Sunday, March 29, 2009

Raila gets saved for votes, also exploring changing name to Mohamed

Kweli the two principals have a lot in common. Including clowning. The thinking is that RAO will now be able to compete for any born-again votes that the born-again "wiper" may get in 2012.

Apparently you can now expect RAO to be beginning his speeches like this. "Before I got saved by the Lord Jesus, I took some underhand deals at the Energy ministry, exchanged my party for land in Kisumu, co-opted the corrupt into my orange party, infact I'd make a deal with the devil himself if he'd give me the presidency. Now I am making deals with Jesus. Soon I'll be doing some with Allah. Until I get the sit."

I understand the prophet (is his beard a wig?) who converted him also prophesied about him becoming president in '07. Lets hope he has better track record going forward.

Saturday, March 28, 2009

NSE weekly catch up-bottom found?

Another solid week at the bourse with the NSE index up marginally. Whether we have priced in all the bad news is something I remain sceptical about. I think NSE tends to price in with a lag and hasn't for example been taking into account the food and weather forecast for 2009.
Corporate Announcements and Actions:
NMG finally announced 2008 results. Was up 19% on 2007 driven primarily by strong cost control. Ksh4 DPS will be paid in May. I think this might be a tough year for it from the advertising point of view.
Co-op has bought 60% of Bob Matthews and is thus a stockbroker as well as its other businesses. The new broker will be the un/fortunately monikered Kingdom Securities. Imho, broking is a good easy business in Kenya. If your operational risk monitoring, prevention and detection is world class. Otherwise, there maybe cause to regret, moneterily and reputationally a few years down the road.
Hence Equity's well-known aversion to actually acquiring a broker licence. It held its AGM on Thursday to confirm the 3.9bn shares spilt-thingy, regional footprint/expansion and precious little on HFCK. I see HFCK as its potential achilles heel.
EA Portland has finally taken a hedge on its Ksh1.7bn loan from Japan. That took 5 years. And it still has Ksh3bn to go before paying off the loan...
Stanbic announced
48% rise in PAT from 2007 driven by 20% income growth agianst 5% cost growth. However, it also reduced DPS by 11% to be paid in June.
FTSE: Ended higher as Geithner's plan was being digested. MHO, I think the plan hinges on whether the banks will accept to sell toxic assets at throwaway prices. I prematurely exited Barclays after booking 100%gain only to see the UK gova give it a clean bill of health thus making price go up 24% yesterday! Waiting for end quarter profit taking.

Wednesday, March 25, 2009

Agriculture: Developing a sustainable, self-sufficient industry

To add some ideas on developing and sustaining agriculture self sufficiency:
  1. Land reform: There is the headline grabbing recapture of grabbed land. But how about online maps of land. The ideal situation would like in the US where you can google someone's name and see a map of their boma, but if we start with just scanned copies of maps residing at Ardhi house, corruption in that house will be cut in half. Then absent landlords are another bugbear. My neighbour in Nai has a 3 acre piece of land. But has been in the diaspora since '94... And stop giving away land to some foreign muppets.
  2. Farm sizes: 1/2 acre of very arable land would just about sustain a family of 4. So stopping smaller subdivisions in agriculturally rich areas would be useful. 
  3. Water: becoming scarcer with time as we love cutting trees down for charcoal, building and furniture. More tree planting, water storage and irrigation are all things that need to become part of every farmer's menu.
  4. Infastracture: Roads, machinery, vetinary services are all missing in vital food growing areas of our nation.
  5. Value addition: We tea farmers sell fresh green tea at Ksh9.50 per kilo. In Europe, its roughly Ksh700 for the same kilo in the supermarkets! Why don't we have more tea being packaged and exported and less of the leaves or berries?

Tuesday, March 24, 2009

Review: Mbugua Githere- A handful of Terere

This novel is excellent for the simple reason that its rare for anyone who is remotely influential in Kenya to write about how they did it. Presumably because the wealth acquiring wasn't straight.

I was interested to know how Mbugua survived the Emergency period of 1952-56 because my understanding was that it was ruthlessly enforced in Central with kipande required for daytime movements and curfews keeping you company at night. Collaborators were also key Mau Mau targets. Answer, he greased the homeguards' palms; gave money to the Mau Mau cause and lent his lorry to the colonial masters to go and arrest Mau Mau in the forests.

As with many entrepreneurs, he started with one idea and grew his confidence and financial muscle from there. Terere, is a naturally occurring weed in many parts of Central, but was in his formative years, popular food with Wahindis. He'd help his mother pick, carry and sell the stuff to Parklands, Ngara and those areas. So its true some Kiuks did benefit from the proximity to Nai, but when you read what they had to endure (under payments, chased away without being paid), you can't really call it an advantage. Having survived the emergency and colonial period, the Uhuru day found him and others like his friend Njenga Karume very liquid and they were able to partake in the only sport of the day. Acquiring assets being disposed by Odiero. Of note for NSE investors is that he at one time held 6% of the then recently listed Pan African.

The book suffers in having been written by a fictional writer. Mwangi Gicheru of "Across the Bridge" fame has brought his fictional style to bear and IMHO it spoils the book. The best biographers are journalists who know how to record and tell events. 2ndly, as with Ndegwa's autobiography, A handful of Terere suffers from poor editing.

Overall, its a page-turning rags to riches tale of a man who (again like Njenga Karume), was barely literate. Its very important that we get more of these types of books because they become a later-day reference for our grandkids.

Saturday, March 21, 2009

NSE weekly catch up

Market slowed down this week as the bear rally came and went. Is averaging down a investment strategy that is hugely propounded on our bourse an emotional feelgood strategy or investment nonsense?
AK came in 65% higher than 2007 with increased corporate clientelle and also expansion into the residential market. 2009 will the blockbuster year for this listed ICT firm. Once fibre optic lands, the game will change because revenue per client will come under challenge from compe and the firm will thus need to significantly increase its client base. Ksh0.4 DPS awaits the lucky shareholder in the books as at June 18th. IMHO, this will be one of the shareprice performers of 2009.
Pan African Insurance was driven to distraction and Ksh100m loss by its associate investment company. Significant challenges ahead though its trying to diversify into property.
Standard Group, the mother and father of distinguished gems such as KTN, Standard newspaper et al clocked 19% PAT growth driven by 8% turnover growth. Cashflow remains negative therefore no DPS. Going forward, the group is targetting the launch of a radio station in Q3.
Macroview: UN has increased its food aid plea for Kenya. We are well into March and the anticipated heavy rainfall season remains patchy at best.
Other markets:
Excellent week at the FTSE. We have our first black CEO in the FTSE 100! Tidjane Thiam, a former Ivorian Coast cabinet minister will head PRU, one the largest insurers in the world. And Barclays is up on last week :-)
Have you invested in LUSE? Do so to take advantage of future higher copper prices.
Will Geithner last? Because the way I see it, its either he shapes or goes or Obama will be a first-term goner. The global economy doesn't like a rabbit in the headlights Secretary of Treasury...
The Gartman Letter has been whipping WB black and blue this week. Not happy with the credit rating downgrade and reckons Berkshire Hathaway is an overvalued stock. That is on a 5yr low. Still, I think WB has proven himself.

Thursday, March 19, 2009

Intro: Mortgages in Kenya

A mortgage is a loan taken out to buy a house with the house acting as the collateral. This bears repeating. A mortgage is loan just like any other.

For the borrowers
Things to consider are;
  1. Can you afford a mortgage? A mortgage will rarely ever be less than your monthly rental. By itself. Once you add council rates, utility bills, furnishing, maintainance bills (these will be there whether the boma is new or old), you'll see your monthly costs go up by a third of your rent. So you must look at the likely monthly repayments. Your mortgage repayments will depend on...
  2. Price of property: Prices have rocketed in Kenya though the upmarket areas are now seeing a much needed cooling off. I think the key driver was the cash-only buyers primarily remittances and these are already falling off. However, the lower end of the market has sufficient demand to see it continue growing but I doubt we'll ever see the frentic pace in the upmarket areas. Websites that will get you a feel for prices are many but a few are villacare;; hassconsult; nyumbanet and uzanunua. Many think that there is a bubble in the market and this may well restrict your resell price should there be a marked corection.
  3. Your deposit: The higher the deposit you put down, the lower the loan you need to borrow. And of course the lower the amount you want to borrow, the more interest rate options you get. The key criteria is always, are you better off reducing your monthly mortgage repayments compared to earning a return in some other form of investment. Put another way, can you invest the deposit in another venture that gives you more than say the 15% interest rate that you will save by oputting the deposit down? However, its rare in Kenya to get 100% mortgages so some deposit will be required.
  4. Interest rates: There are two things you need to know about interest rates generally, the current rate and the future expectations of where interest rates will go. There are two types of interest rate deals that are currently offered in Kenya. Current interest rates are set depending on amount you want to borrow and duration (term) you want to borrow for. Variable interest which basically means that it moves as general interest rates. So future expectations become of added importance. And initially fixed interest rates. I have put together a little table that I'll update from time to time.
  5. Monthly repayments: From the above, you should now have the bits that will help you decide what type of house you'll buy based on its monthly/annual cost. You just need to plug the numbers into this Excel equation... = PMT(interest rate/12,term*12,property price less your deposit). Alternatively, go here and input the same numbers to get your monthly payment.
  6. Location: This is a feature unique to Kenya where some banks only offer mortgages in specified towns. Reason is obvious.
For the lenders:
Important factors. With mortgages, its as important for the borrower to know what the bank will look for before lending.
  1. Income expenditure gap: Most lenders want to know that should they have to or decide to jack up interest rates, there is enough of a gap in your income-expnditure to allow for this. So for example CBA won't allow repauyments that sccount for more than 50% of your monnthly income.
  2. Loan to value ratio: aka LTV. Should be no greater than 80% or anticipated price correction at time of appplication.
  3. Income mulitples: Simply put this is the ratio of your annual gross salary to mortgage amount required. Prudence dictates that this shouldn't be more than 4 times.
  4. Screening reqquirements: Many banks tend to have more onerous requirements when they want to reduce lending and vice versa when they want to increase it.
  5. Other mortgage set up costs: These are noticeably higher in Kenya and include stamp duty, legal, processing fees et al.
Final point.
  • Take a mortgage to suit your stage in life. If you are young or have a young family, you'll surely be making a move to another house at sometime in your life. Therefore, consider a mortgage as you'd any other investment. Without getting emotional.
  • Late edit: If you are in the diaspora, avoid if you can, taking a mortgage in Kenya and if you already have one, exchange it. The difference in interest rates is just too big especially now. Instead, borrow from a local bank at a lower interest rate and buy the property or pay off your Kenyan loan. Kama ni makaratasi, find somebody who can do this in exchange for your title deed and an agreement.
BTW: the word mortgage is of French origin and literally means dead pledge.

Tuesday, March 17, 2009

Monthly Remittances to Kenya '04 to 01 09

I think the picture hasn't gone off the cliff. But expect to see the downward path for at least the first half of this year. Some of exchange rates especially £/Ksh currently almost discourage any but family-related remittances. The clear over-valuation means investors are better off coming in later in the year.

Discount Securities finally goes bust-Key issue is liquidity

DSL had the widest distribution network of the brokers in Kenya. In that respect, its a welcome relief that it didn't have some many customers as Nyaga. The pity is that some NSSF funds maybe lost in the process. Apparently dividends were manufactured to keep NSSF from asking too many questions.

This is the first real red mark against Stella since she was in the CEO job for almost a year before she moved to put Murungu & Son under some management restructuring.

A lot of this bother could have been avoided if she had listened to all those complaints against DSL and a myriad of other brokers.

So where do we go from here?

  • Apart from setting minimum capital standards and the ownership limits, Stella should also consider making capital requirements correlate to amount of business a broker is doing.
  • Ultimately, whether a broker is doing all the right things or not, what will make it collapse is lack of cash to settle up client sale needs. Hence, Stella should consider getting brokers to set aside additional capital as a liquidity buffer correlated to their volume of business.
  • CMA should change the composition of the fee to increase the compensation fund. They are very few investors who hold less than Ksh50k.
  • Faster action to weed out weak and rogue brokers. There still many other brokers involved in malfeasance and its important that we use this bearish period to rebuild a brokerage industry for Vision 2030

Brokerage business at the NSE should be a simple lucrative affair. If you have integrity.

PS: If you'd hvae a CDS account with DSL, you need to file a claim asap.

Saturday, March 14, 2009

NSE weekly catch up: bear rally?

NSE closed up almost 10% from its Monday opening with demand unmatched by supply on some stocks. Some of this seems to be being driven by the rising water effect i.e. Western markets rising and picking up everything else globally. Some might be illusionary however and nimbling rather than chunky bites of share-buying is advisable. Reason being nothing has fundamnetally changed from last week or the week before. Still, fortune favors the brave and the pickup might extend to one or two weeks before reality sinks in. From my point of view, I may exit one of my bigger positions because gains made from fx rates alone mean I can walk away and come back later once things come back to earth.

DTB announced 48% rise on prior year and with a regional footprint, looks set to compete with the likes of KCB and Equity for the fastest growing banks in EA. As I mentioned previously, I remain a big fan of this bank and especially because of its AKD connection. Would prefer it to KCB ( higher EPS (therefore lower fwd P/E); much much lower NPLs and a broader footprint regionally). DPS is ksh1.40 payable in June.
NBK grew by 10% from 2007! And deposits actually fell by 1% which does limit its ability to grow the loanbook going forward. I don't know how NBK shareholders can optimistically look forward to a dividend in 2010. And there is the prospect of the OFS later in the year.

Macroview: UK got trashed by this blogger when he was appointed FM, but made two positive announcements this week. The freeze on expenditure is way overdue, and the only disappointment is that it didn't go further and sink to be used as arguement for rationalising governance. Still, I think implementing will be much harder. Some cash should definitely be set aside for his PS to travel to Iceland, Mexico, Argentina among others to learn than yes GoK can get broke. The 2nd positive announcement was to manage expectations downwards on economic growth. 3.5% is doable where anything above 4% would have been a stretch.

Other markets:
I'm gonna make a call. FTSE has priced in most of the bad news and has either bottomed or will in the next few weeks. The only remaining pieces are Yanqui sorting their banking industry and the UK treasury's decision on how it'll treat Barclays' request for inusurance vs its toxic stuff. At close of business jana, Barclays the parent was trading at Ksh75 while BBK was trading at Ksh39. Go figure. Tullow Oil announced another oil find in Ghana and 80% growth in profits. Time for me to exit though...
Another IPO coming at DSE. Fuller details later.

Jack Welch has apparently changed his mind about the place of shareholders in a listed firm's priority list. And Babcock & Brown, an IB that was being considered for a role in RVR collapsed jana.

Wednesday, March 11, 2009

Yo Americano, sort out your banking industry

You can buy into a small position in the FTSE in the morning and be up 10, 15,or even 20% by 1pm. As you can't obviuosly trade at work, you await hometime to book your grocery expenses. Wapi! 2pm, Wall St bell dings, by 4pm, you are back to square one again.
Reason-everybody over there in the US knows there as an equivalent of the "dead man walking" in the the US banking industry, and thus looking to lock gains made in other markets.
So Americanos, we can all admit "makosa yalifanyika" in the past 5 years, but like the dude who uttered these immortal words, its time for you to take your whipping by accepting to nationalise Citi and Bank of America as a minimum and possibly shut down AIG.
Then we can start looking and defrosting markets for mortgage-backed securities and credit derivatives...

We can make change happen, be part of the change or be perennial bystanders

One thing we Kenyans suffer from is a virulent from of the free rider problem. Otherwise known as a liking for eating of the sweat of others. And yet, our involvement in making Kenya's a nation, its political system clean, our environment green, our economy grow at 10%+ per year need not be for altruistic reasons. Look at the dudes that supported Kibz from his DP days. Most have now ensured that their great grand children will be well-off. Some who had no time for English or Swahili (literally) still made Cabinet. A small part of me can't begrudge RAO for enjoying his 15-car motorcade. After all, he knows Kamiti better than most of us know our houses. Infact it can never be altruistic to want good for Kenya if you are a Kenyan.

You can make change happen by standing for MP or even President (PS: if you have to wives, makes sure one is not from Nyeri). You can make sure you interact directly with the various candidates and fine tune their thinking on matters affecting Kenya. You can work with and for them in similar manner to Sarah Elderkin and Jerry Okungu used to do at Standard. You don't have to wait until 2012 to do this...

You can be part of the change intellectually by being part of think tank on ideas to change the political, environment, economic and legal situation in Kenya. You can do Bankelele and promote your constituency's choice candidate. And of course if you have deep pockets, you can contribute funds. If you invest in the NSE, keep 5% aside and either support Kenyans who have ideas and ideals that you would like to see in our leadership. Or to finance your own candidacy.

Or you can be the perennial bystander forever whining about Kenya's problems, Kenyans, the weather et al...

Monday, March 09, 2009

Kenya Listed Banks: Comparison of 2008 Results

  • An almost positive correlation between low cost/income ratio and high EPS.
  • Return on capital is a bit of a misnomer as it sometimes represents unspent capital e.g. Equity and thin capitalisation (StanChart and BBK).
  • Tell me how BBK and Equity have similar proportions of NPL to loans and such a difference in terms of LLPs for 2008. Wonder what Co-op is upto- it actually reduced its loan loss porivision in 2008, yet it has the highest proprtion of bad loans. I am assuming some of this is historic...
  • Some banks lent out a lot in 2008-a proportion of these loans may turn bad if economy doesn't recover in '09.
  • Fwd P/E of 6.3 shows Equity has among the cheapest bank stocks at the NSE today. Will wait for it to drop once spilt is effected. And KCB and DKB are cheaper too.

Saturday, March 07, 2009

NSE weekly catch up: the next bull run

So, you've done your SWOT analysis, looked at recent share performance and finally you want to know how the share will perform i.e. when the NSE will have another bull run? Have a look at this 18 year chart for some clues. I believe without a shadow of a doubt that the NSE will only have another sustained bull run, if we have political changes that capture Kenyans' aspirations and imagination. Of a similar nature to the coming of the multiparty era of early 1990s and the Rainbow coalition of 2002. Why? Stock markets are about psychology (positive national mood has a positive effect on the stock market performance and vice versa). These changes also extend to the economy. Finally, those foreign investors who like to have some exposures emerging and frontier bourses will pick up on such changes and bring in their funds.
Bottomline: rather than averaging down and other bear tactics, why not invest some of that cash to change Kenya for the better? If 5% of the ksh690bn of the NSE turnover was invested in changing our politics for the better, we'd be far. And create the next NSE bull run.

Stanchart showed that you can be too cautious and it will hurt as PAT fell by 4% from '07. Its explanations about effeciency investments ring hollow unless there is a targetted revenue generation stream. Btw, it still remains the best share, dividend-wise (another Ksh5 will be paid). But also in terms of RoC.
Co-op: became the only bank so far that reduced its loan loss provision for 2008 (apart from HFCK). Many know that it has had previous history with bad loans so expect this move to bite it on the backside in 2009 or 2010. DPS of a whole Ksh0.10 was also thrown in for good measure.
HFCK's PAT was up 86%. Equity midas touch rubbing off on it perhaps?
Kakuzi also pulled a shocker with profit growth of 47%. And not only attributable to revaluation of tea leaves. DPS of Ksh1 to be paid in May.
FTSE: Finally got my second lot of Barclays's shares at a decent price. Otherwise very choppy waters as investors are fatigued by the bad news' stories. Mainly from across the pond.

Tuesday, March 03, 2009

Breaking news: kibz makes his 1st coherent speech

Who said the guy can't do comedy? Number two for the history books today.

Monday, March 02, 2009

Delayering Kenya's governance structure for faster trickle-down

It is said that the more fatty layers yopu have, the more likely you are to suffer a heart attack, cancer and sugar diseases like diabetes.
In Kenya today we have two parellel layers that are fatal to our economic or any other health. When you think about the trickle down effect (think GoK funds as a plate of chicken pieces being passed down the layers), how is it going to happen in these two fat parallel structures?

A political one
president->pm->vp->2dpms->40ministers->52 assistant ministers->210mps->3800councillors-> CDF committees
and an administrative one
president->minister for internal security->ps->8pc->107dc->262do->1000chief->2500sub-chief.

For the political structure, I propose we do away with the councillors from the political structure and if we must, just have an elected mayor to work with town council civil servants to deliver. Councillors are an expensive (Ksh200k each) waste. 12 ministers with two or three substantive assistant ministers would also do nicely.

On administration, I propose firstly that we have 10 provinces with Rift Valley and Eastern provinces being divided into two. Then do away with districts or by converting divisions into districts. I am not sure what districts viability currently is. Then do away with locations.
So that slims the administrative structure by two levels by removing the dc and chief posts.
I also propose that we make the officers in these positions part of the wider civil service so that job holders are all rounders rather than just good at administration. It'd also widen the career scope of say a land officer in Kajiador to go and be a division officer in Vihiga.