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 Weekly catch up

NSE stayed flat this week as other markets motored forward. Mainly I suspect that Kenyans are not feeling the bourse like prior years. Cash I think is there, but we all need to see a more convincing political and economic forecast. Stock investment is about hope.

FY Results:

Eagads a coffee and tea grower, saw a vast improvement in turnover but also benefited from Ksh20m gain from revaluation to record profit for the year. The cash flow statement looks peculiar to say the least with cash from operations somehow going down by Ksh12m. No dps.

Kenya Orchards, reported a Ksh7m loss for '08 on the back of a Ksh10m operating loss whose detail is not given and 26% decline in turnover. Cash from operations was massively in the red presumably relating to the operating loss issue but overall cash was positive. No dps for the year.

Q1 Results:

KCB opened the Q1 show with a 3% PAT growth on prior yr. I have switched my remaining stake in KCB to AK on the back of results which were a puzzle. Like the fact that annual reports will be emailed to shareholders in future though.

Finally, HFCK is showing the potential one suspected it had. PAT grew by 1.5 times on prior year driven by massive growth in loans. I suspect Kenyans are switching from NSE to real estate in a big way and HFCK has really aligned itself to take advantage of this. Still not sure how Equity intends to help HFCK leverage on its brand and network but this has to be the way forward. HFCK has been very innovative in terms of products and distribution. One of the products out there is its Makao project management which I'd recommend to NRKs.

Rumours:

AK is a takeover target.

Macro:

Its either the supplementary budget got in the way of UK's serious imbibing time or the fruit never falls too far from the tree. Excellent work by MARS though.

FTSE & other markets:

Turned green for the first time this yr yesterday. Risk appetite is back. Dudes are unhappy gettting 1-2% savings rate. Plus depression, swine flu et al have all been overhyped so that when reality hits, there is relief. And this is the result.

Great leakage work by Tim Geithner on the stress tests. The numbers were no different from those reported by FT almost two weeks ago.

City Trust, EAAGADS Ltd, Express Ltd

According to available information, City Trust Ltd are/were an investment holding company that own I&M Bank (Kenya's 11th largest bank by assets-http://www.imbank.com/); Kenstock Ltd-who as the name suggests deal in stocks and Nile Breweries Ltd, a Ugandan brewer-their stake in the latter is now much smaller as SABL holds a controlling interest. In terms of Financials, I've not been able to get hold of their latest numbers-a major drawback for now. However, based on their EPS on stockskenya, I believe they made 12m profit at the last reporting financial. On that, they paid a dividend of 2.75 per share, above average for the NSE. Their P/E ratio at 26 is comparable to that of ICDC, the other investment holding company that is NSE-listed. From looking at the history of traded shares, one can surmise that their shares are majority-held by one or two large shareholders making the traded portion and their share price very static. Given the information gaps, its not a share I would recommend investing in unless for the dividend.
EAAGADS Limited are involved in the growing and selling of coffee.The ultimate holding company is Compagnie International De Culturers, Intercultures, S.A. Its associated with SOCFINAF Co, a coffee marketing and miller company based in Ruiru which also has milling operations in Kigumo, Kiambu. As with other coffee and tea companies, EAAGADs made losses for the FY05, but similarly should have a good FY06 on the back of good rains.
Express Ltd are involved in clearing and forwarding by air, sea and land-they are linked electronically to customs; storage service and removals. Since takeover and turnaround by current management, they've gone from a loss of 60m in 2003 to a profit of 54m in 2005. Some of their major clients are EABL, CBK, Total Kenya to name but a few. According to the Financial Post, Express is now seeking to be listed on MIMS and will as such now become a more marketable stock. Express a leader in their market, but face stiff competition in the medium to longterm from Kenya Railways among others. The shareprice has remained static over the last 6 months and should be considered as a speculative stock.