Kudos Nation, Standard media

As an investor and an nrk, getting updated news and business/financial reports from Kenya is essential. Hence its good to acknowledge DN and Standard's daily inputs. Nation continues to keep pace with its use of technology and I think its digital edition is superb especially because its the only guaranteed source of all financial reports, something that not even the ever-dozzy NSE does. DN also keeps its new live with regular updates though there is still room for improvement. And its pioneering youtube version is pretty handy. And not a bad a share to invest in either.

Standard though playing a never-ending catch up game does to quality articles when its minded to do so. Its Tuesday business magazine is a must read and an area Nation has struggled to catch up with its Smart company mag.

Notwithstanding the sometimes obvious political bias (btw, this is not a Kenyan trait, in the UK, a scan of a paper's stories will tell you which side of the political spectrum its on-mostly right-wing Tory supporting), I think both media groups have advanced media and political freedoms in Kenya.

Areas of improvements:

Business coverage-remains anaemic and not even BDA has been able to fill the gap. I've never seen quality business coverage of any economic sectors. Not too mention the often rather obvious errors. Stories that touch on listed firms are usually never given a context. As an example a story about Mumias kicking off its power co-generation project should have touched on the revenue generation possibilities for the firm.

Political coverage- too much of it.

Happy madaraka day...

NSE weekly catch up

Market slowed down this week as the bear rally came and went. Is averaging down a investment strategy that is hugely propounded on our bourse an emotional feelgood strategy or investment nonsense?

Results:

AK came in 65% higher than 2007 with increased corporate clientelle and also expansion into the residential market. 2009 will the blockbuster year for this listed ICT firm. Once fibre optic lands, the game will change because revenue per client will come under challenge from compe and the firm will thus need to significantly increase its client base. Ksh0.4 DPS awaits the lucky shareholder in the books as at June 18th. IMHO, this will be one of the shareprice performers of 2009.

Pan African Insurance was driven to distraction and Ksh100m loss by its associate investment company. Significant challenges ahead though its trying to diversify into property.

Standard Group, the mother and father of distinguished gems such as KTN, Standard newspaper et al clocked 19% PAT growth driven by 8% turnover growth. Cashflow remains negative therefore no DPS. Going forward, the group is targetting the launch of a radio station in Q3.

Macroview: UN has increased its food aid plea for Kenya. We are well into March and the anticipated heavy rainfall season remains patchy at best.

Other markets:

Excellent week at the FTSE. We have our first black CEO in the FTSE 100! Tidjane Thiam, a former Ivorian Coast cabinet minister will head PRU, one the largest insurers in the world. And Barclays is up on last week :-)

Have you invested in LUSE? Do so to take advantage of future higher copper prices.

Will Geithner last? Because the way I see it, its either he shapes or goes or Obama will be a first-term goner. The global economy doesn't like a rabbit in the headlights Secretary of Treasury...

The Gartman Letter has been whipping WB black and blue this week. Not happy with the credit rating downgrade and reckons Berkshire Hathaway is an overvalued stock. That is on a 5yr low. Still, I think WB has proven himself.

NSE Update: traders vs long-term investors

After the bull, the bear, a creature made in the ATS laboratories showed up briefly at the NSE from last Thursday but came to a screeching halt yesterday. Some are alleging circular trading. Did you see Kenol go up 43% on Wednesday on 500 shares? Others are crediting the feelgood factor engendered by Obama. Whatever the play, I expect the positions to be unwound in the coming weeks.

Who between long-term investors and traders profits more over a market (bull, bear, bull) cycle?

Standard is venturing into Radio.
Scangroup completed the sale of a stake to WPP.

Half Yr Results: Standard, Pan Afric, Kakuzi...

Despite a fairly political first half of the year (i.e. equals more newspaper sales all things being constant), Standard Group saw revenue rise of 9%, but higher expenses and financing charges saw PBT fall by 7%. Cash flow position remains negative. With that perfomance, would rather buy NMG.

Pan-Africa Insurance saw a particularly good half given the circumstances (I'd have thought claims would have gone up due to the destruction earlier in the year). Its premiums were up for the period by around 20%. This could be an indirect result of more people taking insurance. PAT was up by 798%, but this is due to unrealised gains from its very volatile APA subsidiary though PBT was also up by 32%. Still, I prefer KenRe in the insurance business.

Kakuzi as expected, perfomed badly. I am pretty sure the shenangigans earlier in the year where it was trying to sell some of its assets against vociferous opposition from minority shareholders has not helped. I avoid agriculture companies as I can't predict or keep up to date with weather patterns, global commodity prices, exchange rates et al.

Media Season

The general elections heralds a great revenue harvesting season for newspapers and general media and this one is no different. ScanGroup, NMG and Standard should all benefit from the season. Price is not everything. Many of us when buying stocks will normally look at the price and say, aah, its too expensive. This applies very much to NMG. Despite rarely trading at less than 240 (with exception of brief market-wide blip in March/April) this year, the stock has found buyers impressed not just by its bottom-line, but the future Nation Media Group.  It has outperformed Standard over the last 6 months and ScanGroup over the last two.


 In one year, NMG has moved into UG with TV, brought a business newspaper into the country, launched a cheap newspaper Metro to compete with Nairobi Star, launched daily shorts of its NTV news on you-tube, removed entry requirement apart from its premium content. In any other year, this would have been unprecedented but coming in the same year as the general election, is awesome. In addition to the above, NMG also runs NTV, Easy FM and a publishing house. 90% of its revenue comes from newspaper sale and magazines. It now has presence in TZ and now has a vision for the whole of Africa. Despite some "issues" when new CEO joined, NMG saw 24% rise in its PAT for first half of the year compared to prior year and should comfortably beat its previous 3 years' annual growth in PAT.
Standard Group continues to lag in the shadow of its bigger expansive brother and perhaps some misguided steps. Despite this, the STG saw profits double in 2006. It also awarded patient shareholders 1;8 shares
which seem not to have materialised yet. The group also owns KTN, Baraza and PDS, a publishing arm. STG was upgraded into MIMS in Feb thus making its shares more marketable. STG has also invested in its state-of-the art printing press which should considerably reduce its printing costs. It has revitalised its management.
STG continues to suffer on several fronts however, staff turnover is high and its flagship TV arm recently lost a whole set of its stars to Citizen. Secondly, advertising revenue which it never had a great deal to start with has been reduced by its perceived anti-current regime stance (I wonder why?). However, increased circulation and viewing figures should give it bumper figures.

Lastly, ScanGroup. The group has since its listing gone on a spending spree, restructuring of its staff reward scheme to include loyalty shares aka employee share options and expansion to regional and continental markets depending and widening its product offering. Its shares suffers from nervousness about staff loyalty (very important in the adverting world where clients accounts will be managed by one or two creative-types) and generally too much supply of its stock. Again, this season should see increased advertising revenue and give it a typically bumper second half. Long-term, the group's activities this year should mean increased revenue in coming years though concerns remain on its cashflow.

Banks H1 Results-a detailed look

Now that several banks have announced their H1 07 results with KCB, Equity and NIC meeting expectations and BBK just below, I thought I would do a deeper dig to understand what are their key drivers. These banks (plus DTK which I'll include once it announces), serve very different strata of the economy and the questions are which is getting more bang for its capital, which one has a sustainable strategy.

1. Interestingly BBK doesn't (prudently in my opinion) accrue interest from NPLs. This masks your bad debt problem and is in effect a P&L ticking bomb should you be unable to recover the loans. This interest and other unexplained anomalies also serve to distort the net interest margin calculations for both Equity and NIC.


2. The F&C ratios look higher for Equity because although in practice this income is based on accounts held, I have used customer deposits (in the absence of customer data for BBK, KCB & NIC). In the current absence of a fees price war, Equity seems to have found a strong and sustainable income stream that is of course not subject to interest cycles.


3. Despite having different loan maturity profiles, BBK and Equity have almost similar loan loss provision rates. NIC's loan loss provision rate is worryingly low.


4. KCB has deferred tax so does that mean they are still carrying losses from previous years? Equity gets 20% tax rate due to its having listed last year.


5. NPLs and insider loans account for 28% of KCB's loan book no surprise if it was lending to the likes of Mugoya.


6. NIC's capital is threadbare (hence recently announced recap exercise). BBK is the other extreme and this may explain the loan hawking and branch opening in such unlikely places as River Road.

In other news, Sameer recovered; Standard Group beat expectations with a bumper first half but its P/E ratio looks ridiculous compared to NMG. EA Portland and Bamburi have suggested it might be a good idea to merge so they can be a world beater (or Africa one anyway). So where does that leave Athi River Mining?

Standard Group reports for FY06

Standard changed its financial year end to Dec so its hard to compare the announced numbers to prior yr suffice to say that media group is doing better. The group has announced a 1 for 8 bonus issue and ksh1 dps. As with other media-type groups, the group should benefit from the election year spending.

Standard Group, Limuru Tea company, Kenya Orchards

Standard Group is Kenya's (and therefore East Africa's) 2nd largest media group. Apart from succesfully diversifying its portfolio to include KTN, Standard also runs a publishing and distribution arm PDS. The company was upgraded to the MIMS on Tuesday the 14th of Feb, making its share a more marketable one. http://www.eastandard.net/hm_news/news.php?articleid=1143964838. Perfomance-wise, the FY06 saw profit before tax more than double due to higher revenue generation. Instead of offering dividend, Standard has offered shareholders a bonus share for every 8 held. The following article gives more informaion on the unaudited financials. http://www.nairobist.com/pblog/index.php?d=16&m=11&y=06. For this FY, the group can expect to benefit from increased newspaper circulation and TV audience due to the elections. It should also be able to generate higher advertising revenue from the same. As an investment, it will be in play until the bonus issue is announced, but will long-term continue to suffer in the shadow of the much larger and expansive Nation Media Group.

Kenya Orchards- Are manufacturers of those popular fruit jams such as mermalaide, strawberry et al as well as juices. Shares in this company have been suspended since May'06.

Limuru Tea-Is 54%-owned by Unilever Tea who act as its mafucturer and sales agent. Was affected by the drought in 2005 as were other Tea companies. Their detailed trading history shows a sharp decrease in shares traded to date which makes it a non suitable company for our consideration for investment.