Saturday, June 06, 2009

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.

2 comments:

Maishinski said...

Weak shilling is like sweet music to anyone with foreign currency getting into NSE.

BUYING TIME: You get double discount: i.e. even more shares at price "x" than you could have gotten during good times.

SELLING TIME: You get both capital gains and currency gains (likely that shilling would appreciate - hence repatriate more dollars for less shillings).

MainaT said...

The art of making money but not doing anything or doing something else. Instead of sending to NSE in Jan, invested here and will now send an improved amount at a fatter Ksh rate...