CMC: clear the fog

It is said in war, the first casualty is truth/facts.

These are gaps in the information:

1. Peter Muthoka was selected chair in May and the BoD had all the information they have today, why didn't the conflict of interest issue arise then?
2. Why did Bill Lay announce he was retiring from GM whilst denying he was doing so to fill the vacancy at CMC? Why did he jump from a big player to a smaller player (in market share terms)?
3. If the apparent fraud is over-invoicing, why isn't the ex-FD and ex-CEO also in the dock here given that it is the responsibility of the payer to verify the invoice? Why isn't the auditor also in the dock since this would be part of its attestation?
4. If the fraud is charging above what other players in the market (say GM) are charged, (a) that is not fraud (b) his contract would presumably have been verified by the BoD (which has included among other Joel Kibe)...
5. Andy Forwarders (Peter Muthoka's business) also manages GM's supply chain and those of others, why would he charge CMC more? AFS has been supplying CMC for 17 years, why is the issue limited to 5 years?
6. If as rumoured, Peter Muthoka was opposed to Bill Lay's appointment, is this merely the continuation of boardroom wars.
7. If corporate governance is the issue, why not go all the way and require BoD to be composed of more independent directors instead of shareholders as it now is (with exception of the banks)?

CMC-a brief history:

Cooper Motor Co. started life as a retail outlet for Land Rovers/VW during the wabeberu days and today pretty much covers the whole upper class, settled middle class. During the Africanisation programme of the 1970s, it got some of the newly minted Kenyans on-board. In effect most of the plutocracy formed themselves into two chamas, Heri and Africa Liaison Company (Mwai and Moi were members as well as Njonjo). Overtime, Alico birthed other smaller entities among them Kingsway Nominees (which now know more as a Jeremiah Kiereni front). As with TCL today, the primary purpose of these chamas was to amass solid businesses such as CFC and CMC and also create some such as Heritage Insurance and so forth. Apart from their "financial nous", these elite gave their invesmens direct access to contracts. They'd then hire competent managers (usually a mzungu or mhindi) to manage the turnover and do the counting. Martin Foster joined as a Sales Director in 1978 stayed on and became CEO 8 years later and was virtually there until this year. The BoD effectively the bedrock on which Forster was pure old boys. Up until two or so years ago, everybody was over 60yrs.

However, over the last few years, they have all reduced their shareholding allowing the likes of Mobicom, Peter Muthoka to takeover the reigns and its apparent that this is a battle for who between Mobicom and Peter will control CMC. CMC currently holds just under 20% of motor sector market share behind Toyota and GM.

NSE weekly catch up: signs of maturing bourse

NSE eased down towards the latter part of the week and continues hoevering at 3,400 level ahead of the results season which should kick off in earnest in the first week of Feb. We might have a small rally towards 4,000 before easing back in April.

CMC released its results for its financial year which closed in September (btw, I always thought that the NSE/CMA vigorously enforce the 3 month window for results announcement). Kenyans are still buying cars. PAT was up 50% helped by a strong jaw effect (revenue-27% growing much faster than costs-6.2%). CMC has 18% of the mwananchi car market, so I am assuming it derives most of its revenue from higher market share in buses and tractors. I don't see it having as strong a year in 2009 given macroevents. DPS went up to Ksh0.45 equating to a 3% dividend yield at close of play on Friday-okay for a growth company. Books for the dividend close end of Jan.. .

KCB's share price seems to have gotten away with just small scratches despite its debacle with Triton. However, Africa Alliance downgraded its earnings outlook for 2009 by 36%! About the maturing NSE, this was first time in a while that live news transmitted to instant price changes so transaprently.

Macro: Kenyan analyst confirmed the lower growth expectations for 2009. We are sending a huge delegation to watch tv in the US while appealing for food aid.

LUSE remains weak and subdued.

FTSE: Short selling is back as of yesterday and banks took a terrible pasting as short sellers flooded in in earnest. The other reason is that credit crunch is now on mainstreet with job losses feeding into bad debs. And Bank of America has this week discovered that it bought the wrong bank.

More stock picks for 2007

EA Cables: since the takeover by the G-29, the company has taken over a TZ company to given an additional leg in its ambitions to be an east African entity again; saw dizzy price heights before stock spilt and continues to return credibly good financials. All these factors will continue over the next few years because the common denominator-majority ownership by TransCentury will want to stay for several few more years.The cons is probably the same, the G-29 involvement means that should they want to exit or become stretched by involvement in other projects the company will suffer.
NMG and DTK:both majority owned by the progressive Aga Khan. NMG will become the dominant media house in East Africa over the next few years. As with the recent bonus share issue for Diamond Trust, I believe NMG will have a share spilt at some point this year to increase the liquidity of its shares and as a capital-raising exercise for future expansions. For NMG the only issues will be barriers to its expansion namely political interference as happened in ’06 when several of its staff and journalists were denied workings permits by TZ and had to leave. DTK will be expanding operations to the region.
ICDC:formed in 1967, ICDI has acted as an investor in various businesses. It has some features of a private equity fund and those of a mutual fund. The company is currently benefiting from NSE resurgence but also owns various profitable unlisted companies that could be listed in the NSE over the coming years.
KCB:Terry Davidson’s turn-round plans are well on target. The bank is now competitive in the Kenyan market, should start operating profitably in TZ and is expanding into South Sudan. I expect further government divesture in the next few years as well a share spilt. The downside is that the bank still has a significant NPL problem of the political variety i.e. politicians and their business who owe it money. This will require political will not yet seen in the current government.
Equity: the CEO is one most visionary and able mangers in Kenya’s private sector today. He is also one of the bank’s largest shareholders. The next 18 months should see the bank’s share price rocket reflecting its performance. Post this, employees will be allowed to offload their shares and hence may see lower share price. The chinks in its armour are probably to do with its fast growth i.e. non performing loans. 2ndly its success in spreading banking to village has not gone unnoticed by its bigger rivals-Barclays has now done an about-turn and will be re-opening some of the branches it closed in the late 90s. Thus there will be increased competition for Equity.
CMC:as the middle class base in Kenya expands more and more will be buying new cars rather mitumbas. And CMC are in a prime position to benefit from this.
For stable dividend policy and share growth, one should also look-out for EABL, Standard Chartered. For speculative purposes try Sameer and Scangroup.
PS: Since my post on 22nd on NSE opportunities for 2007, Barclays has since risen by 30% as investors recognise the opportunity its price presented. Those who moved in mid to late Dec will probably see the price double in the next 12-15 months.