Thursday, August 27, 2009

Breaking news: NSE Brokers release financial results

Kudos Stella, these are two steps forward. Next thing is to introduce a uniform financial proforma. 4 lines of income (brokerage fees, advisory, profits/gains on investments and other); 4 lines of expenses (staff, admin, financial cost and other), capital and cash flow statements.

I will update as they come in, but clearly, a lot of questions/eye-brow raising stuff. No more than Renaissance. It made Ksh885m profit in investments in H1 2008 and zero in H1 2009! Believable? Well...

Although not a broker, Dry Associate is an interesting case study for where some of these brokers need to go to. Very little dependency on brokerage commission… primarily placement (of CPs I think) but very stable. Perhaps a merger candidate for Sterling IB.

Eagerly awaiting D&B, Gengis and Ngenye Kariuki's numbers...

Wednesday, August 26, 2009

Loss-making brokers? Need to get real

It must be for incompetency that stockbrokers have not been as profitable as banks in Kenya. Stockbrokers get Ksh2 for every Ksh100 transacted. Doesn't sound much. The total NSE' valuation was around Ksh1trn or just over that during the bubble period that peaked in last August (in transaction value terms). However only a fraction of that (infact around 10% at its highest) is ever transacted (bought and sold) in any given month. The monthly average transaction is under Ksh2bn. Thus 18 brokers (and shrinking) get to share Ksh20m in commission. And its not an equal cake hence some won't get even the Ksh20mn. However, even when you assume that each of the 20 employees (on average) gets Ksh0.5m per month, additional costs won't come to Ksh10mn per month. Therefore, with a few exceptions, its difficult to understand why the brokers have the issues they've had with profitability.

Going forward, brokers (new or old), will only guarantee profitability (and therefore survival) if

a) they can change the transaction charge structure so that each broker can charge as they wish, but also complete on service level and variety of distribution channels (including the cheap internet option).

b) either focus on volumes or transaction size, but this is already a target market by the likes of D&B, Kestrel Capital and SIB who rely on big clients making big transactions.

c) chase after the illusive ib trade of which there are already some ibs that get the choice business.

d) throw themselves at the mercy of the big deep pocketed banks.

Monday, August 10, 2009

Profetha, banks are not lending because...

A bank borrows from A and lends to B. The borrowing bit is called deposits and the lending bit is called loans. If it borrows from the raia, a bank rarely pays anything to borrow this cash, but will charge the same raia a considerable premium for lending to him/her. If it has borrow from other banks or other companies, it may have to pay something for the deposits. It can also borrow from the CBK, but its not called lender of the last resort for nothing. It'll sometimes demand explanations or a premium.

Simple maths will tell you that it makes a higher margin if it can borrow from the raia. Even more if it can lend back the same to that raia or his/er ilk.

Alas, we have times of plenty and times of scarcity. In times of scarcity, the bank can't borrow from the raia. It thus needs to pay to more to entice another raia or other entities to part with their cash. The other side of the equation is that the broke raia doesn't keep his/er loan repayments. The bank discovers things are thick. It decides that'll only lend to the select few who ordinarily don't to borrow anyway.

CBK wakes up and realises things are not well and its whole system is afire. Reducing the rates it charges as lender of last resort has no impact.

Professor that is where things are. Economy has no electricity to power businesses or consumers. Basic necessities are now luxuries such as flowing water and even food in some cases. It'd make more sense to have a word with the man up the hill...

Wednesday, August 05, 2009

Results Catch Up- NSE FTSE half yr

TPS Serena is recovering nicely from a tough 2008 and going by the visa queues at the Kenya High Comm recently, things should continue to improve.

StanChart surprised didn't it with an atypical 38% increase from H1 2008? The bottomline was driven by circa 24% growth in both interest income (and surprisingly nothing to do with govt securities despite the Ksh9bn increase) and F&C as well as flat expenses. In other words strong cost/income ratio. Capital ratios look tight. Still not a buy for me unless for dividend purposes (Ksh2.50 DPS will be paid in early Oct). NBK (an okay 11% uptick) and KCB also released some flat as a pancake PAT. Some high quotient analysis was done on the latter here. BBK's Adan Mohamed had a party after 5% rise on 2008 H1, but a couple of sobering points. Flat costs and vastly reduced loan loss provisions means there should have been a higher rise. But nothing came from the income side of the P&L. Finally, parent bank showed up with 8% rise despite a very challenging environment and did better than its rival clearing banks Lloyds TSB, HSBC. RBS may do better though.

ARM continues to defy high production costs with a 32% yoy increase in profits pegged on turnover growth of 16% and reduction in production costs. It remains despite its small 10% cement market the stock to watch out of the 3 cement sellers and infact one of the good picks from the NSE industrial stocks.

Olympia finally decided to announce its FY 2008 numbers. As expected, it rolled up with a loss though not as high as many of us had forecasted (Ksh56m). I suspect the numbers don't fit. For example, if you strip Ksh1bn for Plush, you leave Olympia where it was before it bought it. Smart...