Legacy Leadership

Nelson Mandela is a worldwide icon because he laid down the best years of his life for his people, was freed, became president of South Africa and left a legacy of a reconciled/reconciling beacon of African democracy for the world to see. The late Boris Yeltsin is hailed in the West as a brave leader who finally ushered Russia into the post-communist world, while Russians remember him as a drunk who broke up their nation, gave away nation assets creating Oligarchs and wasted a golden opportunity to democratise Russia, create a free but fair economy and above all took them into Chechnya. Uganda remembers Idi Amin with a shudder, Margaret Thatcher is remembered as the PM who privatised everything but the Queen. Deng Xiapong is now known as the Chinese leader who kicked off its current economy turbo charge. Lee Kuan Yew's authoritarian leadership in Singapore and that of Mahathir in Malaysia pulled their respective economies into the 21st century. In Kenya, we remember Jomo Kenyatta for his oratory skills, ushering in Kenyan economics (growing while allowing stealth corruption), tribalism and uttering unprintable names political assassinations. We have Moi to thank for the mkae hivyo hivyo economics, tribal clashes at every election, Goldenberg, Pattni, roadside cabinent reshuffles and Kibaki-free primary education and continuation of Kenya economics-I think apart from political assassinations this guy is Jomo Kenyatta true heir. The question, how many of these leaders ever think about the legacy they want to leave behind or how they will be remembered and is it important. What sort of qualities do leaders who have overhauled their nations and left a positive impact need or require?

In the private sector, you have your Henry Ford for the whole assembly concept; Warren Buffet for investing in value; George Soros for UK not being part of the Euro; Jack Welch for introducing Six Sigma to GE and the corporate world and succession planning in management. Sandy Weill/Chuck Prince have transformed Citigroup despite recent underperfomance as has Ken Lewis (and Hugh Mccoll before him) at BoA. Toyoda for Toyota; Chris Gent at Vodafone is a notable company builder in the UK. James Mwangi and Peter Munga with Equity Bank are on the way to building a banking concept of note in Kenya. However, there are few other CEOs/Chairmans that one can say have transformed the business landscape Kenya. In business as in politics, vision, intelligence, and special comparative advantages are required to be a transformer.

Shareholder Activism?

Just imagine that if it wasn't for The Children Investment Fund (TCI) increasing their stake in ABN Amro to 1% and demanding that the bank either breaks up or looks for a merger, ABN Amro would today still be serenely going about its business as only the Dutch do. Tomorrow, Barclays will most likely confirm that it has agreed to merge with ABN Amro, thus acting as a white knight to save ABN Amro from being broken up. And its not as if the ABN was underperfoming, only that its strategy was not clear.

Today there are Kenyans who hold large but minority stakes in some of the top NSE stocks, the question is, would they demand for example that KQ fires its head of customer service following recent poor pefomance in this area? Or could Transcentury demand the cancellation of Manitoba's management contract with KPLC due to continued underperfomance? Only time will tell...

What a gooooooooooooaaaaaal!!!!!

Its like Maradona famous goal only faster. Watch it.

Kenya to list bond internationally, AccessKenya IPO

Although minuscule in comparison to normal paper being floated in the international markets, the fact that Kenya is thinking of venturing into the international bonds market is worth a mention. Before that, what, why and how-type questions will be asked. How are bonds listed internationally? What is the rationale for raising funds internationally? Why not continue raising funds internally-after all there is plenty of liquidity in our economy?

• It is to help maintain domestic interest rates and insulate the private sector from the crowding out effect e.g. banks preference for buying t-bills instead of lending
• To increase marketability and liquidity of govt bills-the flip side is that the type of investor who will buy these will be hot money taking to the hills at the slightest sign of risk. It does however mean that the risk of default is reduced by entrenching a tighter monetary policy so no more 1993 level of interest rates...
• To create a benchmark for our corporates to raise funds in the same way e.g. KenGen who need to fund more electricity generation projects
• To raise the profile of our economy-my favorite one as Kenya would get a credit rating from the likes of S&P, Moodys and so forth and would get a regular SWOT analysis of its economy
• Typically international bonds are long-held and used to finance big infrastructure projects e.g. roads
• Is it to raise funds away from domestic eyes/pressure-quite clearly this is a real issue as you may not necessarily budget for it?

AccessKenya IPO kicks off tomorrow and I believe it will be oversubscribed given the size of the issue and despite the careful choreography of allocations. Is it worth investing in though. AK has 32% of the corporate market, and will be re-investing just over half of the raised funds into VOIP and other residential related products. There is also talk that it will be looking for some bolt-on acquisitions perhaps aimed at improving its retail offering. Numbers-wise, yes revenue and PAT have grown but an EPS of 0.47 for FY2006 would be among the lowest on the NSE. If you want to go long-term, the elephant in the room will Kenya Telecom, if you are a speculator, you need to ask yourself who will come into the secondary market given Institutionals are being catered for.

I keep wondering, our neighbour Ethiopia has a population of 80m, and yes they are mainly involved in agriculture, but why aren't more Kenyan companies (apart from Kenol) moving in?

I guess next time the WB president meets some Kenyan politician, they will have some common conversation topics along the lines of "I know I am supposed to non-corruptable, but I am human, right?"...

RVR deal goes off the rails, NMG, CFC excite

When the Rift Valley Railway deal was announced, I said that i thought that a 25 year term was economically suicidal. Rail if handled as a business, could be a cornerstone of our economy's regeneration helping generate revenues and support the growth of the our landlocked neighbours, our productive Western and Rift Valley provinces that don't have roads to match their productivity and help ease the wear and tear rote on the Mombasa-Nairobi road by HGVs. To surrender the business away to entities some with dubious history and others that are entangled in messy legal entities for 25 years without any back-out clauses smacks of desperation and will cost us in the next few years. Already, the first results show that under the new RVR tutelage, KR is underperforming in various areas with KPA having to publicly complain about yet-uncollected rail cargo, RVR are still in court with their former partners and they off course haven't paid all the fees to GoK. It is messy and I forecast that the whole deal will have to be reviewed in the next 18 months. The other point to make is that there are very few of the big tenders in any sector that this govt has done well in and I wonder whether we need to call on our "partners" World Bank/IMF to help streamline the way we evaluate these deals so that we get the right candidates.
While I was away, various companies rushed in their results to comply with the end of March rule. Several stood out. NMG with a k12 dps was awesome and those wise enough to look at price growth potential as well as dps will have NMG's shares. For me, this is the only media company worth holding over the long-term given its expansion goals. CFC is one I expect to hear more of. The 06 results show that it can do well on a standalone basis; PAT grew by 68% driven by growth in customer loan book (30%), govt securities and fees and comms. As the only universal bank in Kenya today, CFC will show momentum in the 3-4 years as it streamlines its ops. Its likely merger with Stanbic to create a top 5 bank will be the icing on the cake for its shareholders. Finally, there are rumours that Express is eyeing an strategic international partner presumably to give it capital assistance that will expand its reach. From being a loss maker 3 years ago to an international business is quite some turnaround. ARM, ScanGroup are others that announced FY06.

TPS announce FY06, -ve momentum trading @ NSE

TPS announced impressive numbers for FY06, but only so far one can say given there are no comparatives for FY05. Reason is they are apparently difficult to do given changes from '05. Would have been handy though. TPS are the only tourism-type listed company so it would have been interesting to see just how well tourism is doing.
About momentum trading-this I believe is single biggest thing that is impacting the NSE apart from institutions shyness, Francis Thuo fiasco and speculators. Momentum trading is where investors flock to buy into a particular market just because everybody else is. When it comes to selling, they also sell at the same indiscriminate rate. This affects not just retail investors, but also institutions and is particularly acute in an economy like ours where they are not many liquid assets to invest in. It means that the NSE can go up and down like a yo-yo on even when the economy is heading upwards, companies are investing and seeing huge profits and money from the diaspora and the like is still pouring in.
The suggested OTC market, floating of longer-term bonds will help in mopping some of the latent liquidity in our economy that is just floating around looking for investment opportunities that give adequate returns. As will increased competition in the banking sector using price (account charges, interest offered and charged).

Pan Africa, Total announce FY06 results, City half yr

Pan Africa Assurance saw PAT humongously grow by 155% to ks450m, translating into an EPS of 9.38 (3.68) in FY05. Primarily driven by growth of associates and discontinued operations. DPS was 1.44. Total performance was hit by the increased financing requirements as KRA forced it and other oil cos to pay 50% of the fuel tax upfront. This has required borrowing thus raising financing costs. With a FY of the same to come, expect lower PAT for FY 2007. DPS of 2.50 will be paid. City Trust also announced half yr results showing PAT halved, though they expect better 2nd half. The company derives most of its income from investments.

SNO woes, KQ hits turbulence & the Aburiria Nation

The announcement that Reliance didn't make the deadline to buy the SNO licence is quite depressing on two fronts, its implications for growth of internet and the outsourcing business and an indictment of the govt's tender process. Even if the choosing the appropriate company to award the tender is tricky, one part of it should have been easy, if you require that all the bidders have to have a Kenyan partner-why not do separate tendering for potential Kenyan partners and then encourage the bidders to pick from the list?
Having travelled with Kenya Airways in the late 1990s and then more recently, last week's announcement of performance woes wasn't much of a surprise. In 1990s, KQ had great staff, great check-in, strawberry and cream, fair competitive price. Fastfwd to more recently, patchy food, nightmare lose of luggage, overbooked check-in from JKIA, some of the highest prices on the London-NBI route. KQ has ridden on that "Pride of Africa" for too long. Richard Branson is coming in not just to compete with BA for the Heathrow route, but with Emirates/Qatar for Asia routes and KQ for the African routes. Come on Titus!
Titus (Tajirika) features prominently in the Aburiria country, the "imaginary" country of Ngugi wa Thiongo's newish and lol Wizard of the Crow. Read it!

M-Pesa finds its way to the UK newspapers

Article was in the Guardian today, also has some nice facts. Its nice when we are making news even in the technology world by leading the way. How long before they do an article on Equity Bank? Will also be good publicity for Safaricom before their IPO later this year (?). I am assuming they or Vodafone have patented the technology otherwise Celtel, the big 3 banks will be on the bandwagon before long. I wonder why Safaricon chose obscure banks like Citibank to partner with?

Barclays in merger talks with ABN Amro

Barclays, the father/mother bank of BBK is in preliminary "white knight" talks to merge (effectively takeover), with the ABN Amro, the Dutch Bank. This is all tentative, but if it were to go ahead, would make it the 4th largest bank worldwide by market cap. It is however unlikely to impact BBK in the short-medium term.

Of IPOs, OFDs, HFCK & Bears

Kimunya confirmed NSE's worst kept secret, Kenya Re won't happen in March but May and KenGen's 19% offload is being brought forward to next month. Kenya Re will most likely be the equivalent of the grocer who hides rotten oranges at the bottom (why are they taking on KNAC's assets at this stage of the game?), but at 60m shares will still be oversubscribed. KenGen's offload is a few months late or 1 year too early i.e. the timing is wrong. Reason-the tariff fiasco with the govt having realised too late that it had created a rod for its own back by committing on a prospectus to pay KenGen their real cost of production. So far, Treasury is covering the gap between what KPLC can profitably pay to KenGen and the amount KenGen needs to profitably continue to produce electricity. Govt is in such a mess that they paid a consultant to tell them that yes, you'll have to ask consumers to pay for the real and higher cost of producing electricity-many could have told the govt that without charging them! Without some confirmation of this, investors should stay away from the offload and buy the shares at k10-15 in the secondary market later this year.
HFCK announced their FY06 results, PBT was up 56% primarily on lower staff costs (does that mean its not growing any more?) and lower loan loss provisions (good-HFCK nearly went bankrupt from carrying too much of the stuff). So not driven by revenue growth (1% up on FY05) and there was no dividend. There is still confusion over strategy. HFCK now wants to fund construction of properties. So it will be carrying two types of risks in its books-property not sold and then when its sold, it'll obviously have the more conventional lending risks. This is a market that KCB seems to be way ahead in so this investor doesn't see how HFCK will survive as a standalone entity to see out Frank Ireri's 5yr strategy. The strategy will require financing of around k13bn which I am not sure the proposed rights issue will bridge-perhaps a better idea would be to float a 25 year bond.
The current correction/bearish sentiment at the NSE is a perfect opportunity for the long-term stock investors most who will say its a necessary rite of passage that imparts important lessons for one to be successful. There is sympathy for those that were hoping to use the NSE bull run to raise short-term funds which there is quite a few in the current investor population, but not for the get-rich-quick crowd. For the rest, use this period to accumulate in stocks you believe will grow your capital in the medium to long-term.
Kenya Bankers Association revealed that Ksh20bn of the bad debts in the banking system is held by 100 defaulters-shouldn't they be letting all financial institutions know who they are?

Keen on IPO's? check this out

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

Another good kenyan stocks site

http://www.mystocks.co.ke/

ARM

ARM presents good opportunity for growth in the future despite not paying an interim dividend for year 2006 this may change come 2007/2009 with the expansion into fertilisers and setting up of a sodium Silicate Plant in South Africa. Also considering the increased demand for all of the Company’s products both in Kenya and in the COMESA region markets.

NSE must copy Brazil's Novo Mercado

Much has been made of the speculative effect of hot money (emerging market funds of US/UK Investment Banks) on the NSE. Part of the reason such funds only deal with the NSE on a speculative basis is the lack of clear governance by CMA/NSE. For the NSE and the rest of the Kenyan economy to benefit from more permanent investment from such funds, we will have to improve our stock markets in a lot of areas not least reporting standards. The effect of such improvements is clear if you look at the the success of Brazil newest stock market.

Ethanol oil-the future of Kenya's Sugar Industry?

While previewing Bush's visit to Brazil last night, some TV programme mentioned that one of the reasons is going their will be to sign an agreement with Brazil for export more its oil to US as part of his push to get American's into green economics.
In the '70s faced by high oil prices (Brazil was a large oil importer) and wanting to keep its industrialisation at full steam, Brazil's military junta discovered that the solution lay in its vast sugar cane plantations. They invested in, researched and refined the ethanol oil idea and then in the late 90s, left the private sector to run with it. As of yesterday’s TV programme, GM’s car plants in Brazil are 98% driven with flexi-power engines (can use oil or ethanol); flex-power cars are now outselling oil only cars and Brazil is now exporting ethanol oil to other countries not to mention the idea especially to its BRIC partners (India and China). Ethanol oil production and recent offshore oil discoveries mean that Brazil is now independent of oil imports.
Apart from Mumias, the rest of our sugar companies face an almighty survival challenge from 2008 onwards. So how about getting them to abandon sugar production and investing in ethanol oil production instead? We can then over time generate enough oil to at least fuel 50% of our economy making us less exposed to oil price movements and the multiplier effect that has on daily consumables.
Sources:http://yaleglobal.yale.edu/display.article?id=6817

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.

Kenya's new Business Daily

The Business Daily Africa was launched yesterday. It will be published by NMG stable in partnership with Wall Street Journal-one of the most renowned business newspapers in the world-though I personally think it has some way to go before it can match the FT.
I actually like the idea of such a paper as it shows that Kenyans are finally focusing on things that really matter to their lives namely their economic well-being. For the Diaspora, its hoped the paper will go behind the business news and bring us in-depth articles on the NSE-listed companies, sector analysis, developments in business as well as opportunities arising from our growing economy. It would also be good for it to focus on ideas, policies, business developments elsewhere in Africa and beyond that enrich the Kenyan economy.

Limuru Tea, Unilever announce FY06 results

Limuru went with the trend for all tea companies with and saw PAT double from FY05 due to the drought in that year that affected the tea crop. To celebrate the turnaround-shareholders (Unilever is the majority shareholder) will get ksh10 per dividend, 2nd only to BAT for the FY06. Unilever saw a fall in PAT (profit after tax ) due to a high restructuring cost. Excluding this, the company saw PBT double for the year.

KCB not doing bad after all

Kenya Commercial Bank (KCB) Group yesterday announced a 63 per cent growth in pre-tax profits moving up from Sh1.9 billion in 2005 to Sh3.2 billion in 2006.

A dividend payment of Sh6 per ordinary share which is a 50 per cent increase over the Sh4 dividend paid out in 2005.

Gross non-performing loans reduced from Sh13.25 billion in 2005 to Sh12.09 billion in 2006.

Capital standing at Sh11.6 billion up from Sh10 billion in 2005, making KCB the second strongest bank in East Africa.

Share price increased from Sh113 at the end of 2005 to over Sh220 in 2007.

Recommended a 10:1 share split

Branch expansion at least 5 to 10 branches annually for the next 5 years

Looking into expanding further in the region apart from Sudan, UG and TZ

C E O Terry Davidson has done a marvellous job and hopefully will continue after his exist later this year.