NSE listed firms and information

From a shareholder point of view, out of the 52 listed shares, only 13 (and I'm being charitable with ARM, Pan Afric, HFCK, Express and CMC which only have their 2007 annual report) meet minimum investor information standard. A real surprise has been Sasii Tea. The minimum standard for a share's website should be:

1. Annual report-either as one humoungous file or in chunks. This is has all the information investor needs in one place. Its the company version of its truth and suffices for the best part of the yr before the next is produced.
2. Share price updates
3. AGM, dividend and other corporate announcements
4. News page
5. Products and services menu
6. Org chart showing company structure and leaders

Contrast with LUSE where at least your broker will email you annual reports as they come through and even interim results. I won't even compare with FTSE, but its noteworthy that when I was trading Barclays, I used to get almost every bit of news out there even press cuttings via email.

Companies need to realise that a share is a product and its competing with anohter 50 at the NSE (including bonds); real estate; savings et al. So as a minimum a shareholder should be albe to go the website and find out latest shareprice, eps, where to buy the share etc.

Investor's hopes must be that fibre optic will usher NSE firms into the 21st century, the era of information.

Share basics

Once you've decided to invest in shares and have set yourself some goals, the next task is to select some shares to buy.
These are some of the basics I apply.

1. Knowledge: How does the company generate revenue? i.e. what does it do, where does it do it and how does it do it? What are its strengths and weaknesses compared to rivals and given what it does?
   
2. Financials: For a non-banking/insurance company, I'll look at what is the percentage increase in turnover/sales; costs/expenses;  financing costs; PBT; PAT; EPS (PAT divided number of shares); current liabilities/current assets. How has net cash flow moved over time and why? Compare these to its rivals if there are any at the NSE. For the banking sector, see this post and another to follow. For insurance sector, look at growth in premium income and investment income.
3. Forward looking: Review the company-specific research and news stories from here, here, here and kathalika for future developments and strategy going forward. Also build up understanding of its market by looking at opportunities and threats that are represented by changes in rivals' fortunes, legislation, economy, social and political changes.
4. Share price: Decide on an entry and Exit strategy before you buy the share. Both should be determined by your expectations of future share price performance. For guidance on this, look at past share performance with mystocks being particularly good at this and then extrapolate based on knowledge build in 1-3 above.
5. Quantity: If buying for long-term (thus have gone through 1-4 above), avoid hedging your bets by buy a few here, there and everywhere. We've all heard the story of the hyena that couldn't decide which path to take to the meat and ended up with two shorter hind-legs. Buy a few quality shares whose perfomance you can track over time and buy in huge quantities rather than buying some now and adding some later on.

Some basics

Finally I have gotten round to doing it! I will make it look like a Q&A session...anything you don't understand.....ask!!! Am sure you guys know most of this stuff but I will start with the basics anyway.....more like a revision session, no?


What is a share?

A share is a unit of ownership in a corporation or a financial asset. This does not however give the holder of the shares direct control of the company's daily operations.

Companies issue shares because they want to raise money for one reason or the other; say to expand their operations or buy new machinery. They could very well get this money by borrowing from a bank but this would be costly to them as they would have to pay interest on the money as well as pay the money back. So the cheapest option……issue shares or rather sell a part of the company to the public. This is money that they will never have to pay back..... and, there is no interest to be paid later.

Shareholders buy these shares on the premise that the price will rise to a level higher than what they paid for them, they will sell them and make a profit. There is also the lure of dividends especially when a company makes good profits although, a company is under no obligation to pay out all or any if its profits as dividends.


The two main types of shares are common shares (ordinary shares i.e. what is traded on the NSE, LSE, NYSE etc) and preferential shares (debt to the company).


Ordinary shares represent ownership of the company but it does not give you the right to run it on a day to day basis. You do have one vote though which you can use to elect the board members who will run the company for you. Ordinary shares also entitle you to partake in the company’s profits in the form of dividends although as stated earlier, the company is under no obligation to pay out dividends. Unfortunately , even though this class offers the highest returns, is also the riskiest; in case the company goes bankrupt, you will not be paid anything until all the creditors, bond holders and preferential shareholders have been paid ( high risk, high return)
Preferential shares also represent ownership of the company but they differ with ordinary shares in terms of voting rights; depending on the company, they have no voting rights. Also, they are paid a fixed dividend (more like interest) which is guaranteed i.e. even if the company has not made a profit, these guys have to be paid! Another advantage of this share class is that if the company were to go into liquidation, they would be paid before the ordinary shareholders.



What is a stock market?

A market like any other only that people “meet” to buy financial securities (stocks, bonds etc). There are two types of markets (although there is no physical distinction really): a primary market and a secondary market.

A primary market is where new securities are created through an Initial Public Offering (IPO). A secondary market is where investors trade previously issued securities i.e. after an IPO the shares start being traded…this is the secondary market and it is what we talk about when we refer to the stock market.

We’ve all heard of the terms a “bull” market or a “bear” market being used to describe the stock market. These are terms that are used to describe stock market trends. A bull market can be described as a period when prices at the stock market are rising rapidly. A bear market is the opposite of this i.e. when prices at the stock market are declining rapidly. Bull markets are characterised by increasing investor confidence, investors buy in anticipation of further capital gains.



What is an Index?
A stock market index can be described as a figure that is used to measure the state of the stock market. It is based on the performance of a group of stocks which are chosen by the stock exchange body and which meet some set criteria, for example they trade in the same stock market, they have similar market capitalisation or they belong to the same industry. Indices are used to benchmark the performance of portfolios.
There are different ways of calculating an index each of which has its merits and demerits. The NSE 20 share index is the official index used at the Nairobi Stock Exchange. As the name suggests, it comprises of 20 key stocks ( which elude me just now but I will remember them in due course). The NSE 20 is a price weighted index i.e. its value is influenced by the prices of its constituent stocks. Thus, stocks with a higher price will be given more weight and, they will have a greater influence over the performance of the index. For example, say Jubilee Insurance ( price Ksh 303 as at Wed 7th Feb source: stockskenya.com) and Kenya Orchards ( price Ksh 5 as at Wed 7th Feb source: stockskenya.com) are both constituents of the index. Jubilee will have a higher weighting than Kenya Orchards due to its price and thus a movement in Jubilee share will cause a larger movement in the index than a movement in Kenya Orchards would.

Dictionary of Banking

Ati a samurai bond is the James Bond of Japan; an IPO-is for Important People Only and insider trading is what people in the office do. Apparently this dictionary http://www.ubs.com/1/e/about/bterms.html will give you the alternative and recognised view.

NEW INVESTORS:CHOOSING YOUR INVESTMENT PORTFOLIO

Below link is a guide on how to understanding the company that you want to invest in.

http://www.nairobist.com/mwiki/index.php?title=NAIROBIST_ELIMU_CENTER

Investing in shares at Nairobi Stock Exchange contd...

How is a share price calculated?

• Although they are various ways of doing this, the most common is by the use of EPS or Earnings per Share. The owner of a company will decide that he would like to have to invite an additional 1000 owners or shareholders into his company, who will therefore be getting a share of the company’s profits. If the profits are also a 1000, then the share price would Earnings (profits) divided by the number of shares i.e. 1. However, the owner will also add a premium to the share price in lieu of future profits from the company, but also a discount to attract potential investors.

What should I consider when deciding what stock to invest in?
Your investment strategy should be driven by the following but by no means exhaustive list of variables;

• Your time horizon i.e. how long do you want to keep your money in a particular stock and also how long are you prepared to wait before you can reap your desired return on that share. Most investors will have 4 time horizons; speculative, short-term (up to 6 months); medium-term (up to 2years) and long-term (2+ years)
• Your risk appetite: Quite simply, how much of the amount you’ve spent on the share can you afford to lose? Unlike the majority of investments, share prices to go up as well as down.
• Financials: Look at the company’s profits, cash flow, market share, and financial ratios (e.g. P/E, Interest cover but specifically its EPS) and how all have changed over the last 5 or so years. You should rarely invest in a company unless you have seen audited financial data. However, please remember that this data will be a reflection of the company’s past performance and not necessarily of its future performance. Hence, lookout for forecasts for the coming year or over the next few years (for IPOs).
  Company’s environment: What market share does the company hold and is it a growing or decreasing one? Are their any legal issues outstanding? In other words, do a SWOT analysis so that you encompass issues such as the economy, rivals, politics and government policy. The last one is especially important at the NSE as the government has a holding in a substantial number of companies.
• Company’s management/shareholders: A well managed company with reputable MD/CEO will mean that good performances won’t be far behind. Some companies have majority shareholders i.e. an individual or a fund or an investment company may have a controlling shareholding of 50%+. In which case, try to understand how they operate. Transcentury Ltd, the Agan Khan are examples of majority shareholders in EA Cables and NMG respectively and are known for being performing companies. Sometimes, government-owned companies may come with political baggage of the wrong kind.
• Do you like the company’s products: If you don’t or have no idea what the company sells, chances are that not many other customers do and hence its not a growth company. However, some new companies will have products/service ideas that are new to the market, in which case ask yourself do you understand the potential.
• Avoid herd mentality: Unless you buy the same shoes, clothes, electronics as your pals; don’t buy a share just because everybody else is. Typically, when everybody else is buying a share, you may end paying too much for it and if its prices rises too fast, its difficult to judge the right point to buy into it and similarly it will be just as difficult to judge when to exit.
• Finally, buyer beware: shares to go up as well done, past performance is not a predictor of future performance. Hence set yourself limits in terms of how much you invest, when you invest and when you sell. And invest in a company you understand.

Investing in shares at Nairobi Stock Exchange

What are shares?
A share as the name suggests gives you a share in a company, that is you partly own a company and are able to get a share of its profits. Where the company is listed on a stock exchange, you will get a share of the profits (in the form of dividends) and vote on major decisions affecting the running of the company (e.g. selection of the board members).
Why would anybody want a sell a share in their companies?
Most companies will sell their shares either privately (by inviting known investors to take a stake in their company) or publicly (by listing on a stock exchange). The reason for inviting other people to share in their company will be many including as a way of raising additional finance to grow further; as a way of measuring themselves against peer companies and an even as an exit strategy out of the particular company.
Why invest in shares?
Most of us when we want to save often find it a tiring and long process. Part of the reason for this is because one is almost totally reliant on increasing wages or reduced expenses for one to be able to save more. The other reason is one gets very little assistance from the banks by way of savings rate. In the UK, you get between 0-12% pa interest in a savings account and for the higher rates one has to open a current account. In Kenya, one has to open a fixed account to even get 4%. Others are reliant on investments in real estate where in the UK one may get up to 15% pa on the appreciation of your property’s value(although you in need to adjust for the interest on your mortgage). In Kenya, one can get higher returns, but you require huge capital upfront.
Invest in shares and in the majority of instances, you will easily generate returns of 30% or more on one share alone. These will be in the form of dividend (a share of the company’s profits after taxation) and profits due from sales of the share due increase in price. For IPOs (that is where a company lists itself on the Nairobi Stock Exchange or any other stock exchange), you can even double or triple your outlay on one share alone.
How does one acquire shares on the Nairobi Stock Exchange?
The NS has around 50 listed companies in which you can buy shares in. Presently, you can only buy shares through a stockbroker (they buy and sell shares and fixed bonds on the stock exchange on behalf of investors). Once you decide what company you want to invest in, you will then go to a stockbroker. You will open a CDS (Central Depository System) share account with them; indicate what company’s shares you want to buy and then agree on the price you want to buy them at.