sponsor 10 trees each. It would make a difference to our chances of getting better rainfall consistency even as we wait for GoK to grow the balls to tackle Mau forest's disappearance...

NSE weekly: crucial next pt is post Q2 close, Olympia...

NSE was up almost 10% for the week on strong foreign buying. Top climbers were penny stocks such as Co-op (up 32% pre-dividend close) and MSC (up 19%, despite 73% fall in H1 profits). I think alot of investors are geting overexcited about co-generation which won't start revenue generation until 2010. ARM was up 24% being the pick construction stock. I am really waiting to say how its going to throw out the great Bamburi from its house with this being a first step. From all points of view, it doesn't make sense to have the kind of share-ownership that Bamburi has in its two main rivals. What happened in the 90s is history. One stock that has flown silently and fast under the radar is Crown Berger. I really like stocks with small amount of total shares and it is one (23m with only 6m floated). It has gone from Ksh10 in end February to close at Ksh29.50 jana. All well, I've now got it on my radar.

Next two weeks will be pivotal in signaling whether this is a bull with steady legs or an upside correction that will leave us swaying between 3-3,500. Next Friday should see fund managers exit to close books for half year. From there, it will increasingly become clear which shares are being ramped up and which are strong fundamentally. In addition to two of the above shares, I expect Equity to see some forward momentum in early part fo the week.

News, announcements and rumours:

Safcom continues to tidy up its broadband offering with jv/alliance with Jamii which will in effect save Safcom from having to cable up the city.

Rumours abound about the state of shambolic Olympic (once its was a furniture distributor with regional aspirations; next it became an investment firm; forever raising cash; etc) may be under some stress. Apparently,a single sourced SK-rumour suggests that Plush and Natwood, its businesses in SA have closed shop. Last time I got access to Olympia's website, Plush accounted for 50% of its turnover. I believe its full year results will have to be announced by close of play in June.

CMA rules announced over a year ago will now hopefully become law as they've been included in the recent budget.

Other markets-FTSE:

Some yo-yoing though at last data is out there showing we are over the absymmal era and now just in the bad. Banking stocks are not being helped by rating agencies being behind the curve as usual and issuing negative credit watch for a whole swathe of sector. Remains all-good though.

Investor Information at the NSE in the Fibre Optic World

With fibre optic having landed, there is no longer any excuse for the NSE not to provide info to investors. Or the listed firms for that matter. And if neither is able to evolve in terms of using the technology, I hope that some of the firms that so enthusiastically picked up the vendor licences from the NSE can step up to the plate. It should also encourage ibs and brokers to move into better data and trading services provision. So what kind of information would I envisage the NSE and the vendors to be able to provide to investors at almost no extra cost, just extra brainpower. Note that this information would provide the NSE with a lot of upside in terms of increased trading volumes, number of transactions and improved investor knowledge:

1. Email alerts- allow existing investors or potential investors to register with your website so you email alerts to them:
1. When a share price reaches a particular value-this would be useful for investors who do limit orders
2. When a share price changes by a %-this would be useful for day traders or even medium term investors
3. When a particular firm’s director changes his shareholding-it’s usually a signal of something afoot. Director maybe leaving soon, maybe optimistic/pessimistic about the firm’s prospects.
4. When a particular firm’s shareholders change their holding by more than 1%- usually impacts the share’s price. Would have saved a lot of small Uchumi investors who would have noticed the Kirubi trades.
5. Any major (price moving), announcements for a particular firm-so this covers results announcements, bankruptcy filings; cancelled revenue generating contracts; divestures of loss-making operations.

2. Holdings: For brokers and CDSC there is now absolutely no excuse for not giving investors the ability to view their cd accounts via the web during trading hours.
3. Live trading: This is not so much the information but surely we can now trade live. If its funds, investors can send a certain amount beforehand.

The above would collectively see a 20%+ increase in NSE transactions in the short-term imho.

Lakini, there is the small barrier of required increase in transparency. Equity and Co-op have recently signed 7 year non-disclosure exmptions with CBK of their shareholders...

NSE touches 3,000 next stop is 3,500

NSE is up 30% from the March lows and now has in-built momentum to at least go up another 20% by September or year end depending on when GoK starts selling t-bills.

Fundamentally, the picture is still the same, with firms and especially manufacturers looking at a grim 2009 in which they'll struggle to match 2008 perfomance. Most banks are looking at 40% tops yoy growth with significant loan loss provisioning to be done. BBK especially I suspect has either hidden talent for creedit scoring customers while hawking loans on the streets or this will be a grim yr.

Telecom sector (basically Safcom and AK), will almost certainly recover previous share pricepeaks (at least in the case of AK), on the back of expectations about how fibre optic will help revenue growth. Don't forget however that internet providing will rapidly become volume business.

The main driver for the NSE rise is that risk apetite is back. Many investors who got burned from around October have probably been able to pick up some liquidity and are now back in the market. I also expect to see focused attention from Western funds back into the NSE thus the rising boats effect on every share.

Which are the good buys? CT has a fairly good list. I'd add TPS, NMG and DTB from Aga Khan stable. And if you are feeling aggressive, pick up Centum given its portfolio will recover in line with the NSE.

On Mungiki-we either choose progress or ...

Let me say that at outset, in my humble opinion Mungiki is currently a Central province given its the community in the province that has been targetted by Mungiki. That is not to say that other similar gangs can't emerge elsewhere in the country, but the reality is that they haven't.

The way central province handles Mungiki will largely determine whether it'll have another lost decade similar to the mid-80s to mid90s or it progresses on a similar economic path to the rest of the country if not faster given its advantages. The deal is this. Is Central province going to embrace the worse than mafia activities of Mungiki or are we going to arise and say no so that the province can progress?

Mungiki origins and driving themes have been discussed elsewhere. Suffice to say that it'd be a mistake to believe in land, poverty as the underlying causes. The 2nd mistake would be to equate the vigilantes with Mungiki as Martha Karua has been attempting to do. Its stupid and will lose her votes in any case.

The issue has nothing to do with GoK which despite employing its machinery to overcome the Saboat has watched as Mungiki has spread from Laikipia to Nai and back and then past to Nakuru. A large part of the reason for this is that the Mungiki-growth era (roughly since 2002) has been in a symbiotic-like relationship, been abetted and fed by the same politicians who now occupy positions of power. Mungiki openely paraded in Nai in2002 in support of UK in 2002. Peeps like Njenga Karume were part of oaths taken around that time in exchange for votes. Many of the current crop of MPs in Kiambu and Muran'ga have worked hand in hand with Mungiki and such won't dare stand against it.

The vigilante route is one way of dealing with issue. But an eye out for another and we are blind. I think it'd be better for the same groups to publicly name the mungiki adherents and basically warn them to leave the area. Then forcefully move them out if they won't do as adviced.

Parents must take responsibility for their teenagers. Not the responsbility of taking them to vigilantes for forgiveness. But reaching out to them much earlier via involvement in their school life. Finding activities for them to get involved in once farm work is done. CDF funds be can directed towards funding work on feeder roads, school/factory/health centre building activites which can involve some of these youths. And even sports activities.

Or GoK might for once put some thinking into the problem...

Information Age Arrives: Momentus day for Kenya

The last 18 months have been very rough on Kenyans and we should be thankful to God for day like today.

I actually think that the arrival of fibre optic cable has the potential to be impact Kenya’s economy more than the mobile penetration has.

The opportunities really are massive with a whole new economic sector not just in outsourcing but programming; off-shoring opening up.

One hold back will be power generation where GoK must aggressively encourage solar energy and other sources. I was expecting to see some tax breaks in this field in the budget just gone…

Special mention goes to visionary that is Bitange Ndemo who really has owned and driven the whole TEAMS project.

All in all, a great day in Kenya’s history.

Budget Initial Thoughts

Here are some of the budget highlights and my take:

• UK has tried to make an interesting budget by making it targeted.
• CDF per constituency is now higher by 20% but also increased funding for health, teacher hiring, school construction et al. But what is needed is better governance. For every Gatanga there is 10 Sabotis; Nyeri Town etc.
• Reduced duties on cotton but also on mitumba i.e. zero net effect on cotton farmers
• Money for wholesale agriculture markets- it’d be cheaper to bring in legislation to allow local commodity futures market
• Reduced duty on maize imports-what about increasing research spend for KARI to develop drought-resistant maize? There was money towards irrigation projects...
• Ksh250mn for juduciary development work. Drop in the ocean...
• Some rural ICT initiatives. These I like...
• Reduced duty on mobile handsets. The industry doesn't need a helping hand. Money would have been better encouraging fibre optic coverage or even solar energy initiatives.
• Ksh1.3bn towards the light railway project, but note this needs Ksh20bn
• Reduced dutieson cosmetics-for who?
• Usual measures aimed at reducing ministry car use; expenditure on stuff like furniture, travel. Remember Kimunya's ideas? Not that this will entail new cars. How and when will the expensive ones be disposed?
• No MP taxation-UK has just escaped a mauling
• Wierd stuff like reduction of duty on spirits- a good finmin will always raise his cash via sin taxes.

Overall budgeted expenditure is growing at almost 20% per year which is in line with inflation. Total gross expenditure is Ksh864bn against KRA revenue target of Ksh570bn (up 14% on last year). Thus I make the deficit a shade short of Ksh300bn. Of this Ksh109bn has been flagged as being financed via bonds; there is some external aid (Ksh35bn). So still have a gap.

Bonds (cue higher interest rates) will finance some and of course some listings when NSE is buoyant enough. Do note that if there is competition between NSE and bonds, bonds will win for the time being so expect downward NSE movement if the bonds are flooded.

Bottomline: Its an aspirational budget, but the deficit remains key worry.

Peter Kenneth for Rais

How many other MPs can beat his 6 year record in Gatanga? I think its one of the few constituencies that boasts a functional web site. Note the events board. And is ofcourse a showcase for CDF. By Kenya's admitedly low standards, he has a fairly clean record though stints at KFF and KRe may put questions marks over his record...

Although he has not decalred interest in the sit, it would be good to get people like him standing and competing against the homeguards...

Pre-Budget thoughts

Key driver will be the huge and ballooning deficit. I think we are somewhere north of the Ksh109bn that GoK plans to raise in the market. And that may not factor in contingency funding for droughts, floods et al; one-off hits such as the planned Census in August and the katiba referendum. Therefore:

Divestures:
25%+ of NBK will be sold to Equity and others. One reason to put some cash into the share as addition of NBK would make Equity undervalued on forward P/E basis.
New KCC
KPL was a shoe-in candidate a year ago. Not so sure given all the foregoing with KCB and the like.
In which case, KPA, KenGen 19% may have to come into play.
Outliers will be the likes of New KCC in 2010 and private sale of stake in KWL.

Flood of Bonds:
Well GoK has already said it wants to bring Ksh109bn into market. Cue good income for StanChart and other bond hounds. The downside is that the accompanying liquid sucking up will either have to be solved by higher interest rates or CBK reducing banks' reserve ratio. And of course, reduced lending which may be the exact shot in the arm the economy needs right now.

Sin Taxes:
Shoe-in

Lip-service to reforms:
I dream will get a much needed financial services regulator; increase in banks capital requirement to Ksh2.5bn; a halved cabinet (politically easier to do this than to get MPs to pay taxes). But I think we'll get something small on NSE, the annual "reduction" in car spend.

The case for a considered revival of KMC

Kenya Meat Commission's survival is once gain in doubt despite GoK spending almost Ksh1bn to get it up and running again. More is the pity. Kenya is an agriculture economy and the sooner GoK recognises and devotes not just money but better thinking process around how

1. Farming of all types from dairy, animal husbandry, maize farming, small-holding horticulture can be moved subsistence. Key to this is having supporting marketing boards of the New KCC and KMC variety.
2. Nurturing these market boards to become strong private sector players. Only notable successes today are New KCC (which is due to list when the market allows) and possibly Mumias.
3. Listing the said market boards so as to deepen private sector ethos and practices.

Beyond that they are social imperatives for supporting the likes of KMC:

• Diseases: effectively having small butcheries mushrooming all over the place will make it difficult and expensive to contain diseases that typically tend to spread to human beings. With a bigger outfit, it’s easy to have the centralised command control needed.
• Arid and semi-arid areas make for inhabitable business setting up. GoK is better at doing this in these areas as part of its development program.
• Quality product: Its easier for KMC to support farmers in bringing stronger healthier (leaner for those who care?) animals than GoK trying to influence smaller butcheries to support this.

The only issue is corruption but then this is not just a public sector preserve...

Kifaki to Mugabe...

I pity Mugabe's secretary. He/she must have been worn out trying to take notes for Mugabe to chart his path forward on governing with a PM.

Are these the leaders we deserve? Seriously? Two elderly gentlemen who have long forgotten what it is to go to bed without or to endlessly postpone doing spending on a necessity to meet daily needs. Men who only ever see a computer when they are launching some project or the other...

NSE weekly: KQ cut up by a hedge, CEO Mahinda's exit & others

NSE has started catching fire and should hit 3,000 before end of June as fund managers close for interim reporting. Discerning investors who conquered their fears in March are of course exiting into still underpriced shares... UK investors note £/Ksh rate is now Ksh125 (was 128 earlier in the week) from its strong Ksh114 earlier.

Results & Announcements:
The headline will be that KQ posted an eye-watering loss for 2009 (the largest in Kenya's history?), but

• Turnover was higher than prior yr across board though some of this was due to the slightly stronger Ksh over the period
• Passenger numbers were either higher or flat in all the its flight regions
• If you remove the hedging strategy's P&L impact from both yrs, KQ had a higher PAT than 2008

However,

• operating profit was lower driven by higher costs, which is not good especially if the $ strengthens this year
• the hedge was/is a mess and there is no getting around that. Mark to market is not the issue because that is international accounting standard. KQ would still have incurred the realised losses of Ksh1.4bn. You can't hedge a large portion of your fuel for 3yrs at $120 when the oil price has never gotten that high before. It’s similar to the way you won't buy a share at near its highest price. A 6 or 12 monthly rolling/calendar hedges might have been more ideal to allow recalibration of KQ's hedging strategy to oil futures.

So how did Virgin make a profit where BA and KQ haven't? Well, it didn't under IFRS but it did under UK GAAP (its a private company so can do this), which still allows hedging revaluation movements to be done via balance sheet and STRGL as opposed to P&L. DPS is Ksh1 and payable in October... Share price tanked initially but recovered to close down 15% for the day at Ksh20. Going forward, KQ will probably take a hit of a similar magnitude of released loss on its hedge, will have a lower unrealised loss (a round number would be Ksh1.5bn assuming oil prices stay at current levels), and should see continuing improvement in its BAU revenue for this year.

EABL's CEO Gerald Mahinda move is a bit strange. He has presided over a very successful spell at EABL and its a bit of a surprise he wasn't given a bigger job as say MD for the African operations. His replacement seems a relative novice into the Kenyan market. An opportunity for Keroche?

Macro:
Economy will move sideways this year and with remittances down expect interest rates to have to rise at some point to help bridge the budget gap.

FTSE and other markets:
Staying well balanced. Barclays went down well below £3 as expected but has since resurged as it confirmed BGI sale. Next test for all banks is the performance of govt bonds which may end up forcing interest rates upwards.

Barclays: drowning bank or misplaced fears?

When the banking industry was in the throes of its most turbulent period for a spell, banking analysts, watchers and investors fully expected Barclays, a big player in fixed income to be among the first to keel over. Barclays managed to fight itself out the corner by signing up foreign investors; revealing strong financials and generally talking positive almost daily. It even resolved to sell its ishare business (the largest provider of some of the more progressive investment products e.g. efts, in the market today I believe). As a final vote of confidence the FSA gave it a pass after due some tough stress tests. As a result, its price recovered from a historic 47p low to a high of £3.21 early this week.

Then Abu Dhabi decided that its long-term investment was short-term and it was cashing out at some hefty profit along with a v funny FT missive. Then it announced that Timasek had sold out at a massive loss in January and it was closing its final salary pension scheme. At of course its now looking to sell its whole BGI business. That business is almost risk-free and earns Barclays steady though not proportionately huge revenue. So why sell now when Barcap may see lower revenues due to more limited activities (and yes more opportunities)?

In the short run, I expect the price may touch a low of mine, but long-run the bank seems to be strong and remember it did go through a stress test by the regulator...

Why?

• Why does trading in Western markets feel like pure gambling compared to the NSE?
• Why do most black men always go for the lowest common denominator (easily available) when they date other races when wazungus go for looks when dating other races?
• Why do bunge candidates in Kenya have to belong to a particular political party?
• Why do most self-confessed neutral observers always turn right or left when it comes to politics or religion? E.g. you couldn't find a liberal calling for no war on Afganistan after 911 even though by right Saudi Arabia could easily have been a target given the majority of the terrorist were Saudis.
• Why do most black women never pine for having their hair grow or be styled au nauterrel you know without the straightness, curlers et al?
• Why does a Kenyan like me who is a minority of privileged Kenyans who either have fast or continuous internet access use it to talk negative all the time about my country?
• Why do recruiters always hound you when you don't want a job and avoid you when you do?
• Why do we acknowledge God but disassociate ourselves with Ngai wa Kirinyaga, Anu, Enkai etc?
• Why does politics attract society's oddities? The sort that think it odd for their constituents (the majority who commute to the same city as they do) to get mad at their 2nd home claims or odd to a hire a cheering crowd?

Closure of coffee and tea auction houses a good call?

Price discovery is important to the functioning of a market economy. Price discovery is basically a mechanism by which the price of a product or service is agreed on. In almost every market, there exists a price discovery mechanism that acts as a signal to potential and existing buyers and sellers of where the price for their product of interest is heading. In the absence of a commodities futures exchange in Kenya, or the equivalent of the National Cereals Board, the tea and coffee auction houses have acted as the main conduit for this price discovery. The auction houses have also been used for blending which is where they take tea from Kenya and blend with that from India as an example and brand it Earl Grey. This later role is what I believe has caused the issues that led Ruto to announce the closure at the end of '09.

To close them down without a viable solution for the price discovery mechanism seems to me to be an act of folly and which will probably lead to farmers being messed up even more. And what about reforming the auction house by for example banning the blending of Kenyan tea, but keeping the price discovery aspect of the auction houses? Or going for a more evolved commodities futures market that mirrors those in the US?

2ndly, the Kenya tea branding exercise that is proposed as a replacement seems more to be a copy of what Ethiopia did successfully with its coffee (though it has to be said the Ethiopians had the bargaining chip and were well organised in comparison). Several queries though:

1. Does the intended strategy change take into account the realities of the current world market for tea and coffee?
2. Does Kenya as a producer of both products have the bargaining or product quality power to be able to launch a Kenya tea and coffee brand into the market?
3. Is the timing right given the current world recession in terms of receptiveness of world market to a new brand?
4. Who is going to do the centralised organisation required to market both produces?

Kudos Nation, Standard media

As an investor and an nrk, getting updated news and business/financial reports from Kenya is essential. Hence its good to acknowledge DN and Standard's daily inputs. Nation continues to keep pace with its use of technology and I think its digital edition is superb especially because its the only guaranteed source of all financial reports, something that not even the ever-dozzy NSE does. DN also keeps its new live with regular updates though there is still room for improvement. And its pioneering youtube version is pretty handy. And not a bad a share to invest in either.

Standard though playing a never-ending catch up game does to quality articles when its minded to do so. Its Tuesday business magazine is a must read and an area Nation has struggled to catch up with its Smart company mag.

Notwithstanding the sometimes obvious political bias (btw, this is not a Kenyan trait, in the UK, a scan of a paper's stories will tell you which side of the political spectrum its on-mostly right-wing Tory supporting), I think both media groups have advanced media and political freedoms in Kenya.

Areas of improvements:

Business coverage-remains anaemic and not even BDA has been able to fill the gap. I've never seen quality business coverage of any economic sectors. Not too mention the often rather obvious errors. Stories that touch on listed firms are usually never given a context. As an example a story about Mumias kicking off its power co-generation project should have touched on the revenue generation possibilities for the firm.

Political coverage- too much of it.

Happy madaraka day...