Mobile telephony - a low margin future?

Zain's Ksh3 per minute call anywhere announcement last Thursday was in effect the first time Zain has made a no-head scratching announcement. That and CCK's subsequent announcement on halving interconnection rates to Ksh2.21 per minute could mark watershed moment in the mobile voicecall sector.

The key driver of the Zain move is obviously to take away subscribers away from Safaricom. The size of Safaricom's subscriber book is now seen as the biggest entry barrier into this sector and both the measures are aimed at reducing the book. As an aside, Safaricom paid Ksh4.5bn in interconnection rates (13% of its operating expense), you can thus imagine how much the other 3 players pay given most of their subscribers will be calling Safaricom customers.

Safaricom's subsequent response was clumsily presented, but the upshot is that its 8m or so subscribers will only pay Ksh2 per minute to call each other for the next month. Safaricom made Ksh63bn of its Ksh84bn revenue from voice calls last year. Thus Safaricom responded to the threat on its subscriber book (you can tell this is the case by the fact that postpaid customers will still be paying normal Ksh8 rate). The length of the offer period implies that Safaricom's thinking is that Zain can not sustain Ksh3 per minute beyond a month. Wishful thinking?

The issue is this. Can the voicecall providers make money if interconnection rates are reduced and hence they have to reduce the charge per minute? In my mind, the components that make up the cost of a call would be the fixed and variable (staff, commission, marketing) costs incurred by the provider; any costs associated with interconnection; other business-associated costs. A lot of the smaller players can probably sustain a price war because their interconnection cost has been halved. For Safaricom however, such a war would be costly because interconnection rates are a small portion of its business. It is clear that Safaricom is making a very healthy margin from voicecalls.

But the future portends lower margins and I think Safaricom shareholders should not ignore this especially in the medium-term when voice revenue will still be its predominant source of revenue.

NSE sectors stock pick for July and the 2nd half of 2009

As a generic comment, NSE is now some 35% higher than its low of in March. Therefore, value for money stocks are gone. 2ndly, I suspect that given foreign interest of late (posting net inflows and I think almost accounting for 57% of units dealt), a correction of around 10-15% is on the cards between now and October in keeping with the worldwide correction. Finally, we are not going back to last June's 5,000 level in a hurry. Idea should be to look at price over the last 9 months and compare to today. The nearer today's price is to peak over the period, the less the potential gain. Why? Fundamentals in Kenya are worse now than they were 9months ago.

Agriculture sector: Tea companies will benefit from current dry spells in pretty much every South Asia country especially India and Sri Lank (Kenya's tea rivals). Primarily, will benefit from valuation of biological assets. Your pick is from Kakuzi, Kapochuria and Williamson (the latte two are one and the same and I am not sure why they haven't merged). All three have already been noted and have hence been rising steadily. Best time to buy is once they are xd and well before the annual results are announced. I'd normally class Mumias as an agri stock but the power co-generation changes matters somewhat. Pick is Kapchorua, although it'd have been Kakuzi whose operations I'm very familiar with but it has corporate governance issues for days.

Commercial and services sector: Easy one. Safcom. I think it has 30% upside over the next 12 mo0nths. Compe in the mobile telephony market is in disarray once more with Zain up for sale, Orange changing CEOs and Econet, being well, Econet. Interestingly its trying to buy up programming and software capacity. Expect multi-media offerings. And of course, MJ is leader of TEAMS. I won't MPESA as this remains on licence to Vodafone, its parent. AK is now the most expensive share on NSE, otherwise would have been my pick at Ksh20 or lower. ScanGroup will suffer from Zain and others slowing down and general macroeconomic conditions. Pick Safcom.

Finance sector: Equity is till the stand out stock in this sector. It has lead market share at the NSE, will be very competitive in Ug and is expanding into Rwanda and South Sudan. DTB has a similar strategy in TZ especially as does KCB in the same countries as Equity as well as TZ. What distinguishes Equity from the other two is
· Strongly capitalised
· Historically nimble and able to grow from a low base (necessary regionally).
The other banks share to look out for is Stanchart. It has just completed purchase of First Capital (additional fees income loan arranging and any M&A activity) and will mostly certainly benefit from the forthcoming bond glut without any potential downside from bad debt write offs. Added benefit is its high dividend yield.

Industrial and Allied: Sector in a tricky time (fuel costs higher, anaemic export and domestic market). Stocks that will do well have already appreciated or stayed fairly steady during the bearish period. This sector is probably the hardest to gauge. Clearly, its hurting because of the perfect headwind combination of fuel/localised inflation and the macro conditions (anaemic export and domestic demand). Look for utility or utility like operators. But do note that KPLC and KenGen will suffer from the short rains=lower power generation=power rationing spell. So EABL is a utility-like monster with deep pockets and looking to expand regionally. It does look expensive on the basis of the last 9 months though. Maybe EA Cables, but it had issues as early as January. Mumias and co-gen? Maybe, but I have been unconvinced for a long period.

Avoid sector: Olympia should be fairly self-explanatory. I think it might another Uchumi in the making. Except it has no redeeming qualities. KQ, please google Virgin and BA to understand the dire straits this industry is in. I think oil prices will stay at current and lower prices over the next 12 months mainly because of the wider economy.

Yes to Mpesa no Zain (Zap) = what gives?

Friday's simultaneous announcements that CBK had given Mpesa a clean bill of health but also denied Zain to start an almost similar type of business is a little strange. Firstly, I am grateful that common sense has prevailed on Mpesa. Banks must get into the service either in collaboration with Mpesa or on their own and stop whining about a competitor.
On Zain, yes its offering additional services like withdrawals; paying of bills (doesn't Mpesa offer this?) and transferring cash between bank accounts, but why deny Zain the licence? Won't it have been better to offer it a licence with level of regulation than say Mpesa? Kenya needs this business! Btw, why does Zain have to keep changing names, its products every few months?

I doubt if Nd'ung'u has any inkling of how the NSE works, because if he did, Safcom will be very grateful for his actions. Last week's announcement that it was going back into the market for more lending drove its share to Ksh3. These two will restore some upward momentum.

AOB:

Coming after nani unceremoniously reappointed "I would rather die than resign" despite the Cockar report, its embarrassing to watch Rao in this poorly shot piece. Is he saying Grand Coalition is not incorrigibly corrupt or Ruto is not a looter? Do politicians live in their own insular worlds?

NSE weekly catch up: pause for thought

Volumes went a little higher this week but brokers won't see anything like the pre-Safcom volumes without the two key ingredients. Confidence. Economy.



Rea Vipingo announced PAT up 46% on one-off gain from acquisition gain for year ended Sept 08. Removing this one-off gain, shows PAT was flat vs last year. Turnover was 10% higher so its not exactly a growth story. DPS was reduced from Ksh0.80 to Ksh0.20. Investors have downloaded the share this week in disappointment.


So what to make of Safaricom's plan to issue a bond (I doubt if banks feel bold enough to do a syndicated loan)?NSE's initial reaction has been to punish the share with price nugging Ksh3.00. But an investor should explore the possible impacts so as to price the share correctly



a) If its a revenue generating e.g. to acquire bolt-on internet knowhow ahead of fibre optic or for network capacity or capability enhancement (I keep hearing Mpesa is getting teething network issues). This will be positive.

b) If its a defensive move e.g. to roll current debt; enhance cash flow or mere repair to network. Then its a negative because the jaw effect will be narrowed (revenue is under pressure).


Macro view: Uhuru Kenyatta's appointment probably wasn't what the NSE was looking for. Firstly you ask yourself what kind of finance minister would you expect as a minimum:

1. Qualifications related to finance (accounting, banking, insurance, CFA)-political science graduate
2. Experience of finance and or business- no finance experience but run's father mammoth businesses (?)
3. Knowledge/familiarity/ appreciation of IT- nothing suggests he doesn’t have average IT competency
4. Specifically for Kenya, strong anti-corruption and dynamic credentials- he is establishment thru and thru and only seems aware of Gatundu...

One hopes we can all agree that our economy performs better if:

• Corruption is low/ered
• Rainfall is average or above for the time of the year
• And global economy environment is benign (tourism, FDI and remittances)

Those 3 are currently absent so you have to hope for a strong dynamic anti-corruption fin min. Mmmh…As for Muhinga, I said that if he was cleared, he should have his job back. He wasn't and that says it all.

FTSE: Bad economic data (unemployement just under 2m); recession confirmed has turned heat on the banks this week. Barclays was near 50p... Funny story about bad cost averaging by one of its directors.

Happy 2009: some predictions

Investments
If you were to go from the Lenana peak at the top of Kirinyaga Mountain and walk across to the top of the Aberdare Ranges, that would give you perfect feel for how most stockmarkets will move to 2010. Assuming Q2 2007 to be the Lenana peak, I expect:
NSE- will not go beyond 4,500 weighed down by economy morass and newish listings (KPC, KenGen, NSE, Nakumatt, DPL Festive)
Access Kenya, Safaricom, Equity in that order will be top performing NSE shares in 2009
FX: $/Ksh will close below Ksh70; £/Ksh will close at Ksh115-20 both driven to the floor by arbitrage
LUSE: Has lost almost 30% this yr primairily driven by foreigners exiting but will stablise in 2009
FTSE: Will not go beyond 5,000 as unemployment, company defaults, housing depression continue to depress

Economy

Inflation: Will be re-calculated but reality is that it'll remain very high unless rains are very good
Economy: 4.5% growth will be recorded for 2009 i.e broadly similar to this yr, the result of lower international receipts, inflation espicially fuel an electricity.
KRA: will miss it target for yr.
BoE rate: will close at 1%
UK unemployment will rise to 3m

Politics
Different yr, same BS

• The local tribunal will get bogged down from the start. The investigations will clear most of the "10" for lack of sufficient evidence.
• Constitution review will get stuck on the same two issues namely parliamentary/presidential system (excellent explaination of the diffs) and devolution (or is it ujimbo/ugatuzi/ukabila/upuzi?)

And finally, Liverpool FC will win the Premier League in May.

NSE catch up

Slight recovery this week or taking of positions before Co-op is downloaded on 22nd? Unless investors are reacting to the lowering of cash ratios and anticipated drop in inflation, its hard to see where a recovery is coming from. The other reason could be investors buying early before the expected rise in the March results season.
Other themes:

• Brokers in trouble: This is not breaking news but lower volumes are now manifesting themselves in brokers laying off staff and being massively in the red. Licence renewals are due shortly so lets wait and see how many Stella Kalonzo witholds.
• Everready not ready: Profits down by 118% due to lower sales. Cash flow looks better though still positive and it'll be helped by lower Zinc prices. Why doesn't just sign an agreement to do distribution of Chinese batteries? Centum still has a stake...
• Kenya Pipeline is finally contemplating listing. Good news... Though the 2008 numbers aren't making good reading, the dividend is something else.

Macro thoughts: I was puzzled by CBK's move last week given its rosy pictures and also current inflation levels. Jimnah's widely publicised article now makes the CBK action add up. The economy as I've intimated is in trouble. Some of his ideas make sense (expansion of public works), others are just self-serving and hypocritical (he was lead broker/advisor et al on Safcom IPO) and others don't make sense (controls on offshore investing). Bottomline, gova is broke so opening t-bills to a wider audience makes sense. Inflation remains a concern because there is no real evidence that agricultural supplies are improving and oil prices do remain sticky. I expect the economy in 2009 to grow at a similar to this year.

Safaricom brings Mpesa to the UK: but thru Western Union

After almost 18 months, Safcom has presumably given up going its own and will now deliver the service via the rather expensive Western Union service. We can currently send money via Western Union to its various partners and agents in Kenya. Now we'll be able to send cash to our relas’ mophos direct.

For experimental purposes, once the service comes to London (I've no idea why they chose some elementary place like Reading), I'll send some chumus to somebody huko mashinani to see how well it works.

I believe, the direct route was opposed by banks who know they can't compete. Most charge no less than £18 per transaction (Western Union even more e.g. £21 for £200!) forcing many of us to find ingenious ways of getting remittances home. My favourite is opening an account I don't need for a rela home and giving them the card. Exchange rate is lousy but otherwise its free!

Presumably Safcom will get a cut of the fees, with majority being shared between WU and Vodafone.

NSE Update: uncertain search for the floor

The NSE has the feel of someone trying to touch the floor of a 4m deep swimming pool. While shares are still showing strong fundamnetals for 2008, longer-term investors are now turning their focusing to 2009 and beyond. And it doesn't too pretty if one looks at the economy:

• The weight of the budget deficit is now starting to tell and I expect rates to go up slowly if only because CBK is being cautious with t-bill issuance.


• Higher rates mean higher repayments mean higher loan default rate.


• Inflation is not going to come down below 20% before Q1 and only if concerted eforts are made to tackle it. Means reduced investor wallet.


• Diaspora


• Oil companies are showing usual sticky pattern in reducing fuel prices which keeps manufacturers and others expensing higher

And ofcourse western markets haven't hit bottom yet. They'll do this when we get quicker action on assets. 2ndly, GM and other US motor companies are now on the cliff edge. Honda is feeling the effects.

Bottomline: I still expect the NSE to touch October bottoms before we close 2008.

PS: From last week, Safcom announced worse than expected results for H1 with previously unexpected hits from loan (gave an fx gain but it could be an fx loss another day). Total finally got some bucks from KRA which helped double H1 profits while Marshalls' went the other way.

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.

How will Safcom shareprice dive affect Equity?

Depending on what you read, Equity lent out between ksh20-35bn of loans for the Safaricom IPO as Kenyans went for margin trading in a big way. Margin trading is attractive for banks especially in an IPO where the shareprice is usually guaranteed to rise on listing as this means that the loan is fully collateralised (covered).

Should the opposite occur (post IPO-price falls below listing price), that is where it gets interesting (or not);

• The loan book: Assuming the system worked perfectly, Equity would have received all the refunds from the 25% oversubscription (I have increased this because Equity lent to Safcom employees who had a much higher subscription), and 2ndly, assuming that the loans were not extended for other purposes, then the loan book that we are concerned with is between ksh5-9bn. Of this, good speculators would have disposed at a profit and paid back their portion-lets assume 20% were able to do this i.e. we now have between ksh4-7bn. Then those who panicked once share started falling so as to avoid having to find the bucks from elsewhere, I'd say another 30%. Thus leaving us with around ksh2.5-4.5bn. Of this, I'd say you have those who are more than happy to pay-off the loan and hold onto the shares for the long-term. This would probably be institutions or the high-net worthy. My estimate of the loan that Equity would effectively have to account for would be around ksh4bn as a worst case scenario. This then its holding in Safaricom. However, do note that is a big assumption to make i.e. that so many investors couldn't find the money to pay their loans. And also that this doesn't represent non-performing loans in the strictest sense of the word.
• Income impact: Equity is likely to see loss of interest and commission from selling Safcom shares. Using Ssem's interest rates, we have ksh0.5bn of lost income. However, the income from Safaricom IPO was always one-off (and hence why many have discounted it for Q3 and Q4).
• Capital impact: In accountancy terms, any unrealised gain or loss on assets never touches your P&L, but goes into your reserves. However, the unrealised gain or loss is counted as part of your capital. Equity would therefore take a hit on its capital equal to the reduction from the ksh5 listing price i.e. ksh1bn if shareprice is ksh4 on 31st of Dec.

Bottomline: Income impact relates to one-off downside, but there is a definite capital hit.

Friday Unknowns & Githongo for Ringera

In January, our great nation was on the verge of becoming a non-nation in the mould of Somalia. Yet, the lowest the NSE has reached this year was on Wednesday this week…

Safaricom is the largest mobile provider in East and Central Africa, with products that are mould-breaking not just in its sector but in Kenya. Yet at Ksh5.10, everybody who owns this was going to make a loss if they sold. So why wasn’t there 1bn shares being ordered yesterday?

When my wife was away, I did our weekly and discovered a shocker. Manyake accounts for 15% of our weekly shopping; carbohydrates (pasta, potatoes and rice) 6%; but 33% was fruit & vegetables. And you wonder about these headlines?

I can understand cultural reasons (ala the Maoris) and even lack of paper, but why do people tattoo themselves?

Last year, somebody who claims to know a lot about Kibaki told me that mzee didn't even want a 2nd term and its because of peeps like ka-roocy and the money-machines that were really pushing him to go for another term. His reluctancy was for two reasons; the referendum showed him Kenyans were ungrateful and 2ndly because his health was not good at all. So why all that bloodshed in Jan?

And finally, if we had got together as a nation and really knew what we wanted , Ringera would be back to the high court and Githongo would be asked to turn up at Integrity Centre on Monday morning sharp… as the new head of KACC.

D&B new website, new sheriff in town & KPA IPO

In practical terms, D&B's earlier website was good because it fairly easy to navigate. What has always been my issue with D&B is the speed and quality of its customer service. Hope that is also given a new coat of painting.


Hope Mwakwere realises there is a new sheriff in town. He is officially the worst performing minister in the history of Kenya. A complete and utter waste of taxpayer's money. If there must a be a minister from the coast on the PNU side, lets try somebody else. I think if there was ever going to be an effective PM-post, then it'd have a required a strong personality who can set an agenda for how and what the post should do. If only GoK could also think about reducing the cabinet numbers, we'd be well on our way.
Why not list KPA? Apart from reducing the political dimension somewhat because investors won't put up with people like Mwakwere recommending who should its CEO, it'll give another fund-raising option.

Mind you, with the way Safaricom is going, Kenyans may steer away from GoK OFS in future. I am worried that its rate of depreciation may mean I have to re-write this post. Although supply has been cited as the biggest issue, I'd actually say its the realisation that it doesn't have a goods investor relations team. Econet has been pushed back and I doubt if it'll have the cash to compete and neither will Telkom. Still, I've sold my small holding just in case things go below IPO price (or rather below Ksh5.10 which is the breakeven point).

NSE Latest

NBK grew by 38% compared to first half of 2007. SCB stood still despite an incredible first quarter which was driven by FX presumably due to Diaspora trasnfers into Safaricom IPO.

Speaking of which, Safaricom is now firmly in my territory, but I am not buying because the supply volumes are averaging something like 10m shares which way to much bearish-sentiment on the counter. Surely it must be good news that Econet won't now happen until September (possibly not at all this year according to Kainvestor)?

An investor was caught napping and bought NMG at Ksh332 after the share had already spilt. What I didn't understand is why given that dealers do still enter the share order, they didn't spot this and just divide the order by 2 or at least counter-check with the investor.

Despite 197% growth from H1 2007, Equity proved what a speculative Stockmarket we have by giving up almost 20% a week after its results announcement because investors feared that its principal shareholders would move their cash into bonds and farming once their lock-in period ended. Some are also confused as to whether the lock-in period ended on 31st of July or will end on 31st of August...

Safaricom IPO aftermath: where do we go from here?

On the face of it, Safaricom IPO should have been a slickly deliveredIPO with investors getting their shares in their cds accounts justbefore 6th of June and refunds ready or EFT-ed into accounts within afortnight. How? Well, this was the largest and most anticipated IPO inEast and Central Africa. It had been trailed for months and its listingwas known for a good two months. Yet today, we are still faced with theusual IPO double-whammy of :
1. liquidity crunch due to refund bottlenecks
2. overcapacity leading to massive order mistakes

To quote Lenin "what is to be done?".

• DVPs for everybody through all the banks: Saying that we introduce dvps for everybody via the current system is of course not sensible given Kenya's current legal loophole (sorry system). Imagine brokers trying to chase retail investors for Ksh2,000 through the legal system? It won't happen. On the other hand, using banks that already have the expertise in lending and can thus act as guarantors would effectively seal the incentive for investors to abscond. This would be useful in others way to:
• Increase the number of banks that act as receiver banks. I was shocked when I saw Citibank was lead-receiver when it really doesn't have the experience in Kenya of handling the volumes involved. To my mind, it was a bit like attempting to fit a camel through the eye of a needle. By involving the whole banking system, we again have the required capacity and distribution network to allow investors from all corners of our great nation to participate. It does also mean that the liquidity in the banking system doesn’t get sucked up by several chosen banks which might also not have the capacity to re-distribute this liquidity. For reference purposes, look at how good Equity handled Safaricom IPO.
• Capacity utilisation: our brokers can't function during normal trading and find even a small IPO like AK a chore. By bringing other players who are (a) better regulated and (b) handle higher volumes and have the infrastructure to handle the human footfall and the admin work; we thus build up the capacity. And if brokers feel threatened, they can get a cut of the commissions.
• Finally, lets not compromise on integrity. Seeing the kind of move MSI has pulled off in Safcom IPO has not gone down well especially in the context of buying shares for "3rd party" clients when HNWs in Kenya couldn’t do the same through their brokers.

Equity exceeds high expectations, NMG, Safaricom

When we were doing our maths over at stockskenya, we all agreed that having done Ksh35bn of Safcom IPO, that alone would give Equity around Ksh1bn additional income (commission and interest). We then added Ksh0.7bn (which it got for Q1) to give us around Ksh1.8bn for half yr (i.e. similar to the whole of 2007). Equity tramped that and did Ksh2.5bn after tax. Any concerns? I hope the non-performing loans are conservative because given the state of the economy currently, these may yet rise unless GoK can successfully be able to reduce inflation without interest rates rising to growth-reducing level. Shareprice comment, the press announcement didn't mention dividends or a bonus/spilt shares. Thus price may coincidently not rise by as much as it would have even though the annualised P/E is now only 22. I think its a good move not to increase the liquidity of the share currently. I hear there might be a listing at USE.

For once, NMG has been left behind and is only now updating its website. The new look is ok although I notice it seems to contain fewer stories than the previous effort. Still, welcome to mid-2000s Nation.

Safaricom is now in my range as I think the supply coming from FFIs has been milked out for now and the share won't fall further unless Econet and Telkom do very successful launches of their services in the next few weeks.

Athi River half year result disappoints:

The half year results were a bit of a shock. I expected to see 30-40% growth bearing in mind the reconstruction effort. Instead, cement sales were flat (reading between the lines), working capital requirements increased meaning it didn’t sell as much as it was producing. Annualised EPS of 4.60 means 7% yoy growth for the full year, basically lower than Bamburi’s 2006/7 growth. The spilt of the businesses will show the continued growth in fertilisers and lime and may actually have a downside because most of us have been buying the stock because of the ongoing boom in construction industry.
I expect to see investors selling off Athi River in the short-term until they are able to compare its half numbers with those of Bamburi when it announces late July or early August.

With most of the FFIs having downloaded their Safcom holdings, investors will probably play a wait and see game while awaiting the entry of Telkom Orange and Econet in August and September.

Thursday shorts

I guess the fact that she has been doing the job fairly competently (and anybody would be compared to Ntamani) should have and has given her a head start for the real position. Insiders will be happy because they are familiar with Stella Kilonzo, but for us investors, I think the preference would have been for an unconnected but knowledgeable individual to guide the markets to the next stage. In anycase, its good to have a lady at the top and I hope she positively surprises...

I thought KQ would tank in its full year PAT given the problems its had (accident, customer service, Virgin), higher oil prices and so forth. Lakini, I think the stronger shilling in the 2nd half of the its financial year helped (I believe KQ normally hedges against a weakening shilling) as did its oil-hedging (fuel expenditure was flat yoy). If you take into account 30% flight occupancy for the Jan and some of Feb, the numbers are very good.

Safaricom continues to find its way downwards. A strong case of not letting in FFIs who think 20% in three months is excellent return and bolt as soon as they get it. I still haven't taken a position. I check bids/offers courtesy of rich.co.ke and they still don't make pretty reading. The price will get to a stage I just have to go in. Safcom has much better fundamentals than a whole slew of other counters. I still recall the fears many had about AK last year.

Fascinating story brewing here. ARM is the young soldier, the pick of the 3 cement counters. But Bamburi is the aging gorilla with 15% stake.

Info: Safaricom & Brokers

They say knowledge is power and never more so than at the bourse.

Kudos to Nation for publishing this list of the FFIs who applied for Safaricom shares. Clearly someone at Morgan Stanley International has dealt with adverse publicity before and knows that you don't sink head first into the sand at the first sign of trouble. Funnily enough, rather than disapprove that Alcazar Capital didn't get a huge allotment of shares, the information showing that Morgan Stanley International got almost 10% of all shares that were being listed is almost going to open a proverbial can of worms. MSI didn't get these shares for itself. That much you can bet on. It'd have done so on behalf of unnamed clients (primarily the HNW ones). Which is where Alcazar comes in.

Thanks Ssembonge for bringing this to my attention again. I had seen previously it but thought it was just for beginners. One piece of nugget stood out though. The information on broker capitalisation. Based on the new CMA proposals that were announced as part of the budget, all brokers must have capital of Ksh50m or more and Ksh250m for ibanks. On those two measures:
Brokers: Sterling Securities fall just below and Discount confirm all those rumours about its being weak. Given the amount of business they transacted in 2007, Ksh30m is nowhere enough. I am willing to bet that Francis Drummond (correction its an ibank), Crossfield, Ngenye Kariuki and possibly Bob Matthews also fall below. Crossfield are already a takeover candidate for Tsavo Securities which wants to convert into an ibank. Bob Matthews (already doing with DTB) and FDs' turnover suggest they should both look for a banking partner.

Ibanks: All but D&B, CFC and Standard Investment Bank are well below the Ksh250m threshold. Some such as Suntra are already doing private placements, but 4 others may need to bring in new shareholders or look for anchor shareholders in the financial sector. My preference is that they do private placements and give Kenyans to own a piece of ibanking.

Wednesday Shorts

If you like bears, then you’ll be enjoying this season. The FTSE officially entered Bear territory jana after falling 20% since its peak late last yr. Things are so gloomy, guys are already leaving well paid unsecure jobs (aka in fixed income divisions of investment banks), to lower paid but more secure retail banking areas of the financial industry. Investing in shares is now an extremely money-losing proposition in the UK/US markets unless you are prepared to do the hard graft of research-that or invest in utilities and oil companies. And it'll be for the remainder of 2008 and most of 2009.

What is the difference between a strategic goal and a strategy?

NMG shareholders voted on a spilt at the end of May, yet the giant media group has yet set a date for when this will happen. A case of the famous 1 for 8 bonus shares by Standard group repeating itself perhaps?

Safaricom finally breached the KSh7 psychological barrier yesterday and with supply at almost 6 to 1 against demand, the bottom is not yet been reached so I continue to watch from the sidelines. However, if it does reach below Ksh6, then I must strike come what may.

And so it came to pass, that in the year 2008 of our of Lord Jesus Christ, one Amos Kimunya being of sound errr mind and body, stepped aside and thus lived to see another day. The truth is, our politicians are clowns down to a man and woman. And so are we Kenyans. On the day Amos resigned, everybody seems to have missed a statement from the Libyans which in effect confirmed that they had bought GRH. So the bigger underlying issue has not been resolved-the lack of a transparent sale of a public asset.

So its seems are Americans, I’d put this alongside the “I prefer this bush to Bush” T-shirt.

Safaricom not another Everready

With Everready IPO, some investors can actually say they doubled or tripled their investment. No such luck with Safaricom which was so over-analyzed and possibly manipulated that only the quick-witted managed some 50%+ gains.
Since then, supply has easily beaten demand for the Safcom due panic-selling out of fear that the price may go below the listing price. The difference between Safcom and Everready are readily apparent when one views their books at IPO time. Everready was had been showing falling cash-flows for some yrs before the IPO. Despite the dodgy cashflows, Everready has somehow maintained dividend at the same level. Not the same with Safcom. Safcom has reduced its borrowings to a managable Ksh6bn and is easily able to pay-off as much of it as possible from huge-cash generation.

Post the IPO, Everready has continued to suffer at the hands of Chinese imports and perhaps its own inefficiencies. Safcom on the other hand will play its cards well and manage to keep at bay competition from Celtel (who by the way is due to pay off its floated bond next yr); Econet (to the Indians have something Celtel hasn't tried) and Telkom (mired in financial difficulties despite GoK paying off a huge chunk of its debt). One can't be blasé and imagine that competition won't get some Safcom customers, on the other hand Safcom is not standing still and will continue to broaden its income sources (including Mpesa, internet and various mobile-related offers such as mobiletv, games et al).

At just over Ksh7, the stock is very well-valued (P/E 20 as of Friday against an NSE average of around 20) although I'll wait to see which way it moves if it does touch the psychologically important Ksh7.