BBK results-Thanks NSE

Well, I think NSE picked up (or somebody emailed them), on the fact that the BBK pdf was scanned in a rush and showed irrelevant info and have rectified the scan to show the P&L and balance sheet numbers. Still showing 12% uplift from 2007. So no improvement there. DPS is Ksh1.50. Loan loss provision is understated and will probably be higher this year...
Kudos NSE

Does this profile fit any firm in Kenya?

Although the article is about some suspect billionaire, I was reading it and trying to fit it into the situations at the NSE:

• Too good to be true: I.e. doesn't fit the pattern for the economy or sector. This used to be an accusation levelled at the annually doubling Equity, until BBK proved that you could grow your balance sheet at such a rate. From the released results (who does scanning at NSE?), BBK almost certainly understated its loan loss provision. In any case, this is getting harder to get away with at the NSE.
• It can do what none else can: mmhh
• Only a few people overseeing everything: All the brokers?
• Few incentives for whistleblowers: Fits just about any firm at the NSE.

Numbering Kenya

I know its tough to be thinking out of the box right now when it seems we can't even do the basics. Like feeding ourselves. But thinking about it, isn't part of the problem that we don't have a full grasp of the food security issue? Where did the 10m figure come from? Was it made up as a ruse to attract international attention or is it known from figures? How does a planner WORKing in city hall plan how many rubbish collectors there should be in various parts of Nai on various days when he/she doesn't know how many occupied houses he is dealing with?

How do u plan? Start simply. Do you know that by law every piece of land in Kenya has to be adjacent to a road or path? So if you wanted to plan, you’d pass a law saying that every piece of land and or building must have a number attached to it. There is nothing original about the idea. UK, US, Canada and most of Europe operate this way. Even the billion full China does it this way.
Given the pin was more complex and was implemented fairly seamlessly, this should be a dodo but with greater economic benefits. Having a number on each property will be a step change in planning. You can easily say 1-250 on Ngong Road don't have piped water or electricity. Number 5, 15 on Runda Grove are apartments. Number such as and such on Othaya Road have reported attempted break ins and then plan how many cops you need to be walking around the area.

Right now, you hear GoK saying there 10m people who are hungry. In which districts, divisions? The 8 lane Thika road is a good idea, but when do they plan to do Ngong Road, Mombasa Road or even Lang’ata Road all which may need the same numbers lanes? But who knows given nobody has any idea of the number of cars going thru any of these roads?
How about the step-change in the distribution system especially in the big towns where population thresholds allow for profitable distribution systems for newspapers, post, milk and other products with short shelf-life.
It may not seem as life changing, but if we can't the big stuff, we can start small...

Is the falling NSE a blessing in disguise?

You either make the change, get ready for change or change will sweep you away. For years now, investors have agitated change at the NSE that brings about:

• integrity in transactions
• dynamism in reacting and adapting to changing technology
• customer service
• liquid bourse
• strong institutions either controlling or regulating the bourse
• no conflicts of interest
• no political-business affliations
• a decent economic thermometer...
• leading to strong brokers, investment banks
• informed investors
• and a viable saving and investment vehicle

But wapi? We seem to be stuck in a timewarp where we go forward two steps and slowly go back to step one again. Strong measures such as those on disclosure, capitalisation and ownership are only adapted under extreme duress.

We motored between 2002 and 6, but within that period, managed to sow some destructive seeds that we've been harvesting ever since.

Its notable that every time we've had a dip, one or two brokers have said sayonara. FT went out after the Feb '07 dip, Nyaga survived but hobbled throughout 2007 by Mumias' 2nd IPO but succumbed when money ran out after the clashes in early 2008. 2007 also accounted for Solid Investment.

The 2008 bear has accounted for Discount, Crossfields and possibly Suntra. I believe this is the tip of the iceberg. If we went to 2,000, I think we would probably bring Reliable, Sterling, AIB, Ngenye into the net.

Most of these have one or two of the following in common; malpractices, leveraged business model, or operational risks galore. And unlike in some markets where firms react to worries about their "going concern" status by opening their accounts, at the NSE all you hear is typical "deny deny everything".

We need to sweep away the deadwood and hopefully come out of the otherside with strongly anchored brokers either via strong shareholding and governance structures or by being absorbed banks...

NSE weekly catch up: Equity, EA Cables release FY

Another low week (2,848 close), but I think Equity has brought a little cheer back into the bourse and will spar some little upward momentum for a few weeks. BBK announces on Tuesday and EABL announces interim numbers on Friday and KCB possibly the Friday after. On the negative side of the account, the Nyaga saga has really exposed us to what many of us feared was going on and from now onwards, no conspiracy will sound too outlandish. Some very practical steps for safeguarding your NSE pocket. No more calling broker dealers to place your orders, it was always there but its become a convenient way for dealers to eat your funds. Like JM's comment too.

EA Cables announced full year PAT of Ksh462m, 12% higher than prior year. Its a good result given the challenges rote by high copper and aluminium prices, high utility (elecritricity and fuel) costs and and a very competitive market in a generally lacklustre economic year. Its strategy to spread into the rest of EA actually held it in good stead. For 2009, with much lower commodity prices, I'd expect to 20%+ year on year growth. DPS will be Ksh1, 10% higher than prior year.

Equity's FY is analysed here. It bears repeating. Non-shareholders might be happy at a chance to get the stock at very low prices, but for us existing shareholders, it leaves us cold because it adds risk that wasn't really necessary. The history of spilts at the NSE is almost exclusively a bearish one.

Unga saw 33% turnover growth apparently wiped out by fx and will miss FY by 25%. Very strange especially as one would assume scarcity in maize would equate to better gross margins.

Other Markets:

Gold is fast approaching $1,000 as investors survey other instruments' waastelands. FTSE is in a bit of a lull at the moment. I think many were hoping for greater detail around the Obama plan which as yet seems as muddled as Hank Poulson's botch-up last year. Lloyds TSB is now caught in the short-sellers' sights following HBOS' update.

Equity hits FY 2008 target despite Ksh1bn loan loss provision

Q4 was similar to the stratospheric Q2 driven by Ksh1.8bn from interest income which is similar quarter 2. I prefer interest income because its more sticky compared to fees. Other key P&L lines (F&C, staff costs) held steady versus prior quarters. Loan loss provision is very much in line with my expectations though I expect similar amount for 2009 unless we get rains in 2009. And a svelte government.

DPS was higher at Ksh3, which I don't get unless its to keep Helios happy (shareprice is only Ksh20 higher than their buying price in Dec 2007). The 10 for 1 shafre spilt I am definitely unhappy about. Clearly, Kenyans have not learned the value scarcity plays in capitalism. The other worry is that principals tend to lighten their holdings during stock spilts. Hope we won't go Safcom's way.

Capital ratios have gone down compared to 2007, which is why the higher DPS is even more of a puzzle.

Though Mwangi is very bullish, my prediction for FY profit for 2009 remains unchanged at Ksh6.2bn.

Masters of the Universe vs NSE

In one corner you have the guys who head the top banks and IBs in the world. In the other corner, you've have men who head a small (even by Afrika's standards), but recently growing bourse.

The so-called masters of the universe have spent two days apologising, grovelling and pledging to do all they can to restore their businesses' reputation. Vikram @ Citi has basically said he wants a $ per year until Citi is making money. No matter he has been getting a mean pay packet in the past.

On the other corner, are dudes who have basically grown up in New Stanley picking prices of shares et al. And couldn't care for any changes. The Chairman of the NSE basically dismissed what seems to me to be a fairly complete piece of audit as BS. No word about poor investors still waiting for their bucks almost 15 months later. So isn't the difference between Wall Street and NSE just the attitude rather than poverty etc?


How does a broker that basically buys and sells shares making commission at source have liquidity problems? CMA has a broker rule against executing without the cash cover from the client so why would Nyaga or any broker (as opposed to an IB) need overnight lending facility?

Kenya: Ecommerce ideas for '09

Three key themes. Information. Shopping window. Connections.

1. Auction website market for land, property, cars, and the like. Also an auction market for housebuilding and other small projects.
2. Recommend: you want hire somebody, hire somebody who has been recommended e.g. a garage, programmers can market themselves etc.
3. Financial super market: Comparator table for various tyupes of financial products and allowing the viewer to be able to actually apply for the preferred product from the table. Would require agreement with banks and other providers so they pay a fee for each opened account. Could also use the same as introduction to customers to various products.
4. Tour guide and booking site: Most peeps in the West have a misconception of what it'd be like to visit Kenya or even Africa. One of my colleagues asked me if we have hotels (I am not kidding and its somebody born and bred in London). Virtual online tours of hotels; lodges and game parks and other places of interest would work a treat. You'd have agreements with the hotels and others to get some commission for every package booked through your website.
5. Virtual real estate site: sign up all the estate agents so you host and advertise all their properties. Similar to tour guide but this time it'll be a virtual property tour so that potential buyers can see the house, see the plot and location rather than having to travel thru 3 hours of traffic jams on Thika/Ngong/Mombasa road.
6. Farmers website: Where they can sell their produce, get farming advice and tips, vetinary service hire
7. Entertainment supermarket: vcds', cds, digitized tapes, you pay to burn on to your system
8. Law courts auctions: One of the ways of getting goods and property cheaply. You can't do it unless you are in Kenya though. Why not work with the courts to get this done online complete with pictures or short-films.
9. Virtual help desks: Q&A for specific IT issues for Kenyans
10. Online library: Hosting professional tution and notes, university papers, thesis, past exam papers, useful school text books and especially those used in primary and secondary sschools. Parents pay a small monthly or annual subscription
11. Ebank: As far as I know, the high net worthy customers of BBK, Stanchart, KCB don't enjoy ebanking. Why not set up an online bank to do just that? Mbanking is also an option though I know some guys have it in beta form.
12. Networking club: To host professionals, common interests e.g. paragliding, bungee-jumping, fishing etc
13. Map Kenya and sell the software

There are many other ideas, but fibre optic needs to hit and have the expected penetration...

Corruption is killing Kenyans

Its starts during the election campaigns, when the humble aspirants seek money under any mattress including Libyan, Chinese, drug dealers etc. We voters play our small role by asking politicians for money so we can vote for them. Although he was really voted out due to his record as an MP and a minister, I remember guys laughing at Xmas Murangaru when he offered Ksh10k at one campaign meeting. WE then hack each other as people must get their turn on the eating table.

Once these monsters get to Parliament, eating is the order of the day, so we get;

• Grand Regency being given (sorry, sold) to Libyans without any bidding.
• Oil being given to Triton which then drinks it so we have a shortage in which leads to higher inflation. Which leads to out of court settlements of around Ksh1bn that could have been used to buy food relief. Oil prices are so high that Kenyans can't resist collecting free stuff that has poured on the roads. Leading to 110 deaths.
• Kenyans hacked and chased away from their farms leave their unharvested maize. Leading to a shortfall in Kenya's staple food. Drought then exacerbates the situation.
• Maize is sold to brokers who make a mint as part of their payment for good work done durng the General Election. Kenyans are now dying from hunger...
• City council is paid to look the other way. While fire, health and safety regulations are infringed. A fire breaks out in a busy downtown supermarket packed with gas cylinders and customers in close proximity. Customers are unable to flee via blocked fire exits. And die horribly.

And still we have peeps who celebrate the likes of Kiraitu, Ruto, Kibz, Pattni to name but a few?

Nyaga Audit-wonder who was minding the shop

Ksh1.3bn flushed down.
Audit report received in November but still to be dealt with. Cleary Stella didn't lose any money.

• Ntalami knew of the Nyaga issues since 2003, but was either (a) illiterate i.e. couldn't read (b) paid to look away (c) incompetent. This shows the folly of appointing somebody because they are well-known to you and or have some knowledge of the industry. Ntalami has history of straight dealings at the NSE. Not...Peterson Mwangi was appointed under the same system.
• Senior NSE manager used Nyaga to trade illictly. Conflict of interests anyone?
• Several banks helped Nyaga cash client cheques. Again it explains how a significant proportion of customers only ever get their cash when the broker decides its time to do so.
• CDSC employees helped Nyaga trade with clients accounts. I've long feared that this was missing jigsaw in the puzzle of how broker employees have been able to trade with client's accounts. Many a time I've had to get sales or purchases reversed because they were done without my say so.
• Finally, SIB's chairman talking about its precarious financials said “Right now business is so low that we are forced to eat into our own funds,”.

The stock market is a legal pyramid scheme...

The stock market is a legal pyramid scheme in which a 1st mover advantage makes you money.

If you study all the stock market greats, one common theme is that they always take/took positions early and then wait for the rest of us to see the position go in and then they exit.

That is why it’s common to hear investor peeps saying that once you hear western media has done a feature on a particular stock market i.e. mainstream has noticed the returns, its time to vacate. If you substitute western media with any Kenyan media, you can pretty much see what I mean. I expect to see article about other African stock markets in a couple of years.

In the meantime, based on the above philosophy, when is the best time to top positions or re-enter the NSE...?
Anyway, that is my stock market philosophy.

Excellent Q&A session with the prophet of doom. Another thing, you can be too bullish or too bearish. Either will lose you money. Just ask John Duffied or Chuck Prince...

Barclays announced a great set of results. Will probably hold for this year and exit as the dividend is announced same time next year.

Ruto, what do you mean this is not corruption?

Jackson happens to be the ODM chairman and a farmer in Ruto's Eldoret North constituency. Note, not a MAIZE MILLER. He bought a 100,000 bags of maize from NCPB ostensibly for milling at Ksh1,750 per bag. He then called NCBD and told it to release the bags to Mombasa Maize Millers for Ksh2,600 per bag. Ksh85m profit while still sitting in his house and with starving Kenyans out there. And you us tell that is not corruption? How are the millers going to be able to sell unga to Kenyans at Ksh72 if they are buying the maize at a price almost 50% higher in price? These are not false allegations.

Kibor is also known for other interesting activities and utterances.

Ruto needs to be sent to his Sugor home, but then so should Kiraitu. Sadly both heads lack the balls to do this. For Kibz, you have to force him into a corner before he can agree to sending Kiraitu to Meru again. RAO has already started the fight back. Interestingly, this memo courtsey of Kenyanpundit shows readiness to use such diversionary tactics.

This is why some of us are so opposed to getting foreign aid under any circumstances. It means that accountability will never take hold in Kenya. If everytime a corrupt politician eats thus messing it up for Kenyans and his idiot head shortly afterwards go on TV to beg for aid, we'll never be able to own our problems and resolve them. Buy Dead Aid by Dambaso Moyo for more...

NSE: weekly catch up when it found new lows

NSE searched and found new lows this week. It fell below the global-driven October lows and one has to go back to Dec 2004 to see us this low. These were the key movers in the week:
Gainers:
BAT Ksh138 up 1.5%- I think this is dividend chasers (its DPS is the highest)
Kakuzi Ksh22.25 up 1.1%

Losers:
Rea Vipingo Ksh9.95 down 23.5% investors punishing the share for the fallen DPS and flat results.
KQ Ksh23 down 17.1% cack-handled profit warning. However, in the context of the global aviation industry, KQ is a star
The Merali stable of Sasini and Sameer
Mumias down 15% to close at Ksh4.25.

Key insights/readings:
· We’ve been here before i.e. when the market defied global orthodoxy in early 2007. Then as now, the market movement was due to Kenya specific issues.
· The NSE as with other markets is driven by key themes. In Dec 2002, Kenyans were the happiest and most optimistic peeps in the world. We were free (or so we thought) of the m-o-1 tyranny. 2003-6 saw a bullish NSE- these were years of economic recovery; focus went from search for political to economic freedom; the global economic environment was benign and investors moved from emerging to frontier stockmarkets. 2007 saw Kenyans take a pause and ominously re-focus on politics. 2008 things went paragacha and the NSE pause became something else.
· In 2009, I believe we’re suffering from possibly the most dysfunctional government in the continent (with apologies to the Somalis). 42 cabinet ministers with two heads. One head is barely there (Google stroke symptoms) and other who having seen the prize will not offend anybody that would prevent him from getting his hands on the prize. Ordinarily, 42 ministers would not function. Yani, think a 42 member executive board. And then you’ve a selection of vultures from the m-o-1 era mixed with present ones. The irony of it all was seeing m-0-1 at that silly forum this week. Its utterly ridiculous and IMHO, our economy won’t grow as long as we have such governance. In such circumstances, this first half could see new lows.
· Finally, the volumes are low, so don’t discount short-selling with an eye on temporally speculative gains in the coming weeks.

Late Addition: Is Centum going to write-off its Ksh200m+ investment in RVR?

LUSE:
Is down 12.75% on ytd, but still one of the markets I follow religiously. Think copper, think China.

FTSE:
We'll see a u-curve, but there is some very good current pickings and after taking a bath on RBS (40% down), Barclays is doing good things so far-30% up so far. Btw, I think somebody caught wind of the rating downgrade because no one seemed to blink when it was announced earlier in the week.

Time for Kenya Financial Regulator is Now

:-3 brokers in two years and several others requiring shotgun weddings to avoid going the same way.

:-Much needed reform in the trading environment with security of investors' funds, trasding that is behind times, largely uneducated investor community, low confiendence. Confusion and opposition about capaital requirements when everwhere else, people seem to know what time it is...

:-Banking behind times in some ways (basic banking accounts and lending rates are uncompetitive); the unbanking population is reducing very slowly. Confusion about capital requirements when the world and his mother recognise the importance of strongly capitalised

:-Insurance sector that survives in part due to very good business savvy rather than strong and well regulated environment. Insurance penetration levels are very low as a result (2.6% compared to 14.6% in SA and 3.7% in India.

:-2007, new capital targets for Banks and Insurers are set before Bunge. They get shot down. 2008 similar targets for brokers and IBs are announced.

:-Isn't time we had an independent body bringing together the various financial sub-sectors and able to give streamlined common sense coherent regulation for the sector as a whole?

Some features:

• Chairman: to steer policy, public dissemination and generally be a strong voice for the sector in and out of Kenya. We could start with a current CEO of one of the large banks to give the correct take-off.
• Clear regulation framework and underpining policy that is easily understandable to the financial sector and key stakeholders (investors, business and GoK). This would spell out among others, capital adequacy and liquidity requirements over an economic cycle; reporting requirements; how the firms will be supervised; expactations around management structure and corporate governance; risk management and measurement tools.
• Clearly spelt out targets on consumer education rather than nice sounding words especially around charges; consumer rights and complaints procedures.
• Oversight from the Parliament Committee for Finance

More ideas for raising revenue

It looks like a couple of the 16 budget-filling ideas that GoK lined up maybe derailed (KPC IPO definetely looks off by the day). For the time being anyway. So how about the following to plug the ever expanding Budget deficit:

1. Sell statehouses/lodges: I know that baba jimmy only uses two of those. I can't recall him at Nakuru and rarely at the Kakamega and Sagana ones. Why not sell them? Alternatively free up this prime land in Nakuru and the other 2 for some of the IDPs. As for Momba's state house. Kibz already has a house in Nyali. The statehouse is on prime coast land which some hotel mogul would want to buy.
2. Reduce the motorcades: The oldman travels in a motorcade of like 40 cars. Stupid because it holds up traffic for 30+ minutes (wasted economy production). Sell and leave a realistic and common sense 10 car motorcade. The sale (30*1m per car) will at Ksh35k per household, build homes for like a 1,000 IDP households. Add a similar trim on each of the ministers and hey presto, we have IDPs resettled.
3. Fire Saitoti, Makwere and outsource their ministries to some of the idle ministers-what Dalmas do all day?

The above excludes all the other obvious ideas that if this was a listening government, would easily go thru. Reducing the cabinent to a managable 20 is a no-brainer. Taxing MPs is a no-brainer.

Kiraitu: Time to go "this is mbigger than Angro-Reasing"

Assuming what KTN has discovered is true, the oil shortages in Dec will look like a small thing compared to the forthcoming shortage. Basically KPC and the ministry are awarding oil to chosen marketeers (presumbly NOCK and politically connected madonnas i.e. those that gave hard cash during the campaigns)

One of the reasons I am convinced we won't the economy turn around that the nation is crying out for. In 2009... or year after. Unless we bring these guys to their senses.

Kiraitu has been a total failure as a cabinent minister, no better than Saito or Makwere at thjeir respective and previous posts. Come to think of it, I can't think of any ministers that has delivered except maybe Martha...

And just to add fire to the fuel, RAO will get his spanking new office. At a cost of...

Ksh700m = the annual tax payment from tax-dodging MPs.

The James Mwangi of 1930s US

2nd paragraph of this article about the founder of BoA. The secret of success in business is competitive distinctive advantage. Find your niche and develop it into a mass market.

The day the information age collided with the horse n carriage age

As soon as you opened the door in the morning and put your first foot on the snow, you knew it would be that kind of day. Fresh snow all the way to your ankles. And more still falling. Not your typical London day. It was obvious trains won't run- they usually breakdown due to silly excuses like wrong kind of sunshine, leaves on the track etc. So I walked (very gingerly) towards the bustop. Wapi? No buses. So I trudge to the train station with a slither of hope that err, they've changed the habits of a lifetime. Not today.

Getting back (I know how the NMG guys felt going up Kirinyaga) to the house, log in and none of the usual London transport websites are working. This in a country where broadband access is as cheap as chips (£7 per month for speeds of up to 8mb). Clearly because nobody could get to their offices, websites were not functioning. And neither for that matter were business continuity plans. Even Heathrow was shut... All because of 2 inches of snow.

At least my son got the benefit :-) he was jumping up and down and whooping...

Barclays credit rating downgraded

I think this may explain some of the fall in the share price week before last. It'll make for more expensive wholesale funding. Will it change Barclays' mind about accepting government funds? Definetely. I think it'll probably within the next 6 months as defaults rise...

Results season: Things to look out for

Most of the full year results will be released within this month and next. With this in mind, I'll be looking at for following in addition to the usual yoy growth in PBT, cash flow, debt.

Banks:

• Growth in other income: As long as CBK is determined to keep interest rates low and interest margins remain under pressure, banks need to diversify their income. Equity, KCB, StanChart and to some extent, NIC should see a very good year given entry into custody business by Equity and fx volatility for the other 3.
• Loan loss provision-most banks grew loans hugely in 2007 compared to 2006. Then the economy ground to a halt in 2008 and has since not really resurrected. My expectation is that loan loss provision which in ordinary times accounts for an average of 1% of the listed banks total loans will account for around 3% of the additional loans that were given in 2007 vs 2006.
• Risk management- given CBK's intentions on Basel 2and the world we are in now, this one will be of particular interest to me. Banks need to be clear about the risks they face and the contingency plans in place.
• About time HFCK showed some positive momentum.

Of the other financials, PanAfric will have benefitted from its associate's strong showing in Q3.

Industrials:

Impact of higher oil, electricity prices and a weaker Ksh/$ rate, makes it harder to call this sector. ARM is of particular interest especially keen to know if its gaining cement market share against the two. EA Cable's 2nd half should much be improved given copper prices have gone through the floor.

Commercial and Services:

With the exception of TPS (will have a horrible yr given its start), the rest should as minimum not see lower than 10% growth compared to 2007. CMC and Car & General have already come through very strongly and it shouldn't be different for the others. AK is of particular interest as it needs to show momentum ahead of the fibre optic arrival in Q2-it will also be interesting to see how its residential business is doing.

Forward looking statements:

NSE shares rarely do this, but it would be good if counters gave a view on 2009.