NSE: what looks good for 2012?

The NSE now actively trades both bonds and stocks and both are worth considering at any given time. In 2012, we ofcourse have the natural uptick in political risk which will probably go a notch higher due to the ICC (my head and heart tells me 2-4 will see charges levied). To the mix, add the Eurozone and oil prices. I expect that the Euro will reach some kind of cliffhanger once one o the smaller states has to withdraw. Although a lot of the risk has already prompted asset shifts, this withdrawal will unhinge markets further. Oil prices for me trend upwards this year (i.e. above $100) chiefly because Iran is the problem that is not being resolved fast enough.

In Kenya, inflation will trend southwards, though not as fast as economist opine. The rains that came in November/December have impacted the food regions differently and though food will be cheaper, it won't as cheap as opined. Finally, interest rates. Banks reacted naturally to avoid a massive npl problem and lengthened the repayment periods, but a Kenyan who had a loan in August now has more liabilities than he/she envisaged. For the tightening not to become another monetary policy screw up, its imperative that the governor and his MPC team reverse the interest rate increases by March at the latest.

Assuming the above holds, I expect the NSE not to trouble 3,500 with exception of the period between now and March reporting season. I will be looking at the following stocks:

• Car & General-has an expansive product range and now has the regional coverage to cater for pretty the whole of EAC and the horn. Clearly, it does feel the pain of any fx volatility, but its products have a strong future as the regional economies all grow and consumption grows.
• Centum, there are some who are sceptical about what James Mworia is doing, but I am convinced that by 2014, this stock will look very cheap compared to a Ksh12.50 entry price.
• Crown Berger-as I have said elsewhere, real estate growth will resume next year with a vengeance and this paint seller is well placed in this market.
• Equity remains a stand out in the banking sector. The agency banking model is still not being felt, but if you talk to saccos you get the idea that many realise what this model is doing which is to pitch the battle for deposits at their level. As a general comment, I think that if the credit spread control is brought, it will impact those banks that are heavily dependant on interest income. Equity still derives a bigger chunk from F&C compared to rivals.
• Eagaads-only NSE that gives exposure to coffee. The crop is not being stolen because its become edible, but because the price per kg is now comfortably around Ksh130, For farmers. Eagadds is able to get a premium over this. Secondly, Eagadds has very good real estate in the sort after Kiambu county.

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.

NSE weekly - gently recovering

Equity pre-uploading of the extra 9 shares per account is almost up 90% from its Ksh9.3 low a month ago and as of yesterday close the index is up around20% from its low of the year. Still...how does one take a long-term view on the NSE given the econo-political side of the equation?

Results & Corporate Actions:

Kenol announced first results in its merged form and went up 20% on a 12 month basis. Note the ballooning finance costs partly due to the hostile business environment in Kenya. Generous DPS of Ksh3.50 payable in June. Oil industry can expect another tough year as it clears old stock and due to the economy.

Total its rival in the market, seems to have dealt better with its financing needs. PAT is up 34% on slight improvement in gross margins. Usual Ksh2.50 DPS will be paid in June.

ARM was up a disappointing 19% (and underperformed its budgeted Ksh442m), though fertilizer and its non-cement products are growing very well. Fuel and other input costs clearly played their part. DPS is Ksh1.25. Cement share in Kenya remains low so there is room for growth.

TPS had a terrible yr as expected with PAT down 46%. Notably however, turnover was only down 11%. Methinks 2009 maybe a flat yr owing to global crunch.

Centum confirmed writedown on RVR investment as well as effects of NSE falling (index fell 71% yoy to end of March). I suspect part of the problem looking at its portfolio is that it has a lot of filler i.e. stock that a good fund manager won't hold. A bit of a hospital pass for James Mworia from current NSE CEO.

PS: Are we going to catch up technologically in the NSE now fibre is here? Today you can't find one website where you can chart even the Index.

FTSE: breached psychologically important 4,000 mark.

NSE: weekly catch up when it found new lows

NSE searched and found new lows this week. It fell below the global-driven October lows and one has to go back to Dec 2004 to see us this low. These were the key movers in the week:
Gainers:
BAT Ksh138 up 1.5%- I think this is dividend chasers (its DPS is the highest)
Kakuzi Ksh22.25 up 1.1%

Losers:
Rea Vipingo Ksh9.95 down 23.5% investors punishing the share for the fallen DPS and flat results.
KQ Ksh23 down 17.1% cack-handled profit warning. However, in the context of the global aviation industry, KQ is a star
The Merali stable of Sasini and Sameer
Mumias down 15% to close at Ksh4.25.

Key insights/readings:
· We’ve been here before i.e. when the market defied global orthodoxy in early 2007. Then as now, the market movement was due to Kenya specific issues.
· The NSE as with other markets is driven by key themes. In Dec 2002, Kenyans were the happiest and most optimistic peeps in the world. We were free (or so we thought) of the m-o-1 tyranny. 2003-6 saw a bullish NSE- these were years of economic recovery; focus went from search for political to economic freedom; the global economic environment was benign and investors moved from emerging to frontier stockmarkets. 2007 saw Kenyans take a pause and ominously re-focus on politics. 2008 things went paragacha and the NSE pause became something else.
· In 2009, I believe we’re suffering from possibly the most dysfunctional government in the continent (with apologies to the Somalis). 42 cabinet ministers with two heads. One head is barely there (Google stroke symptoms) and other who having seen the prize will not offend anybody that would prevent him from getting his hands on the prize. Ordinarily, 42 ministers would not function. Yani, think a 42 member executive board. And then you’ve a selection of vultures from the m-o-1 era mixed with present ones. The irony of it all was seeing m-0-1 at that silly forum this week. Its utterly ridiculous and IMHO, our economy won’t grow as long as we have such governance. In such circumstances, this first half could see new lows.
· Finally, the volumes are low, so don’t discount short-selling with an eye on temporally speculative gains in the coming weeks.

Late Addition: Is Centum going to write-off its Ksh200m+ investment in RVR?

LUSE:
Is down 12.75% on ytd, but still one of the markets I follow religiously. Think copper, think China.

FTSE:
We'll see a u-curve, but there is some very good current pickings and after taking a bath on RBS (40% down), Barclays is doing good things so far-30% up so far. Btw, I think somebody caught wind of the rating downgrade because no one seemed to blink when it was announced earlier in the week.

NSE weekly catch up: Results season kicks off

If you were looking to buy to take advantage of capital growth induced by the results season which kicked off yesterday until end of March, then you may well have missed the bus on some shares:

Equity was up 22% from Monday and there was this intriguing foreigner sale which no Media house or broker seems to have commented on...
AK was up 12% and has a lot of momentum for the rest of the year in my opinion
EA Cables was up 11% and is another (together with Centum-up 10%) which I see having a solid year shareprice-wise
Unga with results already out and its 1 for 5 bonus issue closure day behind it (30/12), will probably slide slowly (down 7% since Monday).

AIM corner:
Any prospective shareholders of Limuru Tea? I forgot to mention that the Tea firm (which now belongs to Brooke Bond given Unilever had a 54% holding), is doing a 1 for 1 bonus share issue. For which the books closed on the 18th of Dec :-(
However, City Trust (minority shareholder of fast rising I&M bank), is also doing a 1 for 10 bonus share issue and this is still open.

AOB: Nice of Reuters to highlight what a miserable yr 2008 was for us NSE investors. Not sure though where BDA got its 3.3% rise for Equity in 2008 (opening price was Ksh150, closing was Ksh176).

Macro view: I still read press reports that peeps are not getting the cheaper Ugali, so who is? Hopefully, we'll get a decent finance minister this year though that will have to wait for the old man to wake up.

James Mworia, youngest CEO of a listed NSE firm

At 30, he has achieved what many dream of achieving in a lifetime. He starts today at Centum at a time of great uncertainity in the economy/NSE. Kenya's economy will either enter a period of sustained growth driven by technology, our strong human resource base and good leadership or remain mired in mediocrity. Should it take the former route, companies like Centum and the NSE generally, will do well. Or vice versa.

Centum does (in my humble opinion), need to reduce its NSE holding and diversify to the rest of the East Africa region.

Wishing him all the best in his new role.

NSE Update: CEO musical chairs

NSE continues the gentle journey south. There is nothing to suggest any upward movement until Co-op is listed and its volumes settle down. And of course, the usual upswing prior to full year results in March.

Centum saw PAT down 17% for its half year to September vs.. prior year, not too bad given NSE was down. If CEO was still the same, it might have been worth buying at around ksh12, but now its worth waiting to see where it goes. Notice the very negative cash position. It bought Longhorn, but also made some disposals. Still, I now understand why the dividend was postponed to January. James Mworia who takes over in two weeks time clearly has his work cut out especially given Mwangi left due to strategic disagreements and we are stuck into sub-4000 levels for 2009 at least.Its a buy for me if below ksh10, though there are probably better prospects in the medium term.
KRA came up tramps to make Total look good ahead of its expected purchase of Caltex .
Chris Mwebesa was appointed CFC FS CEO (I wondered why the share has been tanking-apart from the interesting 9 month results which I haven't seen). Bamburi's CEO has also left . Looks like its that time of the yr.
Macro-view: Water rates go up in the new year, maize (our staple food) prices seems to have broken the gate and are on an upward stampede and oil prices remain sticky. So looks like the only way inflation will go below 20% in the first half of 2009 is if its revised (I sense it already has) and some items are removed from the basket. We are walking into economic problems with our eyes wide open. 4 key words for 2009. Food policy. Policy dynamism.

Food Policy: There is a great opportunity to start on a new blank canvas. Just copy and paste the polciy on milk.
Policy dynamism: We nrks are often accused of westernism, but if gova could just react a bit quicker for example on the budget deficit (rather than stealth rise in interest rates) or inflation (was already high last yr), we won't be in this tight situation.

NSE results catch up

Olympia announced 14 months worth of results. The results were a huge anticlimax for some of us who had even considered investing in this counter. PAT was up 10% compared to FY 2006 which is meagre considering the growth in turnover (tripled on a comparative basis). The other concern was that the wafer-thin margins seem not to have improved. A Ksh1.3bn turnover brings in Ksh70m of gross profit therefore the company must have very inefficient processes or may be acting as an importer/distributor. I suspect guys will continue flooding into the stock because of its SA link anticipating good tidings due to the world cup in 2010.

Centum on the other hand has had a very good 9 months given the underlying volatility at the NSE and should be on course to come in slightly higher than prior yr. Not a counter I've thought of buying into given it does something similar to what an individual investor does only on a bigger scale.

Williamson Tea (as is usual with agricultural stocks), this yr booked a loss of Ksh98m following profit in 2007 due to strong shillingi and depressed world tea prices (strange given all other commodities are up). This year might not be much better owing to drought in some of the tea-producing areas.