NSE touches 3,000 next stop is 3,500

NSE is up 30% from the March lows and now has in-built momentum to at least go up another 20% by September or year end depending on when GoK starts selling t-bills.

Fundamentally, the picture is still the same, with firms and especially manufacturers looking at a grim 2009 in which they'll struggle to match 2008 perfomance. Most banks are looking at 40% tops yoy growth with significant loan loss provisioning to be done. BBK especially I suspect has either hidden talent for creedit scoring customers while hawking loans on the streets or this will be a grim yr.

Telecom sector (basically Safcom and AK), will almost certainly recover previous share pricepeaks (at least in the case of AK), on the back of expectations about how fibre optic will help revenue growth. Don't forget however that internet providing will rapidly become volume business.

The main driver for the NSE rise is that risk apetite is back. Many investors who got burned from around October have probably been able to pick up some liquidity and are now back in the market. I also expect to see focused attention from Western funds back into the NSE thus the rising boats effect on every share.

Which are the good buys? CT has a fairly good list. I'd add TPS, NMG and DTB from Aga Khan stable. And if you are feeling aggressive, pick up Centum given its portfolio will recover in line with the NSE.

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-bottom found?

Another solid week at the bourse with the NSE index up marginally. Whether we have priced in all the bad news is something I remain sceptical about. I think NSE tends to price in with a lag and hasn't for example been taking into account the food and weather forecast for 2009.

Corporate Announcements and Actions:

NMG finally announced 2008 results. Was up 19% on 2007 driven primarily by strong cost control. Ksh4 DPS will be paid in May. I think this might be a tough year for it from the advertising point of view.

Co-op has bought 60% of Bob Matthews and is thus a stockbroker as well as its other businesses. The new broker will be the un/fortunately monikered Kingdom Securities. Imho, broking is a good easy business in Kenya. If your operational risk monitoring, prevention and detection is world class. Otherwise, there maybe cause to regret, moneterily and reputationally a few years down the road.

Hence Equity's well-known aversion to actually acquiring a broker licence. It held its AGM on Thursday to confirm the 3.9bn shares spilt-thingy, regional footprint/expansion and precious little on HFCK. I see HFCK as its potential achilles heel.

EA Portland has finally taken a hedge on its Ksh1.7bn loan from Japan. That took 5 years. And it still has Ksh3bn to go before paying off the loan...

USE:
Stanbic announced 48% rise in PAT from 2007 driven by 20% income growth agianst 5% cost growth. However, it also reduced DPS by 11% to be paid in June.

FTSE: Ended higher as Geithner's plan was being digested. MHO, I think the plan hinges on whether the banks will accept to sell toxic assets at throwaway prices. I prematurely exited Barclays after booking 100%gain only to see the UK gova give it a clean bill of health thus making price go up 24% yesterday! Waiting for end quarter profit taking.

NSE weekly catch up: Have we hit the bottom?

The NSE continues to benefit from investors re-positioning to take advantage of the results season. Olympia was highest gainer in the week despite a blind strategy, while Centum and Equity topped the losers table.

The answer to the question is maybe. We did hit bottom at the NSE in October but have we bottomed out? The answer is no and we'll continue to yo-yo along the bottom for a while and may even work ourselves into going  below 3,000. There are various reasons for this not least the uncertain Kenyan macroeconomy and the very sickly global situation. Volumes at the NSE remain wafer-thin (see graph for comparison to the first 6 days in the '08) a combination of the anaemic cash positions of many investors (inflation and school fees) and confidence levels.

Grapevine says that NMG sacked 100 of its journalists. My info has always been that for a listed company, it pays atrociously, so cutting staff might not be the easiest way to reduce costs. Instead, attention should go to its many dailies especially in Kenya. Even a willing, able person like me when on my hols, would struggle to justify buying BDA, DN, and Standard in the same day. Not to mention Daily Metro and Taifa Leo. My suggestion would be for the time being, to make BDA a pullout paper within DN; make daily metro a free newspaper financed by ads and probably re-think Taifa Leo.

FTSE corner: How do you tell the market is lousy? Walk past broker/investment bank offices and see guys sitting down infront of three screens while playing on their blackberries. Normally, you'd see them watching all three screens while holding 2 phones.

2008 Investing Highlights

This was me end of June, this is me today:

Kenya
Sold: In the money (NMG, TPS, ARM, NIC) & Out of the money (BBK, EA Cables)

Reduced: KCB

Switched to: Equity, Cash

Hold: Equity, AK, miniscule KCB (2,500 shares) & Safcom & Cash

TZ
Bought: Dar es salaam Community Bank

Zambia
Bought: Pamodzi Hotel

Theme has been to move from diversification of risk to concentration of gains. Has it worked? Yes and would have been even more fruitful if I had kept to one of my golden rules of never adding more shares unless the price of the said stock is lower than my average cost so far. I got punished for buying AK at Ksh33.50 thus driving my average for it to early 20s and Equity at Ksh301 and Ksh250 thus driving average to mid 120s.

Overall for the year: average i.e. below 30% gain. Had to rush out of BRIC nations just to stay in the money and NSE has been so-so but thankfully my offloads were all in July/Aug time.

Other investment decisions:
Good ones: Missed out on SIB’s private placement. Having opened a trading account and just about to send the funds to buy some shares at Ksh120, I once more request ed a copy of its accounts. Still not received even today. In the meantime, I now hear that the initial placement failed and subsequently the shares were retailing at ksh30!
Tough ones: After sweating to set up the investment club, I decided to move on because of strategic differences. So why I my still blogging as KCIG? Investment club changed its name.
Bad ones: Hesitated when was Equity was Ksh116…

Investing resource: Thanks Aly Khan for the live prices streaming. Some of my last minute price adjustments relied on the live feed.

Key learnings: Self-discipline, early bird mentality and thereafter liquidity and investors confidence are the key ingredients that turn good company/market fundamentals into investor bounty.

NSE shares I am looking to buy

A general comment. The NSE may fall a bit more, but I don't think the trend will last another month. Unless Co-op comes in and inflation stays flat at 27.6% or goes higher. Its therefore time to start looking at what are the good shares in the market:

1. KCB-Its annualised P/E for 2008 is around 15. The bank will start benefiting from its regional growth from 2009 and beyond. The only spoiler (which will impact the sector anyway), would be if the economy turned negative because of inflation thus increasing non performing loans.
2. AK- Fibre optic cable will be with us in 2009 in one shape or form. AK is an established player in the market already and in the first lane to take advantage of the faster, cheaper internet network. If it can't, somebody will buy a stake in a similar vein to ScanGroup.
3. Equity- The share has been good to me and remains my favourite despite the taking a turn since that announcement. Its annualised P/E still looks high but the bank has 3 more years of 60%+ growth to come all at a lower tax point and it would be churlish to ignore the opportunity.
4. DTB- Has some of the KCB ingredients (strong and aggressive regional franchise) though not the same balance sheet or branch network. Its slowly standing out in the mid-tier because its able to source funds in different ways from say NIC which doesn't have the branch network or the international connections.
5. TPS- Having logged out, I might be tempted to get back in should the price go below ksh58 (which would be its lowest for this year). Great hotel business and a bellweather company for its industry.
6. EABL/NMG- These two are back ups in case the NSE confounds my expectations and continues to go downhill beyond 4,000.
7. Industrial- Not touching especially those with a high energy cost component (whether fuel or electricity). Electricity price rises will burn margins.

Wednesday shorts

The forthcoming era of fast internet connections continues to garner interest from all. Its one of the reasons I fear for AK. Internet provision like mobiletelephony is initially expensive to provide due to high capex, but the revenue generation afterward is phenomenal. You lay the network and then chop it up into small bits that you mass market in such a way that you cover the amortised capex, staff pay, generous bonuses and maintenance costs. The rest is profit...And who is very good at mass marketing in Kenya?

I like this article's question on how World Bank came up with its Ksh70. The measure requires context and also has to be dynamic because today Ksh70 is not much for a day's spend.

Bolt by name, bolt by action! I've taped that 100m so I can re-watch again and again... Its the equivalent of the first time I saw someone patting a lion.

NSE-are we out of woods yet? Most likely until Co-op IPO comes along. Last week's recovery was not unexpected given that investors had oversold, but the issues remain. Supply and demand are still looking for equilibrium. In the meantime, I have Equity, KCB (by end of next week we'll which way with supply), AK and NMG on my stockwatch.

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...

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.

NMG share spilt confirmed

Spilt shares start trading on 11th of August with books closing this Friday. Moderate share growth and a fat dividend makes NMG a share to hold for the longterm. Don't all rush in now.

Total announced a doubling of profits for the first 6 months, with turnover growing by 30% (petrol-pump prices I'd say given its probably able to sell old stock at seriously good margins); but the key driver was much slower growth in costs.

EA Cables was pretty flat despite a good first quarter. Me thinks exit time may be very near. The Kenyan business which is still the major business driver is simply not performing as well as I thought it would be given the construction work still on-going. Still, I can hang onto the shares until mid 2009 to see if fibre-optic will have the impact I have included in my forecasts.

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.

NSE Stock Portfolio: 6 months into 2008

Generally, I haven't traded much this yr, not because of lacking opportunities, more because of a busy schedule elsewhere and an evolving strategy. From buying and holding for the whole presidential cycle, I am now more inclined to buy, and hold as long as the stocks are meeting the short-term mini-goals i.e. FY profits etc.

Bought:

1. During the January clashes: Equity@125, TPS@58 and Barclays@65
2. Nation Media Group@326 just before it announced its results
3. A few Safaricom during the IPO

Switched: after its Q1 results, sold-off my whole Barclays portfolio and switched into Equity@250 and Access Kenya@33.50

Overall Portfolio: Also includes ARM, KCB, NIC and EA Cables.
Overall trading from H1 2008: Very good returns....

Running the ruler over:

• Nation Bank of Kenya
• Safaricom while waiting to see if it'll get cheaper than ksh7.40.

PS: The above is my own personal stock-trading account. For KCIG, we outperformed the NSE for H1 2008

Monday Shorts

Mugo Kibati's impending departure from EA Cables doesn't sound right. The MIT engineer was airlifted from NY to come and turnaround the then underperforming cable company in 2004. Apart from the profitability growth, he has managed to make EA CAbles a competitor in TZ and further on. The company has just completed a factory that will strategically position it for the incoming fibre optic. So his departure now seems odd and might be due to:

1. The cashflow rumours being true, and thus he is taking the flak or running off before the proverbial hits the fan


2. He sees bad times ahead.

I expect price to drop steadily until a statement is issued on the way forward.

Company's only ever spilt businesses into distinct subsidiaries as opposed to strategic business units if they are planning to sell. Is this ARM's (thanks Bankelele) intention? Note that ARM is primarily a manufacturer of chemicals.

Britak's retention of its highly-rated CEO for its investment arm was a shot in the arm for its plan to do an IPO-which I hope is very soon.

Excellently researched piece on NMG (a share that can only grow further).

NSE catch up

There are many good reasons to still buy some NMG shares. There is an additional one with when one has a look at its investor briefing . Having young leadership should make its mark on a business and I hope I don’t speak too soon when I say that 18 months after his appointment that started off with nation-gate, Linus Gitahi is making his mark on NMG. It has a very clear vision “Media of Africa for Africa”. Clear leadership is also being seen at Business Daily. Yes it’s had its goofs, but even at Ksh50, I had to get a daily copy when I was home. Nation despite being the victim of usual anti-kikuyu BS, has on someday something like half the content as adverts. The job supplement looks like NMG goes picking anybody who wants to advertise. Over 3-4 years, one can’t go long on both capital (share appreciation growth) and income basis (one of the best DPS at the NSE). Placed alongside SGL and Scangroup as media-type stocks, NMG is still way ahead.

The fate of KQ should now become an issue of national concern to rank alongside the direction of KMC, KPA (IPO-please) and KPL. In retrospect, Titus Naikuni, KQ’s CEO joined KQ (Feb 2003) when the hardwork in terms of getting on it a profitability curve had already been done. since things started astray at KQ, he has tried typical MBA-speak things i.e. sacking a manager here and there; closing off some business routes, dismissing big accidents and mishaps (135 for last year). Continually however, all I hear from any of its passengers is “never again”. Isn’t it time the buck stopped at the CEO’s desk?

It is entirely correct that questions have been asked about Equity share price and the extent of insider trading. It does happen at Equity, but its very widespread at the NSE and even the UK, National Bank’s share price went to 60 from 40 last June prior to Kimunya confirming GoK’s paying off Ksh20bn debt. Other classics are EA Cable, BBK to name but a few. The UK's FSA suspects that upto 30% of M&A deals have some insider-trading going on. The problem is far worse for Equity because some of this negative press overshadows what is a remarkable performance by a “made in Kenya for Kenyans” solution to banking. I was shocked to see that Equity is financing Access Kenya’s shareholder offer of home-internet. Equity offers a variety of loans to the one group even I fear lending to. Small-scale farmers. And so forth. The moral of the story is that investors must buy on fundamentals alone and do so for medium to long-term gains. When you have BBK on a P/E of 20.42 despite PAT growing at annual rate of 8%, then buying Equity at a forward P/E of 21 looks cheap even at current prices.

And whatever one can say, buying HFCK at anything over k35 (i.e. P/E of 54) is not fundamentals-based. Yet.

I like the look of Access-Kenya. Pre-2007, the group had less than 1,000 corporate clients (this is now just over 2,000). On the back of this, its doubled turnover and bought some interesting players into the group and having had the measure of the market (40,000 corporate clients in Kenya and only 12.5% have internet; something in the region of 325,000 households that can afford internet and only 5% have internet) are now set to take advantage by investing in fibre-optic at source and its delivery to end user households. Still, its website isn’t exactly the best even in Kenya is it?

Overlooked shares and events

NMG: A solid blue-chip with enormous growth potential within and outside Kenya, its now offering an additional share for every one that you hold to increase liquidity. Despite a high absolute price, this is the best time to buy NMG shares if you are looking to hold until the next general election (whether in 2/5 years). It has good dividend too if you an income-investor.
Equity lock-in period: I'm seeing many jumping into this stock and this to my surprise. Equity's lock-in period comes to an end in just under 4 months time. Unless its confirmed otherwise at the AGM, some of its principal shareholders will be able to offload their holdings post-July thus possibly leading to a lower share price. Saying that, Equity is still the bank to watch for the next 2/3 years.
ARM: For those who missed its full year results, ARM is benefitting hugely from the new clinker, has plans to possibly add another one and is also developing the new site in Ukambani. Oh and its a multi-product firm unlike Bamburi or EAPC. Its slightly higher P/E to its cement peers doesn't lie.
The economy: I think Prof Ryan was more on point on this. We'll be lucky to get 3/4% growth this year given the downturn in agriculture and associated multiplier effects including negative ones such as inflation and likely drought later this year.

Investment Strategy- Go Regional

One of my earliest posts was about an investment strategy for a 5 year investor at the NSE. This post updates those themes with one extra caveat, regional expansion.
If Kibz, RO and other politicians can change the habits of a lifetime, Kenya will be an African economic powerhouse by 2011. The upside of this is that the NSE will outdo its 2002-6 performance, as foreigners start chasing the frontier markets in earnest. The downside is that firms are now getting competitive and in every industry, listed companies will feel the heat.
If your chosen firm doesn't have any plans for East Africa to start with, then it'll struggle
to grow beyond being able to handle compe in Kenya. The 2nd important reason is to reduce the Kenyan political risk on your chosen stock which will be there in 2012 (if there are no elections in 2010 which I hope). You need stocks that can effortlessly grow come funny politics or not.
Both TZ and Ug are growing are at roughly similar rate of around 5% per year.
Ug is probably the easiest market to access grew at an estimated of 7% for and has opportunities in construction; banking; large infrastructure projects and the clincher, possible oil wealth.
TZ remains largely untapped and possibly hostile to Kenya but the EAC economic zone will overcome the latter.
Further on we have Rwanda and Burundi. Rwanda is working furiously hard to become an investment haven despite the smallsize of its  market and language barriers, is seen as having huge growth potential. If Kabila can breakaway from his father’s habits, there is not enough space to write about Congo's potential especially in commodities. Ethiopia with the 2nd largest population in Africa and an economy averaging 9% presents opportunities in agriculture; huge hydroelectricity potential; potash deposits and of course historic tourist sites.
In terms of stocks already expanding regionally, EA Cables; NMG; EABL; KCB ; Kenol; TPS and DTB are at the forefront of this trend.

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.

More Interims

NMG's numbers are strong and bode well for the 2nd half when it should see an election uplift. Interestingly, its EAst African paper is doing very well too. Scangroup a fellow competitor for advertising had a solid first half. Scangroup tend to perform very strongly in the 2nd half as many companies will be advertising for the Xmas season and the coming year. Cash flow went into negative due to higher dividend payout and acquisition of RedSky. One thing I am not sure about is how well they are able to merge all these new companies they've been acquiring as well as grow regionally and into West Africa. The other concern is how well they will be able to keep the the account managers from RedSky.
Bamburi had a flat first half compare to last year. I am still not convinced they'll benefit (apart from scale) from their proposed merger with Portland. Construction industry will continue to be a growth industry, but they lack the agility and hunger for business that ARM have.
Express's PAT almost doubled in size and it looks as if their recovery is sustainable. The elephant in the room where they are concerned must be a rejuvenated Kenya Railway (RVR) which will be competing with them for the freight business from Mombasa to the rest of the country and to especially to UG. Jubilee had a fairly disappointing half. and i suspect that their reliance on investment income will continue to haunt them unless they can start focusing on the bread and butter insurance business. On the contrary, their rival PanAfrica had a strong half with all its insurance lines seeing strong growth, but had investment losses from associate wipe out all the gains. Perhaps they may benefit by hiving off this business?

Stocks View

Accumulate/Buy:
Equity: Has now become a byword for perennial overachiever. Both income streams (NII and Commissions and Fees) looked strong from Q1 07. More than ever, the bank is eyeing the saccos market share and engaging it intelligently. One may get queasy about resultant non performing loans, but that depends on term over which you will hold onto the share and 2ndly, Equity has a more conservative definition of non-performing loans than required thus is able to pick up problem loans earlier-in theory. P/E may look too rich at around 32, but would only be around 20 if one was extrapolate the Q1 results to the full year. Downsides: How many of its principal shareholders will divest some of their holding come next July/Aug when the 2-year holding period ends?
NMG: Is now an East African media house in all but name tetchy govts notwithstanding. The Business Daily has been received far better than initial scepticism suggested. In saying that, I still think that it’s missing a vital constituency-namely, the NSE investors. Why not for example do monthly profiles of each of the 51/2 listed companies; interviews of key players in our economy-this is the only reason I read the Financial Post and I am sure there are others who would want to know more? NMG has a fat DPS; note that its P/E is far more sensible than that of Standard and one can feel a bonus share issue coming from next year. Downside: M7 is not Kibaki and will willingly crackdown on any perceived negativism, ditto TZ.
TPS: Yes another Aga Khan company. Tourism boom is now on and TPS are recapitalising, going regional and refreshing the brand and their hotels in earnest. Downside: usual terrorism/security advices are the main one.
Hold or Upgrade to Accumulate/Buy…
CFC: The universal banking concept means that it will continue to do well as a standalone entity albeit in need of rejig-a bank with no online proposition today needs searching questions about age and strategic aims of its management. As a standalone entity, one can hold onto its shares for the mid-long-term. However, with Stanbic on board, I believe the new entity will be the corporate bank of choice for East Africa and as such investors need to get on board.
KCB: The bad times should be behind it…Q1 was solid if unexciting though it’s getting higher fees now from increased lending. It’s another one expanding its reach beyond Kenya and successfully at that. The hold is to wait for the demobilisation of the share spilt. Downsides: Is GoK non-interference behind us (i.e. this is a politically sensitive stock in mind and thus 2007 elections represent t some uncertainty)?

Underweight/Sell:
KenGen: Once you get GoK 's incompetence being played out publicly as some kind of experiment, you know you shouldn't touch that share until govt stake is reduced. You can't commit legally to something that you can't or shouldn't do and then seek to dress as some kind of intelligent and well thought-out rescue from fiasco.

KPLC: Whole host of problems:

1. Bad debts,
2. Probably too wide a remit (I think rural electrification needs to go a smaller company with none of KPLC’s history);
3. Leakages-25% of its electricity wasted this way
4. A large unionised workforce (apparently some are paid more than their line managers)…
5. and finally the ropey margins.

Upsides: Demand for electricity will get insatiable in at current or higher economic growth rates.
Mumias: Please see previous post and comments…nothing has/will change

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.