Simple guide to NSE's latest IPOs

Firstly an analogy. I tend to compare IPOs to a ball being thrown in a pool of water. Generally, the deep the pool of water, the higher a ball bounces off the water. Assuming it’s a fully pressurized ball.

TC formerly known as G29. This entity inspired me to start an investment group and I believe the harambee spirit embedded in chamas will get us further than we have envisaged. At a listing p/e of 35 you can see why it was introduced despite requiring capital. In contrast, Centum, the other investing firm at the NSE traded a multiple of 10.3. the other downside of TC is a portfolio of underwhelming assets with only EA Cables as the pick stock. Verdict: terribly overpriced.

Britak is a firm I’ve long tried to figure out how to buy pre-IPO shares in, but the IPO is where my interest ended. Normally, insurance firms have very steady income unless there are catastrophic one-off events such as earthquakes or PEV in our case. Britak made losses in 2009, record profits in 2010 and is projecting 62% drop in profitability for 2011. Can Britak do better with your money than it has done with its own? It would like to take circa Ksh0.6bn from you. Verdict: fully priced, there is no meat remaining on the bone.

Finally, in the forthcoming bucket, there is Family Bank’s introduction to the NSE. Many of its shareholders including this senor think this is Family bank’s theme tune “we’ll list this year, we’ll list this year”. We will believe it when we see it. It is said that imitation is the sheerest form of flattery and Family bank has really really flattered Equity. The Japanese copied the US, forgot their prudence and their economy became a zombie, so cautionary tale right there. In commerce, you must chart your own way, though. That won’t happen at Family unless Kiondo is persuaded to retire and either give his son (he of the thin CV), the reins or reduce his attachment to the bank and let corporate governance take root hold without a gun being stuck into his ribs by CBK. Corporate governance would mean a strong CEO shepherded by strong anchor shareholders (maybe Equity?). Facts, facts. Kiondo opened the door in 1984, Munga in 1984. The both target the same market. In 2010, Family's PBT was a 1/20th that of Equity! Verdict: introduction will excite, but do note that it will be the least profitable bank at ze bourse.

First IPO of 2009: GoK's Infrastructure Bond

Who is issuing: GoK

For: To finance roads, geothermal steam wells, sewers, and other dilapated infrastructure that is holding back economic growth

Amount to be raised: Ksh18bn

Minimum application amount: Ksh100k and in multiple of Ksh50k thereafter

Maximum application amount: Ksh10mn

How do I apply? Open CDS account at CBK office (Nairobi, Kisumu, Mombasa, Eldoret)

And if in Diaspora: not yet...

Application Dates: 28 January to 18 February 2009

Upside: 12.5% per annum paid every 6 MONTHs on outstanding amount, so first payment in August

Downside: None. GoK has never defaulted

Subscription: Likely to be oversubscribed

Pick of 16

Of the 16 companies that gova is talking about privatising i.e. introducing to private sector ethos, I'd say that this is the way they'll pan out.
Don't forget, GoK had a ksh127bn deficit when it did the budget, this was to be bridged by the Eurobond loan which won't now happen until uuh late 2010 at the earliest and it has had to take on higher contigency funding than planned for.
OFS:
KPC- PBT fell last year, but it does need to step up a gear perfomance-wise. Its monopoly so not sure if competitiion will be an issue for the foreseeable future
Development Bank-Already TC has a 10.7% stake in the bank, so I wonder if ICDC would in effect have to put the shares at NSE. Doing ok perfomance wise without being exciting. Its niche of long-term financing is now occupied by many other banks...
New KCC-though 2010 is more likely. And couldn't find a website so something for Mwangi to think about.
Consolidated Bank- again probably one for 2010, though GoK finances may force issues. Made Ksh25m in 07 and Ksh16m in '06 so I really don't see investors queuing up to grab a stake...

Strategic partners:
NBK-though doing well now, I doubt if it GoK can just offload additional shares in the market without it having a strategic partner who will help ease out Marimbi.

Consolidation category:
The sugar companies should be merged to see if economies of scale will alliviate the torrid state of play.
Kenya Meat Commission should look either to acquire players in the market or go new KCC way.

Diverstiture:
Kenya Wines, hotels owned by KTDA

IPOs: The matatu syndrome

The unspoken matatu rule that used to operate before the "Michuki rules" was that there was always room for one more. If a matatu had 4 seats per row, these were transformed into 6 or 7 passengers not counting children depending on how busy things were.

In the last few IPOs, this matatu syndrome seems to have become the rule of thumb that D&B (how come it goes all the lead broker roles?) applies to IPOs. So where:

• Safarcom would have been a better IPO listed as 2.5bn shares at Ksh20 each; it was listed as a flooding 10bn shares each worth a very cheap-looking Ksh5.
• Co-op could have been listed in a similar manner to Equity at say Ksh30 with fewer shares; it now has 3.2bn shares each worth ksh9.50.

Mathematically it may not make any difference, but there are several problems with this low-rent and myiopic approach:

1. Potential shareholders look for two things price appreciation and dividend. Most can forget about a Safaricom dividend.
2. Capital raising measures: One of the reasons that companies list is so that should they need to, they can raise capital via the stock market. Can you imagine Safaricom doing a rights issue or Co-op? Both would most likely flop unless offered at a Ksh1 each.
3. Administrative cost: Flooding the market shares means you also have to flood it with investors cue admin costs.

Hopefully going forward, IPOs will be done more flexibly and sensitively.

Co-op Bank IPO: Update

IPO application process kicks off today and closes in a fortnight's time i.e. 13th November. Listing is on 22nd of December. There is no dvp for retail investors.


The prospectus can be found here. Browsing through it, I couldn't help but note that Co-op is just another bank perhaps in the mould of NBK. The young CEO has done a good job so far, but the future is probably going to mean more of the same. The capital raising IPO will fund:

• IT: New core banking system that will hopefully reduce cost income ratio


• Branch expansion


• Mortgage financing: This is capital intensive business


• Re-capitalising its investment arm


• Connecting Saccos-I've always wondered why Co-op doesn't concentrate on creating its own banking network with the Saccos


• Visa card franchise


• Regional expansion: Idea has legs but others are already ahead
  
  Bottomline: Ask yourself the following two questions:

1. Is it the cheapest banking shares (half yr comparison is attached) on a forward P/E (not just 2008, but 2009, 2010 etc) plus dividend yield basis? Don't forget to add in 2% selling fee...



2. Can you, if you want/need to, exit above ksh9.70 (break-even point)?

All about the stocks...

If there is such a thing as Monday blues, stock markets typified jana. FTSE 100 was down 5% at one time and Nikkei closed at its lowest for 26yrs. Our own NSE is now on a free-fall and its painful to visit stockskenya and read all the wailing with some even asking that fella from Nyeri to do something...
They are the not only ones. If there is anybody who feels hot in the investing world, it has to be hedge funds. Most hedge funds actually promise absolute returns on your money (of course they are not an accessible investing avenue for joe public). Many are now heading one way. Down and out. And are behaving oddly too. VW was today ranked as the the largest company in the world by market cap, thanks to hedge funds scrambling to cover their losing short positions. "Some in tears", is not something I ever thought I'd read in the same sentence as hedge funds.
As this guy avers, trying to forecast the bottom (a key entry for many) is an exercise in futility primarily because the market is emoting. There are very few traders out there who are being logical about how they trade. All they know is that they've to cover their losing positions. WB can afford to put his few coins into the market now and watch them flow down. Fundamentally, he has made it. For some of us who are making it now, chasing prices downward is a bit like this annual exercise they do in Gloucester where they chase a big mountain of cheese downhill. Every year, you get many breaking legs and hardly anyone ever catches the cheese.
Interesting the silence on the Co-op IPO which kicks off this Thursday for a fortnight. You'd hardly know it from the deafening silence in all blogs and investment banks. Only AIB sent something via its customer clerks. One consideration is that Safcom IPO despite the all the hype is now trading at ksh3.10.

NSE conspiracy of the day: Was Murigu pushed or did ill-health finally decide for him. The evidence for a push is that practically all the brokers are in the painful grip of losses made when attempting to become day traders. Also as the pioneer of the otc market, he'd surely have wanted to be the launch it. Against that, he has been unwell for a while.

CO-OP Bank IPO

Application dates: 30th October to 13th November
Listing date: to be confirmed
Price is: ksh9.50
Minimum number of shares: 1,000
Retail allocation: 66%
Shares to be listed: 701m
Float: 38%
Valuing Co-op at: Ksh17.5bn
2007 EPS: 0.84
Historic P/E: 11.31
Average NSE Banks Historic P/E: 16.9
Annualised 2008 EPS: 1.35
Forward P/E: 7.06
D-v-p: to be confirmed

Recommend: First chance to get full subscription

Another IPO

If you don't fancy the bloated Co-OP (Kenya) and TNM (Malawi) IPOs, the ZANACO one in Zambia might suit your purposes. Zambia's economy is benefitting from the current commodity boom, not to mention staedily improving and stable governance.

Brief details:
Application dates: Sept 29th to October 23rd
Price per share: 470 kwachas (around Ksh9.50)
EPS: 38
P/E: 11.75
Minimum application: 1,000 shares
Shares on sale: 229m + 25m for emplyoees = 25.8% of total
Allocation announcement date: Nov 17th
Shares listed on: Nov 17th

Its not the best of Zambian shares on offer perfomance-wise. Zanaco is majority owned by Rababonk (A Dutch bank) and this its major selling point because it now has steady and banking-wise management. Prospectus to follow shortly...

Another Safaricom-type of IPO Fiasco?

1.2bn shares @2kwacha does look like a catch-all approach similar to that adopted for Safcom. Hope the Malawians don't suffer the same fate with TNM's IPO. At least its a much shorter period.

Anyway here is the prospectus.

EA Stock Exchange

If this does come into effect from January next year, it could have the same effect as the NSE's automated trading system and introduction of CDSC. With upside and downsides. Nevertheless exciting. Imagine trading in Bongo-land who are notoriuosly fearful of the Kenyan avarice.

Speaking of which, I think I'll test how easy/difficult it is to trade at the DSE. National Microfinance Bank is about to do its IPO from the 18th of August. I tried buying its shares last year when I saw it'd be listing, but the CEO politely told me to wait for IPO. So here we are...


NCD is a sort of a microfinance bank, but unlike most of this found in Kenya, its currently majority government-owned. Gova will be selling 21% of its holding so that the shareholding will be:



RABO Bank (Dutch community-type bank)- 34.9%

TZ Gova-31%

Public-21%

NICOL (a mostly investment company that listed recently)-6.6%

Exim Bank TZ (i.e. is a parastatal)-5.8%

TZ Chamber of Commerce blah blah-1.7%

A short history of Kenyan IPOs: Lessons and reminiscences

KCB: Listing price Ksh20 in 1988. Suffice to say that if you were shareholder in 1988,you most likely would have lost your hair but made good evenutally as the stock is KSh24 (after many rights, additional divestures and spilts). Was the 1st GoK privatisation.
NBK: Listing price Ksh10 in 1994. Even with a 2nd GoK divesture in 1996, has posted 400% returns for IPO investors despite its dismal perfomance profits-wise. Thanks Jimnah.
Kenya Airways: Listing price Ksh11.25 in 1996. Its IPO was the Safaricom of its day and has salutary lessons for us all. Its listing in 1996 saw 110,000 new investors (was a huge number in those days) and was the first by an African Airline. Within no time and helped by Goldenberg, drought and moi-economics, the economy was in ICU. KQ's shares went down to KSh6 andwere stuck there for a spell. Investors slashed their wrists and vowed never again until KenGen IPO came along.
KenGen: Listing price Ksh11.90 in 2006. This IPO ushered the new era of NSE complete with CDSC accounts, investors increasing to 500k+ and was the first IPO I took part in. Perhaps due to the absence of IPOs for along-time, lessons were learned by all
                
                  *Don't make IPO a free-for-all, you'll end up high investor expenses from annual reports, AGMs and                     the like
                   *Share price will stagnate due to liquidity glut
                  * Do price it low
                  *Every investor will see profits and jump, cue oversubscriptions and interest-rate earning for brokers

ScanGroup: Listing price Ksh10.45  in 2006. With lessons learned, guys jumped and made a mint (some 300%). The share still has way too many investors. I have cashed out after getting frustrated about the stagnant price.
Everready: Listing price Ksh9.50 in 2006. A lemon among the recent IPOs. And most knowledgeable investors new it before it listed and thus went in for speculative purposes. Its high lasted a month before plummeting below IPO price where it has refused to come away from. I sold at around KSh18 for one my cdsc account and was flat on another due to lax broker nonsense.
Access Kenya: Listing price Ksh10 in 2007. Although I've made more money from others, this one I am enjoying because it has something of a schedenfraude about it. Firstly, many trashed it on the basis of the forthcoming fibre optic and Telkom's takeover by French Telecom. Secondly, the upside is so huge that I won't be surprised if it reaches mid 30s by next year. Beyond that, it's all about how well it adapts to increased competition, but I am sure it will.
Kenya Re: Listing price Ksh9.50 in 2007. Companies were now wise to the ways of retail investors and restricted their participation. This has ensured that the upside seen in the share has stayed as institutional investors are long-term. But will that last if KRe doesn't change its pre-IPO ways and given this Jan/Feb claims? I am still holding a small portion though I may dispose once I get a dividend for 2007.
Safaricom: Listing price Ksh5.00 in 2008. I hope many can see a pattern emerging in all the preceding IPOs. So judge Safcom as you'd any other share. That way, you'll invest on the basis of its fundamentals which will either look strong or weak. If you think it's strong, why buy for speculative purposes only to go for it later when it might have doubled in value? If you think its weak, then you better review your exit strategy once you know the allocations and especially for the QII and foreign investors. As well as the cabinet composition. If either or both has  massively oversubscribed and cabinet is kosher, you are in the money . And out of the money if v.v.

Parastatal Special: New KCC

In many parts of Kenya, KCC and KMC are the two avenues (the only two in some areas) that the local population can earn any regular and guaranteed coins. The on-going efforts to resuscitate the two is thus strategic and a boon to local economies .
KCC was established in 1925 to provide a market for Lord Delamere and the like of their produce. Over time, KCC grew to become a monopoly whose reach extended beyond providing milk to the urban population to social engineering in form of UHT milk to entice kids from arid areas to go to school.
In semi arid and arid areas especially, KCC's role in general development cannot be underplayed. In Endarasha, Kieni (tends to be dry due to being on the leeward side of Mt Kenya) for example, apart from providing them with regular monthly income, dairy farmers grouped themselves into a cooperative which among other things came up with a water project that brought piped water from the Aberdare Ranges to each household, a tractor for smoothening the local murram roads and so forth.
Either by design or sheer incompetence, the former regime managed to rundown KCC and then lo and behold privatised it with most of the shares going to Moi (via lawyer Kenneth Kiplagat). Other companies (prominently Uhuru Kenyatta's Brookside Dairy) stepped in to fill the void.
Since 2003, the now renamed New KCC has arisen and is now picking  up in market share on both supplyside and sellside. With an experienced business head of Matu Wamae and the youthful energy and marketing experience of 37 year-old Francis Mwangi ,New KCC has moved to recapture lost market share, re-consolidate milk supply and is now moving regionally and even to Middle East with recent orders from Yemen.
Its rejuvenation has been a boon for local economies such as Endarasha,where farmers had moved onto the more volatile horticulture farmers.With good prices and guaranteed payments farmers, are now in the midst of an electrification programme. They also recently announced plans to join 5other cooperatives and start a processing plant for the whole of Kieni.

New KCC intends to list in 2009.

Kenya RE IPO-some analysis

Faida Stocks have done some investment analysis for this IPO. One thing to note, if you compare the Profit Before Tax on this research note with that on Kenya Re's website, you will notice that 2005 seems to be different. Don't yet know how and why.

Prospectus now available

Isn't there some requirement that an IPO prospectus has to be released some time before the application period? Barring last-minute legal hitches, application process is due to kick-off tomorrow!
For individuals and corporate investors: Wait until next week and if you a have decent broker, you'll be able to avoid committing funds only to get a 30-40% of your applied-for-shares. For those tired of the whole refund and application process, plenty of counters are looking attractive at the moment especially with this being the results announcement period.

Keen on IPO's? check this out

http://www.fingad.com/finstories.html;jsessionid=EF95B6BB77EF23BDA75860C5B34CE518

2007 UPCOMING GREAT INVESTMENT OPPORTUNITIES

Kenya RE IPO
Dyer and Blair is the Lead Transaction advisor in the privatization of the Kenya RE Corporation. The Government of Kenya owns 100% of Kenya Re and intends to sell 40% of its shares. Kenya RE is undergoing a re-organization to reduce costs, improve processes and diversify its income stream. It made a profit of Kes: 461M in 2005 as compared to Kes: 452M previously. The IPO is slated for March 2007.

SAFARICOM: Kenya's most Profitable Company.
Having made a profit of over Sh. 12 billion last year, Safaricom is one of the fastest growing companies in Kenya and it’s riding higher. Safaricom valued at over Kshs: 200 Billion will offload at least 25% of its shareholding probably mid 2007.

Telcom Kenya
The government intend to sell about 34 per cent of its shares through an IPO around Sept 2007.


East African Portland Cement:
Lafarge and the Government to offload more shares to the public to reduce their holdings, and increase the total number of shares traded to the 25% required by CMA for listed companies.Lafarge holds 41.7% in EA Portland and 73% in Bamburi Cement. likely IPO is about end of the year.

Kengen:
The government plans to offload a further 19% to the public in June 2007. Around 400 Million shares reducing its stake to 51%.

FAMILY FINANCE BUILDING SOCIETY (BANK)
Soon to be Family Bank is one of the leading microfinance institutions in Kenya and is now offering 15,000,000 Million Share at Kes:60.00 per share (minimum of 500 shares). The share offer is by private placement and a subsequently IPO or like EQUITY BANK did. One need to be an account holder with family finance to be able to purchase the shares.

SAROVA GROUP
Owns a portifolio of profit making hotels chain in Eastern Africa.

Co-op Bank
Already selling their shares through private placement @100 per share
Profit making and available in many parts of the country.

(Other romoured IPO's include):

Sadolin paint-

Adopt-a-light-biggest outdoor advertiser in kenya, involved in road signing too.

Orion EA-sells agricultral chemicals in East Africa.

Triple A Capital-

More information will be provided about the above.