NSE Update

These are anything but serene times at our bourse. Fundamentals have now been taken off the table and investors and traders alike are indulging in fear. The thing is contagious so we need not feel like we are the only ones who can't think straight when all around us everything is going stupid. We breached the 4,000 line without a whimper and depending on this weekend's G7 talks may even drift (or is it hurtle?) towards 3,500. Thanks D&B for your clever float of Safaricom.

Safcom continues to be the victim of our so-called NSE foreignisation policy. Some muppet at D&B thinking only of the commission to be accrued never realised the other side of the coin i.e. decoupling can be good for a small stock exchange such as ours. So will the NSE be taking up the new fad of halting trading for hours if not days? It all depends on how much the brokers will put their selfish interests before the wide market. If commission is king (as I think it tends to be), then there is no chance of us copying the "take a break" route. My preference would be we continue trading and even bring in CO-OP. I might be tempted to widen my net and look at other stocks in such a situation. I have price targets below which some stocks become too cheap not to buy. Imagine even BBK is now becoming tempting if it goes below Ksh40. ARM though remains impervious to any of the bearish stuff and I think it will rise next week following this announcement which will scale up its cement business.

Speaking of Coop, with a week or so to go before its due start date of October 20th, nothing much has been heard. I received a questionnaire some time back from D&B, but that is all I've heard. I really hope its floated now as it might be the only chance we get of a full subscription.

You think we got it bad?

This lady might be the next Vice President of the US.

Huge day in the banking sector: not the last...

UK gova has effectively given the banks the option of taking up capital in exchange for govt ownership. Note that these are politicians so they'll be reacting emotionally to the issues of the day.
2ndly, this is a retrospective step mean to cure known toxic stuff in the banks balance sheets as of now. It like the US zillion game doesn't tackle the underlying depreciation in assets which is the main cause of the toxic stuff. We won't get to the stage that we have a normal banking system until lending and deposit holding is behaving normally.
Finally, we still need some of securitisation for the mortgage market to grow. When will this happen?

UK Stockwatchlist: RBS, rbs. Goodwin will deliver some upside...

Tuesday Shorts

I was thinking I was the only who was daft enough not to understand how this zillion bail-out would help the US. Seems not. I mean once the Fed buys the cds/cdo instruments, what happens to the banking system? Will it be fully captilised to start lending again? Even to the sub-prime?

Technology is a wonderful thing. This weekend I was having a look on google earth at some of the maps they've put together and you get can some places in some very good detail. I was surprised though that you could see Nyeri well, but not Ngong or Karen. Googlemap isn't much of an improvement on this.

So how many banks will be nationalised (fully), by the time we are through these seismic shifts? Practically every EU country now seems in the throes of panic about whether this or that bank is going to have a depositors run on it. Many of these banks are going under because of serious neglect by regulators during the sunny days. In the UK, the regulatory regime adapted was to only visit the so-called strong banks every 3 years. So why can't they just leave them to the same neglect now?

And how is our banking sector doing? I have concerns about NPLs (given the background of high inflation and the Jan issue). However, Fitch is surprisingly perky about the sector. Still would like to see consolidation, but thinks this unlikely in the short-term. One thing I agree with it, we need to see the likes of BBK and Stanchart listing more of their shareholding.

GoK will now do away with the 30% requirement for the telecom sector. I guess it probably doesn't matter that much given the sector is pretty competitive, but I hope this isn't changed for other sectors.

Foreigners are however running back home to preserve their flanks against the global tsunami.

Won't it have been easier if GoK had thought about removing this VAT charge before raising the electricity bill?

Mmmh sort of day

What a day at the markets! Its like every major stock market had set itself a 5% fall target for Monday...To cap it all, there was some investment pundit on CNBC howling "take any money that you'll need in the next 5 years out of the stock market!". Talk about adding fuel to the fire.

The issue is simply this. The wholse funding market has pretty much collapsed as banks don't want to lead to joe blogs bank ltd which then collapses tomorrow. So far, the collapsing banks are those with high dependancy on such funding. Hence why why all the big ibs have either collapsed or changed model to allow deposit-taking. And why mortgage lenders are also on the rack. Again, many are merging or collapsing.

Next comes other economic sectors. Iceland banks for example have use wholesale funding to fund Iceland business which have then come to buy retailers in the UK. You couldn't make up what is likely to happen next...

Another IPO

If you don't fancy the bloated Co-OP (Kenya) and TNM (Malawi) IPOs, the ZANACO one in Zambia might suit your purposes. Zambia's economy is benefitting from the current commodity boom, not to mention staedily improving and stable governance.

Brief details:
Application dates: Sept 29th to October 23rd
Price per share: 470 kwachas (around Ksh9.50)
EPS: 38
P/E: 11.75
Minimum application: 1,000 shares
Shares on sale: 229m + 25m for emplyoees = 25.8% of total
Allocation announcement date: Nov 17th
Shares listed on: Nov 17th

Its not the best of Zambian shares on offer perfomance-wise. Zanaco is majority owned by Rababonk (A Dutch bank) and this its major selling point because it now has steady and banking-wise management. Prospectus to follow shortly...

Can you discern the seasons?

The preacher in our church yesterday spoke on something which I think is very timely. He talked about how we all need to know when it time to plant; time for watering and finally time to harvest. He also pointed out that the most difficult season is the planting season. You have to till, possibly manure and of course you have no idea if the rains will come. Many of us love the harvesting season. The problem is many of us are only interested in the harvesting season. Others try to go through the various seasons, but don't know when the season for planting is and thus end up with maize drying up before its ready to harvest.

Likewise the stockmarket.

So you can discern the seasons at the stockmarket?

Which would be your ideal town to work in Kenya?

Our economy being what it is dictates that you if you are looking for a decent career or job in almost every field apart from maybe tourism and maritime jobs, that you be based in Nai. However, if I had a choice in the matter, my 3 preferred towns to work and live in would be Nyeri; Malindi; Kericho. And I think that if these 3 towns were to start thinking of themselves as economic units in compe with Nai, it would not only be good for the growth of our economy, but would also slow down some of the political venom we are currently living under because of skewed economy growth. So for;

Nyeri: A good starting point would be to avoid getting sucked into the unplanned growth and expansion that plagues Nai. The growth of slums and posh estates arbitrary needs to be controlled before the population gets to 1m or more. For a provincial headquarter, the town is a laugh and reminds me of those small towns you see in the US/UK all with same cross-shaped two roads one always being called "main street" (and "high street" in the UK). In Nyeri's case, you get one tarmacked road that winds its way in and out of the town. The town should go for a fully-fledged university based around the Kimathi Institute with supporting industries perhaps based on plans to build an internet or electronic village. A mzungu's view of the town (complete with mispronunciations). More impressively, the town now has a website though lacking in any useful content.

Malindi: The tourism is the main and growing industry but this town has a lot more potential than even Mombasa and could again act as an economic growth hub. The Mombasa-Malindi road would need to be improved and widened as would utilities around the town. As with Nyeri (ok and possibly every other town in Kenya), it suffers from a lack of planning such that this will have an effect in long-run if not contained.

Kericho: Before the recent happenings, I had seriously thought of buying a plot in Kericho town. If you haven't been, make sure you drive through this town. It really is one of the most beautiful places for me and very calming too. This is the only half-decent video I could find.

At a macro-level, if you shouldn't put all your eggs in one economy, neither should our economy. One of my biggest wishes is that given the dearth of planning in Nai, GoK, councils and indeed the local population in various towns and villages.

Another Safaricom-type of IPO Fiasco?

1.2bn shares @2kwacha does look like a catch-all approach similar to that adopted for Safcom. Hope the Malawians don't suffer the same fate with TNM's IPO. At least its a much shorter period.

Anyway here is the prospectus.

The secret of corruption: bad accounting

Reading this summary of the audit of the GoK accounts, I am shocked by the sheer incompetence in the way our accounts are done. The one figure that sticks out is the Ksh200m in unacounted for staff expenses. Wierdly, it seems that if I turn up and say I spent Ksh50k on a field trip in Ngong, the cash just gets sent to my account. Other highlights:

Revenue collected by KRA doesn't tally with what is recorded as having been received at the Treasury.
A lot of the spend from the districts is only noted at the bottom of the accounts with no back up receipts or invoices.
The accounts as recorded don't agree to bank statements for most of the ministries.

And on it goes...

The overflowing in-tray awaiting Obama

As luck would have it, the first "black" president will need FDR Roosevelt’s kind of leadership to make his mark on the US. Briefly this is what awaits Obama on his in-tray come January 1 2009:

1. Economy in Recession: According to experts, the recession may last as long as 2 years i.e. roughly the time it'll take for the housing market to stabilise and start rising. In which case, most will have forgotten that this was Dubya's handy work and blame Obama. Unless he can do the radical surgery in his first 3 months aka the honeymoon period.
2. Useless wars: 5 years ago, the war in Iraq made sense(mainly because Americans were frightened into thinking it did). Today, with 4,000+ dead and $1trn spent (another cause of the current downturn?), I doubt if many give a care. Ditto Afghanistan where Osama is still unaccounted for.
3. Emerging Rivals: China and Russia will continue to challenge in the economic and military spheres respectively. US needs to be a lot more intelligent about how it deals with both and especially Russia.
4. Nuclear proliferation: It’s difficult when you make yourself the authority on who should hold nuclear bombs. It requires consistency which is clearly not there e.g. why India and Pakistan but not its neighbour Iran?

Future TV Mogul: Venture capitalists beware

I am surprised nobody would want to help fund this guy even for the pure joy of getting involved in something so fresh and original. If anybody has his contacts, let me know.

NSE: How long will the bear be with us? How long is a piece of string?

Earlier in the month, I said I thought that the bearish conditions won't last another month. I did put caveats because of inflation and the Coop IPO. Both are still with us. Furthermore, I am thinking that whether its sentiment or actual funds, the NSE movement is not as oblivious to Western markets as I had always thought. For these reasons, I therefore think the situation will remain for a spell.

However as investors, the playing field remains roughly the same except for:

• Traders: If you rely on the NSE for a living, have a look at what happened to day traders during and after the dotcom burst. Many had to get real jobs. Stock trading in a buoyant market is easy because you can use fundamentals or even charting to predict the next set of events. In a bear market, you need a lot more nous to pick out rallying pts. Not to mention funding. And of course shorting and front-running are only allowed in the NSE if you work for a broker.
• Fundamentalists: Past performance should be used as a guide to future performance, but this is a gilt-edged opportunity to buy some stocks that look fundamentally good, but have taken a dip due to the bear season. Typically, I use 1 yr low as a buying pt or failing that, a price lower than the one I bought initial holding at. Also, buying in portions may work well if the bear season is prolonged.
• Market abusers: Crown Berg and East Africa Portland are rarely traded. The waiver of 10% price change during corporate announcements is therefore an opportunity for a dealer to put in a ridiculously low price ; course panic so that you sell thinking the end is nigh. He (the dealer) then holds onto his share portion for 6 months during which the price will have gone back to normal. Stellar was grateful for a CEO job and won’t say boo.
• Shorters and front-runners: I suspect Equity was partly a victim of someone short-selling. And it won’t be the last. Any mini-rallies such as the one last week will be used as opportunities to front-run if you put in a “best market price” order.

The end is nigh: welcome to freefall city

In around 2000, everybody went nuts and started equating clicks on websites with revenue generation. Amazon and other whizzy websites were valued at astronomical numbers. When the model unrivalled, the flow of tears was as site to behold. Everybody was a day-stock trader with guys leaving work to go and trade stocks for a living. Despite the dot-com burst, that bug has never really gone away, until now. I remember that was the first time I got into stocks, but rather than buy into the dotcom hype, I bought into M&S, one of Britain's real institutions which was then in danger of collapsing. You sensed however, that a deal would come along to save, it got a new CEO and the £1.87 shares I bought doubled within a yr when I bailed out.

This however. Is a different kettle of fish. The banking system underpins the economy. Not to get too dramatic about it. It’s the circulation system of the economy. Once you hear banks are not lending to each other, they are even less likely to lend to you. If you are a business that operates with overdraft facilities or even normal long-term loans, your days are numbered. If you are a bank that depends on that inter-bank lending, your days are numbered (hence the collapse of Lehman Brothers and other ibs; Northern Rock and other mortgage lenders). A lot of insurers invest your premiums in the stock market and even money market funds. The current stock market falls and deviation of money markets mean they are also in trouble. Furthermore, some have also been providing credit insurance (in form CDS, hence AIG's collapse).

Still, if you have some non-credit crunched cash, speculating on some of the stocks keeps things interesting. I am now back at LSE looking for some bargains. StanChart, probably the only UK-based bank with no retail banking presence in West, looks a good bet as does, Barc. For more action, RBS may tempt. Its the sort of gambling that could (has already) leaving you with egg in your face.

Anti-Corruption: Good News

Its good to see GoK occassionally does make use of the public declaration forms. I wish they were actually made public.

Shorts

Is the NSE driven by foreign investors? Apart from the bearish conditions due to inflation, NSE's falls and rise over the last week and this one would seem to suggest so. This might partly be due to effect on Diaspora. Either way, it remains a very bearish time at the bourse and the prospect of the Co-op IPO seems to portend more gloom. For me, bring the IPO so at least it can shine some light on the NSE (and hopefully we get full subscription for once).

In the UK, gova is now tightening the rules for Kenyans especially those of us who are underground by

• requiring everybody to turn up in person at the Home Office when their cases are due
• leaning on GoK to provide fingerprints yani, they can compare fingerprints-mbayaa especially for those who have taken ids in Kenya.

On one to one basis i.e. energising the masses; tv debates, McCain comes across as 2nd rate and a no-hoper. But the dude is a complete maverick with some good out-of-the-box ideas. Sarah Palin (although the effect has worn off sharpish-just watch this excerpt from CBS) was one. And so was his decision to cancel campaigning to help support the $zillion support for Goldman Sachs (sorry US economy). Again, that kind of backfired given he still turned up for the 1st debate on Friday.

Having tried the newish Google chrome, its disappointing on several levels. For a start, you can't blog on it! When you do a search, you get sent directly to msn live search! Both these two are its best selling products. And finally details keep missing off websites, which you only discover when you go onto Internet Explorer or Safari. Its fast though...

Used to think a lot of Vioja, until youtube came along and Kenyans discovered that they could post their videos on it. Now Vioja has been trying to scare youtube into successfully removing as many of the videos claiming copyright. A couple of those were videos I had uploaded with permission from somebody actually know personally. Saw I spoke to him later and he said he had never heard of Vioja! The pt about the majority of vids is that guys only upload them to give the artists worldwide publicity through a channel whose audience Vioja can only dream of. When are we going to stop this parochial and envy-based BS?

Kenya & Capitalism: Lets heed the warning signs

In the days when parents dished out caning as regular as githeri or ugali, one learned very carefully the reasons older siblings got caned for to avoid the same fate.

Kenya is one of more stronger adherents of capitalism in Africa. And yet, you look and at how many safeguards they have out in countries like the US and the UK then you look at the last 5 years and you ask this. Do we know what we are doing? Do we understand the rules of capitalism? Are we alert enough to learn the lessons so we can avoid the excesses of capitalism?

Because the banking sector is recognized as an important cog in the capitalism wheel, its heavily regulated and monitored. You have to submit regular reports (daily, weekly, monthly, quarterly et al); you regular and irregular supervision that looks not just at the usual CAMEBCOM criteria, but also record-keeping; money-laundering; chinese walls and so forth. And yet with all this, firms have been falling like a pack of cards this year! Partly because of the external environment didn't take cognize of the fact that leverage is leverage no matter what. Its a rubber band and can snap... Look at the situation in Kenyan where banks have been hounding guys to take up loans mostly with some of the loosest form of collateral known to mankind. A pay-slip...

The stock markets in the West are classed as strong because investors are by and large well informed; there is a depth and breadth in terms of products and liquidity and listed forms have strong governance code on structure and reporting requirements. Again, you still have cases like the FSA saying that its own estimate is that upto 21% of all M&A have insider-trading! You then look at our NSE and its almost exact opposite of this.

Above all, capitalism only operates well, where the societal structure is stable and has widely agreed norms and values. We haven't yet agreed on how we should be governed.

What we must do urgently is customise capitalism so that it works for Kenya rather than we working for capitalism.

Thursday shorts

Another day, another bank is a gonna. HBOS is UK's largest mortgage lender and deposit taker/holder and the prospect of it going under was too much for the gova. Lloyds TSB will almost certainly get gova assistance so it can take over a much bigger bank than itself.

The US continues to confound. The excuse that AIG was going to cause systemic damage is BS of the highest order because a credit insurer without funds doesn't amount to much and that is what it was in terms of the financial sector. Menawhile, rumours abound that there was a Lehman stitch-up job between Barclays and the Fed. Funny story, ati Man U will now be sponsored by the FED.

At the NSE, its all downhill, demand/supply volumes are such that its even pointless trying to adjudge what is a good price to enter a share. It’s even harder to explain rationally why the fall has been so resolute apart from the reasons postulated. And of-course the ground slipping from beneath the global economy.

The thing about this bearish NSE. Kind of reminds of a remark that Warren Buffet made when everybody was still rolling in derivatives. “Only when the tide goes out do you discover who’s been swimming naked.” We are about to find out which brokers are naked i.e. trade on client accounts regularly because a bear like this will surely mean that we'll be selling at some point. AIB has been mentioned. It has come up with a strange new "CMA-rule". That every time you email an order, they have to call you to confirm the order.

Pity about Mwatela, unlike Githongo, I wish she had stood and fought this thing, but parliament is on holiday (how many whole days is bunge actually in session on an annual basis?) so nobody will really stand up for her and she was probably threatened with zero pension pay-off.

We are good at endurance sport so we should be good at Tour de France? Non? Oui? Lets wait and see... Btw, who is Myangi? Honestly, you'd never see tony brair so why do western guys get it wrong even on print?

Moral hazard: gitu gani hii?

In simple terms, economists say that in a perfect market, price will always go back equilibrium except where one of actors in the market behaves in a non-rational manner or when a non-market actor intervenes in an non-inefficient manner. The first is often seen in the insurance market where because you know you are insured, you may become more reckless. The second is where the govt not knowing or having been negligent in its duty flies in with tax money and rescues a firm in a particular sector or market. The hazard is that it now becomes a given that every other firm in the said sector/market will be rescued by the govt if its unable to continue its business. In some countries it become known as the tbtf (too big to fail) syndrome. The second hazard is that at some point, the govt will find that taxpayers baulk at paying for another profit-making firm to be rescued. This typically tends to be a bigger firm than the one the govt initially rescued.

Moral hazard of the non-market actor type abounds everywhere. Kenyan parastatals and partially-owned firms all fall under this line. Most operate like they can always be rescued tomorrow. In the US/UK markets, banks have been behaving with tbtf effect since Bear Stearns was rescued earlier in the year.

Bottomline: Govts either need to acknowledge that moral hazard exists and act appropriately or it doesn't and then be consistent.

The elastic-band theory

What a day!
Have you noticed that the quicker and harder you pull an elastic band, the slower and careful you have to be when pulling it back to avoid injury to self? And you can only snap so far before it breaks injuring self.
In one day, the finance industry has lost two ib-s possibly an insurer and will almost certainly loose Morgan Stanley unless it can figure out how it'll fund itself going forward. GS will survive because the world still needs a specialist deal-maker, but even it will have to withdraw to the hills as it were. I can't see it doing some of the proprietary stuff it does now in a year's time. Interestingly, Hank Poulson was GS's CEO before he became head of Treasury so he'll be loving today seeing two of his rivals go out of business.

No more this... or the green of Lehman Brothers that inspired this blog's color. While many blame the reward system,

the issue is leverage. Interest rates were kept low for an unreasonably long-time until everybody started taking the benign environment for granted. Leverage financed a lot of new products to the extent that some even forgot what underlay some of the derivatives they were buying. And for that we have to thank Greenspan....

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:

Last days for another ibank? Even the free-spending Oil/Chinese/Korean sovereign funds et al are unable to bring themselves to touch Lehman Bros.
Nd'ung'u is an academician with absolutely no clue as a CBK governor and if it wasn't Kenya, Jacenta Mwateal would be doing his job and not going off to the wilderness of the North Eastern ministry. Her demotion even sounds like it was illegal.
A lesson to aspiring CEOs courtesy of James Mwangi@Equity. Shareholders are like that line manager who thinks he knows it all. Disabusing him of that notion should only be done if you are going to be his boss. Telling shareholders that another 35% of Equity will be floated in the market will make most of them head one way. Out. In any case, somebody/ies are also selling a chunk of their Equity swiftly and not very subtly. If its one investor, then it must be one of the principals because everyday there has been one huge sale of around 200k shares.
In the midst of all the grief about the Safaricom IPO, I think the article might put a wry smile on your face.

Investment clubs: Some do's

1. Recruit members intelligently and professionalism so that they fill all gaps in your club’s skill set rather than numbers. Otherwise you’ll be carrying the numbers.
2. For commitment and quality purposes, its better to go for a high-one off investment amount e.g. Ksh1m than regular contributions. But you will get fewer potential members.
3. Think of 10 worst things that can happen. And cover them in your constitution.
4. Set up intelligent and professional governance that involves assigned responsibilities to as many members as possible.
5. Have a vision for where you want to end up and bring it back to the present.
6. Research, research, research before you invest. It'll put you in the 2nd lane after the brokers.
7. Take risks when you can. Otherwise it'll be like waiting till its getting dusky before rushing out to get some food.
8. Remember, the early bird catches the fat worm. Don't wait until a stock or market is flavor of the month.
9. Avoid ostrich-behaviour. Kenya is now part of East Africa. It’s much easier to invest in Ghana, Botswana, SA or even real estate. There is no point in chasing the NSE downwards when you could be investing elsewhere until the NSE finds its feet.
10. Last but not least, watch Tony Wainaina's video series as he gives all the basics in a very straightforward manner.

Marketwatch: NSE, USE & FTSE

The bear continues to stalk the NSE as GoK continues to let loose bullet after bullet on its grand feet in the economy arena. Inflation remains the biggest issue affecting the market and the wider economy. So what does GoK do? Meet over whether KenGen will need to increase its tariff to KPLC which will of course pass this swiftly to consumers. Recent rises are slowly feeding through the economy and despite optimistic noises, inflation will not get below 20% this side of 2008 unless there is concerted effort.
Meanwhile...
Equity hit Ksh250-primarily due to this announcement, but I also suspect some of the principals are downloading slowly. There was a low of ksh240 on today.
Crown Berg-I am assuming that all it took was for two guys to conspire as follows. One puts in a sale "at any price" and the other puts in a buy at ksh20. On a 1,000 shares which are then input into ATS at the last minute. Causing price to fall by 50% on the one day it can do so. Why would somebody do this? In the hope that nervy shareholders thinking its half results were bad, sell at throw-away prices. Unfortunately for them, nobody has bitten.
Going by all the threads on stockskenya, CO-OP IPO is imminent. Because its being brought by D&B, expect low threshold values and plenty of shares. I'll only participate in future IPOs on two conditions:

1. Restrictive thresholds i.e. minimum Ksh50k or more.
2. DVP

UCL-climbed to KSh200 after the rights issue shares were downloaded. Its P/E stands at a great height of 85.If you held the share pre-rights, you'd be holding 70% gain (before commission) today.
FTSE had its worst week for a while after that speech by the inappropriately named Darling.

Kenya Listed Banks: First Half 2008

Update from this and this. I've removed CFC Stnabic because their numbers don't make sense i.e. no restatements as required.

Some stocks are very cheap. Notice KCB's PE is half that of Equity and then think where both will be at the end of 2009...Supply, number and calibre of investors who hold either stocks may have played a role, but fundamentals have also influenced.

Although I normally invest on fundamentals, this article reflects some of the thinking around some of the stuff I've done so far in this 2nd half of 2008. The world of investing is changing...

Is lack of creativity holding back Africa?

If you listen to African (and black people generally) discussions on TV or in public places one of the things we love to pontificate about is the lack of opportunities and more popularly, our absence in history. In other communities, they are busy re-writing history by aggressively providing solutions and ideas to mankind problems. But are there any Africans trying to do so?

Finance Industry:
I can only think of James Mwangi who has at least broken the mould and has really turned over the banking sector in Kenya. Do we have contenders for investment banking innovator of the year from an African-owned investment bank? Where is the guy who is going to come up with the next Balck-Scholes model? Or that paradigm shifting finance engineering idea/product?
Economics:
Which economy in Africa has gone against IMF/WB orthodoxy successfully? Which economy has been able to successfully deal with corruption using even IMF-prescriptions never mind home-made solutions? Which economy has been able to institute inclusive macro-economic growth on a sustainable basis? Apart from Andrew Mwenda's polemics against development economics, which other development economist has come up with ground-breaking ideas on how Africa can chart its economic path. Which homegrown African company is listed in London or New York? Which African country exports products manufactured from its raw materials?
Politics:
Yes in Kenya we've experimented with a Grand Coalition, but it was forced on us and is a monster with budget-breaking expense. Which African country has been able to marry traditional forms of governance with democracy? Sierra Leone has copied our wealth declaration idea complete with the same faux pax. They are no public declarations and thus serve little or no purpose for the common mwananchi. In the UK, the register of MPs interests is freely accessible meaning very clean records.
Medicine:
With a myriad of tropical diseases unique to Africa, who has patented a cure for even the most prevalent of these i.e. malaria?
Agriculture:
Look at Kenya, no natural mineral resources, but how many innovations in agriculture? We have a fairly well-funded and very talented KARI yet today we still grow maize, potatoes, beans, sweet potatoes, arrow roots they we have done for years come rain, come sunshine. With drought most likely problem for Africa from global warming, which country has successfully mastered food self-sufficiency or even patented drought-resistant crops?
Electricity:
We are the continent that has consistent sunshine so where are the patents for solar-based power generation products?
IT:
We have many programmers, but where are the mould-breaking operating systems, internet-browsers, search engines or even africapedia?

Monday shorts

Well, last week ended on a rather sour note for some Crown Berger shareholders. Somehow, the stock fell by 50% on Friday even its though 6 month results were flat. Ama its the old City Trust story? The wider NSE remains depressed and it looks like supply and inflation have made the market a no go area for a while. Great results from EABL. 22% is a good growth number for blue chips like it and Safcom.

After noises from many of us, NSE improved and even refreshed its website. Sadly, things are now going back to where we were. It no longer posts results and even prices to go missing. Wake up guys!

Thinking real estate? Why not Ug?

Some interesting piece on Biwott. Ati m-o-i was his teacher?

Linturi's proposed bill (riking that accent, that is what I call keeping it real) chimes with something I heard, instead of 65, why not align presidential candidacy with civil service retirement age which is currently 55yrs? Also, make sure a MP can only serve two consecutive terms (anywhere in the country)...

I had another peek at the updated vision2030. The first shocker was on page 6. The 10% annual growth rate needs to be maintained for the next 25 years i.e. from 2005...That means we've already fallen on one target. The thing about this vision is that the formulators are not my generation but old men in their 50s and 60s who most likely won't be around to pick the brickbats when its not achieved. Or the plaudits if any. Planning or forecasting or any chore requiring target-setting boils down to SMART.

Talking of target-setting and performance contracts for judges. I have just one that I think anyone who has been through the Kenyan courts would want. Just tell us you'll reduce the case backlog by 20% on a year on year basis. Dank.

Enjoy your week...

2012; The outlook on Kenya’s landscape

Since independence, there have been numerous abortive starts to a new Kenya and sadly 2007 which many reckoned to be the moment of truth, has come and gone without this realisation albeit with unexpected outcome. In the wake of this passing, many Kenyans well known for their high optimisms have once again been left bewildered and pessimistic about their illusive dream.

However, timing which is a great healer increasingly appears to be on their side. Due to the combination of various factors/events taking place, 2012 will culminate into the birth of a new prosperous, harmonious, peaceful Kenya.

On the political front, the curtain will fall for a large group of old conservatives who have been an impediment to the country’s transition. This group which has amassed wealth in the hands of a few will be led by the incumbent in exiting the political stage. This will allow generational transition to a younger leader more attuned with the large Kenyan constituent.

It is also a foregone conclusion that its not how, whether or if, but Kenya will get a new constitution this time round now that the former protagonists are together.

Interestingly, going by the 2007 general election whereby 50% of well off m.p’s many of them cabinet ministers where shown the door, it is clear that the voters are more politically conscience and informed ready to hold their leaders to account. There will be no turning back come 2012 and similar voter’s fury with inept representatives is guaranteed to be replicated.

On the economic front, business and not toxic politics has started and appears that by 2012 will have taken centre stage. The government legislative efforts to tackle bureaucracy will bear fruits by this period thus creating conducive business environment.

Likewise, N.S.E will have de-mutualised, East Africa stock exchange commenced enabling the expansion of companies regionally plus improvement in accountability, efficiency and transparency. Many companies will also have been listed in the stock exchange, over the counter trading and REIT’s will be up and running resultantly creating wealth and opportunities in Kenya as a regional business hub and leader. Hopefully the current oil exploration will have produced positive results.

Crucially, the undersea cabling will have been completed and connecting Kenya to the rest of the world at an affordable rate. This connection will bring enormous benefits and transformation to the country’s ICT infrastructure, the way Kenya do business and the multiplication of Business Process Outsourcing industry.

Socially, it is evident that Kenyans will have come of age and put the sad events of 2007 behind them replacing the animosity with valuing others, tolerance, acceptance and living in harmony. Undoubtedly, they will be more conscience of their human and civil rights and unlikely to fall for the political manipulations.

However, this is by no means to that Kenyans will live in utopia land as some of the country’s challenges are deep-rooted and require concerted efforts and lengthy intervention, but 2012 will usher in the Kenya that many have yearned for.

So what’s your take on 2012?

The "named" sponsors of the Jan/Feb violence

This is the copy of the report the new KHRC chair was sweating over at the Waki commission.
Apparently the one she released only had the PNU side of the coin. Very sad how politics have messed up even NGOs such as these which one would expect some independence of thought.

Nothing in it is much of a surprise.

PS: During the secretive m-o-i days (and before wikileaks), Africa Confidential was the only source of believable news on Kenya.

NSE today, NSE tomorrow?

The other NSE (Nigeria not India), has instituted "funny" changes to trap a very bearish market (has fallen since its peak in Feb). The ones that caught my eye were:

1. Banks to reschedule repayments on margin facilities. Earlier in the year, CBN (equivalent to CBK) banned banks from running margin accounts. It basically feared that investors being able to borrow against their shares was fuelling a stock market bubble that could lead to large credit and market losses for the banks. Margin trading is slowly taking off in Kenya (I think around 30% of Safaricom IPO was financed this way), but I expect that we will end up with a similar issues a couple of years down the road unless clear ground-rules are formulated now. Specifically around borrowing limits or even requiring banks to have requisite risk-tools.
2. A rule to allow companies to do sharebuy backs (with a 20% ceiling). The spilts (I still think Safaricon could have been offered at Ksh20), bonus issues and multiple right issues we are currently seeing will eventually lead to too much supply against falling or flat demand. Then we'll need something similar to mop up supply.
3. Restrictions on new listings: This has already happened once (last March when AK and KenGen were postponed) and may happen again simply because as with (2) above, the market can't absorb any more supply. Alternatively like AK, supply can be restricted by offering shares within restricted application amount.
4. Daily shareprice fall restricted to 1%: Very strange rule but again the effect restrict a market correction turning into a bear market. Kenya NSE has 10%+/- restriction.
5. Reduction of transaction fees: This would be nice, but unlikely to happen at our NSE.

Overall, the effect was positive with index rises the day after the announcement, but its the sort of thing that can be avoided by controlling broker greed at the outset.

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.

Coherent policy

Inflation stands at a painful 26% and GoK is desperate to bring it down to manageable levels. Yet the same GoK authorises KPLC and Water boards to institute inflation bursting increases in their prices! Perenial droughts in some parts of the country continue to occur at the same time that other areas are throwing away grain...

While one's expectations of GoK must start from a very low level, it'd be nice to see an attempt being made to bring to bear some coherence to policy on some of these issues especially when some have such immediate impacts on the economy.

Who is up for the job? Certainly not Baba Jimmy going by this video. RAO already has his plate full, so perhaps one of dpms can have a go?

Equity Bank: The revolution and the law of diminishing marginal returns

From a failing micro-mortgage building society--->successful mould breaking microfinance--->very strong retail bank---> what next?

The law of diminishing marginal returns states that all things being equal, the rate of change will increase initially, will then level off before starting to decrease. After doubling profits continously since 2000, Equity investors and watchers will be waiting for 2009 to see if the bank is going to be able to maintain the furious rate of growth. In effect, with projected Ksh3.9bn for 2008, Equity would have to hit Ksh7.8bn for 2009 to maintain an increase of 100% in profits.

Impossible? Yes?

The bank is giving the target every shot and is now moving to answer the what next? question posed above.

1. Equity in 2009 and beyond will almost certainly be operating a model akin to the universal banking model that only CFC Stanbic has in Kenya or East Africa for that matter. The bank will be a:

• Retail bank: provider of the probably the largest selection of retail banking products. The bank is working to shush all the noises about loong queues in its branches. Its scaling up its mobile banking offering and moving ATMs to supermarkets and other outlets. It will presumably also try to bring in HFCK into the fold at last by offering it the distribution channel as well as products (Hekima Milele product being done jointly with Britak is ground-breaking in some respects).
  
• Investment bank: Initially I think this will just be the brokerage offering plus custody service layered on top. Its already doing the custody business very profitably (made something in the region of Ksh1.5bn from Safcom IPO). According to this piece in the Standard, it's talking to around 6 firms in the NSE about buying an investment bank licence.


• Insurer: Its already got a couple of products in the market. The next move might well be a formal distribution agreement with BRITAK which was until Helios came along, its largest shareholder. The fit in terms of culture is actually very good. The deal would only be a win-win if Equity gets a cut of upfront-premium and repeat premiums for distribution rather becoming an originator of insurance products because embedded values come into play.

Can the model work for Equity where its failed for many others? Please note that before Stanbic came along, CFC results tended to go up and down somewhat primarily because of its CFC Life business. In the west, the universal banking model is now besmirched given that the two largest writedowns have come from universal banks (Citigroup and UBS). Quite simply, it boils down to risk management and lack of management knowledge of investment banking. Risk management is something that Equity has had to work hard on and will need to do so to be a success. Nyaga and FT should be pointers of what can happen otherwise.

2. Regional bank: Though UML is small (83k depositors and around Ksh2bn in deposits), Equity' plan is to replicate its retail banking success in Kenya across M7's country. Its also advertising for hires to help open its first branch in South Sudan though I suspect that'll be very gradual business growth. The regional banking strategy will only see returns in the long-term i.e. 2/3 years time.

In the meantime, the bank will be looking for its brokerage and insurance businesses to bring the bacon home.

PS: My 2009 forecast is Ksh6.2bn i.e around 60% growth from 2008 close of Ksh3.9bn.

PPS: The shareprice perfomance over the same period will be affected by this messy announcement.

A review of Duncan Ndegwa's Walking in Kenyata struggles

As a quick preamble, there are very few useful books out there that give Kenyans a glimpse of how their government actually operate. Secondly, there are very few books that attempt to bridge the gap between the mythological beginnings of many a Kenyan tribe and their history pre the mzungu's invasion.

This is one of few that I have read that does attempt to do both.

As I suspect it is the case with many of my posts, the book could have done with extensive editing to give it some chronological order. I really enjoyed the first half of the book which looks at the history of Kenya at the beginning of last century has lots interesting detail on Agikuyu practices before we fell hook line and sink for mzungu-culture; very funny bits about growing up in those and especially when they first encountered whites and the various struggles against colonialism in its virulent stages when you could get shot for looking at a white lady!

The second half of the book suffers from neglect from a good editor. The story jump back and forth from the period after Uhuru to years downstream to the Kapenguria jail period and so forth. It does include a lot of nuggets. Moi apparently offered 7 GEMA Mps the VP post in 1978 before settling on Kibz. Kibz would have been minister of finance (to replace the perpetually drunk James Gichuru) earlier than he did but for his closeness to Tom Mboya (the two jointly did the 5 year development plan of 1965). His explanation of why his civil service commission allowed civil servants to own businesses is laughable and shouldn't go any further.

Ndegwa idolises Kenyatta, but in the end paints the old man as nothing better than a tyrant who punished those who didn't show absolute sycophancy. Recalling m-o-1's rule the Kanu circus of late 80s when Mps were treated like schoolboys, you can say he was just following mzee's nyayo.

Equity "IPO": what does it mean?

One of the key underlying and intangible requirements of stockmarket is continuity or stability. Anchor shareholders are important because they in effect represent stability. They do this by the fact that usually tend to hold onto their portion of shares thus in effect guaranteeing scarcity of shares a pre-requisite for share price growth. Every share thus needs anchor shareholders. Equity shareholders have been on tenterhooks this year wondering if its anchor shareholders would introduce millions of share into the market come 7th of August. The date came and passed with no reaction (except for CEO Mwangi's 0.3% that was released to comply with CBK 5% requirements for management).

The assumption was that most of them would either hold onto their portions or look for institutional substitutes. Now comes the announcement that Equity will instead float the shares of its foreign holders! So what is the difference? Does it include Hellios' holding (which its supposed to be holding for 7 years)? Even worse than a spilt, an additional float of shares will presumably mean that potential investors will have to be offered a discount almost certainly based on most recent price.

Bottomline: The additional free float might not be greeted as positively as Equity is hoping even if the share has stellar performance underpinning its future.
PS: My thinking is that brokers under the mistaken impression that more supply means more commissions for them are pushing for some of these moves. Lakini supply has to equal demand otherwise NSE will stay bearish,,,

The worst Kenyan tribalist revealed

There are various social ill inflicting the Kenyan soul presently that threatens the glue which holds the country together. Amongst them is the runaway grand corruption, impunity, poverty, insecurity etcetera. However, the elephant in the room which has existed and continuously swept under the carpet since independence, until it reeled its ugliness in 2007 bringing deaths and destruction is the tribal animosity.

Tribalism is defined as the possession of a strong cultural or ethnic identity that separates oneself as a member of one group from the members of another.

In today Kenya, tribalism has infiltrated every aspect of the society starting from the presidency to the civil society. Many opportunists more so the politicians have been quick to join the bandwagon in exploiting it to full potential resulting in the tragic consequences of 2007, nepotism etcetera.

Attempts to fight this evil is often met with counteracting arguments of siding with this or that tribe and worst of all as often practiced by politicians, one is accused of either defending or threatening the other tribe. The sad consequences are that having a united Kenya remains a mirage.

So who is the worst tribalist in Kenya?

This is the individual who believes that their tribe is superior, advantaged, resourceful, beautiful, intelligence than others. It is also one that thinks that their tribe must rule others. It is also an individual who judges other tribes or individuals in relation to their own tribe especially with concern to language, behaviour, customs or religion.

If you believe in more than 3 of the aforementioned statements, then you are the worst tribalist in Kenya. Just to note that chauvinist, racist, homophobic and religious haters are alike in holding derogatory beliefs about those unlike them.

Why have anti-corruption initiatives failed in Kenya?

I propose 3 reasons

1. Kenyans don't associate GoK money and their money as being one: Out of around Ksh700bn annual budget, KRA collects around Ksh500bn. This is paid by most Kenyans who work or do business. So why don't most peeps care about how their money is spent? Here in the UK, I pay tax similiar in amount to my mortgage plus monthly shopping bill. That tax excludes car tax and local taxes. So I care very much about how the UK govt spends my money. In Kenya, perhaps because many of the elite are tax evaders or MPs, you rarely hear anybody decry wasteful GoK spending. That makes it easy for peeps to think they can get away with pocketing the same because Kenyans think its GoK money who cares. Corruption involving GoK money is as bad as someone carkjacking you, ngeta-ing you et al.
2. Too much fear or respect of those in authority: A culture od doing what the boss said pervades the civil service at all levels. And yet, its like peeps haven't learned from Prof Mbithi who when testifying at Goldenberg said he received phone calls at night asking him to parocess Ksh1bn plus payment for Pattni! And off he went. Today he is a disgraced man. Because of this culture of doing as you are told rather than demanding that you get the same in writing, corruption is easy to do because there is rarely any paper-trail. In such a situation, its nigh on impossible to one, ascertain that corruption has taken place and secondly, as difficult to find out who played what role. In that respect Githongo's tape-conversations was God-sent (notice its the same trick Kalonzo used on his own PA).
3. Politicisation of everything:Many will condemn corruption and the impact it has on our economy. They'll argue that peeps caught being corrupt, should be hanged and quartered. Wait until the suspect is of similar political affiliation...Oh there is selective justice, oh he is an angel and would never do that. Our politics being bereft of any ideology, principles or policies have surrendered to our lowest common denominator, tribe. That is why Kibaki can easily say that corruption will be a thing of the past and also query whose goat Njeru Ndwiga has partakrn off. Similar attitudes will ofcourse be the norm from the hoodlums who partcipate in mashada and kumekucha forums. They will shout when Kibaki and allies are caught with their hands in the cookie jar, but praise without hesitation Raila's allies such as the likes of Ruto of the NSSF-plots; Kosgey of the All-Africa games et al

There is hope that things can change. I remember guys telling cops off in 2003. And guys like Githongo pia.

Welcome back John Githongo

Kenya has few true heroes. Outside of athletics, we have very few peeps that you would want your children to emulate. Principled, with something positive to give to Kenya.

Only the truly corrupt in any shape won't be glad to have John Githongo back home.

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.

AK "average" at 38%; TPS unsurprisingly down

AccessKenya announced distinctly average first half. Although sales were up 76%, cost of sales (which in its case would presumably be bandwidth) was up by a humongous 160%. Financing (basically interest charges on loans and overdrafts also increased by Ksh16m). Overall PBT grew by 39%. Removing the effects of the first two months but adding introduction of residential broadband and in an exponentially growing industry, the numbers are distinctly average. One wonders if AK will do a "ScanGroup" ahead of the introduction of undersea cable. My reasoning is that cash-rich businesses will do well in grabbing market share especially the crucial residential and small business sector and unless AK wants to come back to the market and do a rights issue, I don't think the Ksh400m it raised last year will go far...I've got it as a hold or wait and see counter.

TPS' numbers were not surprising. Most hotels had 20% occupancy rate in Jan/Feb and even March for some. Given that most of its clientele is still very upmarket, the results are very much in line and the shareprice for the last 2/3 months has moved to reflect that. Its still a good medium/long-term buy because if Serena can't manage in this industry nobody can.

NIC so-so, KRe good upside for H1'08

In a way its good because those that disappoint are being compensated by those that surprise. NIC disappointed because KCB had a very good half (I tend to look at the base from which the company has coming from). Lakini when you look at the recent steps, you realise that a smaller branch network will hurt a bank when there is a liquidity crunch.

KRe, I expected worse results because of having to cover-off Jan/Feb claims, but it looks like its come away unscathed. Fundamentally, it looks like a business that was just looking for solid management. At current price, the share is clearly good value.

Friday Unknowns & Githongo for Ringera

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

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

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

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

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

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

NSE: Why the bear

First all, I wanted to disapprove the myth about Safaricom disproportionately pushing down the index (note here we are talking about the NSE 20 Share Index which is quoted daily). The table has the evidence. Please ignore the effect of volumes as the formula used to compile the index does.

Safcom has had some effect but so have other shares. Where its effect is real is in putting the integrity of the NSE further into question.

The other reasons posited have been:

1. Inflation: Reduced disposable income has meant investors cashing in some of their shares. In the absence of a breakdown of volumes by type of investor, I'd suggest this is likely. However retail investors form like 20% of daily volumes. The one area where inflation will have a bearing is on performance of companies across the board. Especially if one just focuses electricity and fuel inflation.
2. Diaspora: Credit crunched Diasporians haven't been sending as much cash home. But given the effect that this would have on the exchange rates, one can't see it. Notice that the £/Ksh and $/Ksh has been very strong since around March...
3. Temporary over-supply of shares: In addition to 10bn Safaricom shares, we've had in a short period, HFCK bringing in around 100m shares, NMG doing likewise (although its proportion of floated shares remains the same) and the forthcoming 225m from KCB. It’s a lot for the NSE to absorb in a very short period. For me, this is one of the bigger unseen reasons for the current slump.
4. Safaricom refund fiasco: Again, Ksh10/20bn does make a difference to the bourse transactions. Investors will tend to liquid their current holdings especially if they were investing in Safcom for speculative purposes.
5. Herd mentality: This is what ultimately turns a market correction into a bear. Especially if it,s not based on fundamentals.
6. Economy: Inflation+fuel infaltion+electricity inflation+drought+supply blockages+bloated expensive GoK+liquidity-resilient private sector=trouble

Bottomline: Its more a concurrence of issues that are driving the current bear session. And like the on March last year, no one reason will make it go away.

NSE bear/ correction: Survival strategies

First of all, a bear is defined as 20% fall in the general stock market over a period of two months. Yani, one it must fall by 20% or more and two, it must to do so over a period of two or more months. A market correction is defined as a decrease of similar magnitude (i.e. 20%) but over a shorter period during a bull season. So do we have a bear or a market correction? Judge for yourself...

Investing strategy will always be about timing. Are you long, short or speculative? Your strategy choice will depend on many factors but will probably boil down to how monetary challenged you are.

A market correction gives long-term investors a chance to look at how resilient their portfolio is. If it’s a resilient portfolio, it may fall but only by half or even less compared to market index. Short-term and speculative investors will probably use the opportunity to book their gains and look for more positions to take ready for the next bull rally.

A bear is a different animal altogether. Long-term investors typically find themselves having to buy and even (God forbid), sell. Typically, a long-term investor will sell to lock-in gains on stocks that were below their desired long-term return. On those already above desired long-term return, a bear market may in certain situations offer an opportunity to buy the same at such a price that the average buying price opf shares held on that stock is lowered. For example, say you are long on KCB having bought at Ksh169 in Dec 2006, subsequently added some at Ksh24 (after last yr's spilt). Right now, you are still very much in profitable territory. If it falls to say Ksh19 (say after the rights), you may want to buy some such that you are able to reduce your average overall buying price to KSh20.
For the short-term investors and speculators, the bear market sees many run-off unless they are keen judges of minute rallies. However, even they can find opportunities for example by anticipating corporate actions say results announcements that may lead to higher than expected PAT or even happily, dividends.

No matter your holding period, investors must use the bear/correction period to streamline their portfolios (code for sell) and of-course to think/look outside the box.

B&B surprise for H1 2008

After growing by a paltry 7% in the first quarter, Barclays Kenya turned this around with 24% growth for the whole of the first half. BBK says it made Ksh1.7bn in Q2 alone. So I was curious to see how it had done this. Income was slightly higher perhaps driven by more business days in Q2. The main driver was actually lower other operating expenses in Q2.


Bamburi also had a super half coming in 21% higher than the same half last year. These are very good numbers for two reasons. External factors were at their for sometime in this half. Fuel prices rose dangerously and ofcourse the Janaury political clashes would have cut-off the supply lines to customers. Hima, its subsidiary in Ug, also suffered from power rationing. Secondly, its bitter rival Athi only grew by a disappointing 24% from a lower base. This despite the fact that ARM has a more balanced income generating portfolio of products.

RIP Bernie Mac.

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

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


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

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

Tourism: The next target of the corrupt

There are 3 cash-rich sectors in Kenya today. Retail especially supermarkets although these have hold an equal amount in working capital. Banking is other. But in terms of pure cash, I think tourism is in a class of its own especially when the traffic is buoyant. Its Kenya’s second foreign earner after the diaspora bringing in around Ksh50-60bn.

Many have cottoned onto this, but also the fact that there is limited number of huge cash-generating lodges, hotels, camps that can be built given environmental constraints that mean for example only a certain number of camps can be set up in Mara.
Unfortunately or fortunately, the business set-up in Kenya currently lends itself to corruption. My recommendation is that GoK should in effect be an enabler (providing the legal setting, infrastructure and so forth), but shouldn’t be an owner of hotels or camps. Otherwise what is currently brewing under the cover at KTDC will become GRH repeated over and over many times.

Need for a long term multi-disciplinary solution to the school crisis

It is still unclear as to the exact causes of the current ongoing crisis in mainly public secondary schools and whether it will spill over to the primary schools now or in the future. Amongst the issues blamed for these crises have been drugs abuse, indiscipline, poor management and cultural crash etcetera. These crises were previously common place in public universities and colleges, God forbid their graduates some who are now secondary school teachers are involved or transferred their experiences to the schools as it would complicate the finding of a solution.
What is emerging is that the current issues are historical and multi-faceted hence important to address them holistically. Put into context they also signify a society and systems at a cross road in tackling the past, present and future.
In addressing the school crisis, numerous proposals have been put forward albeit too late in the day. The fallacious one by the education ministry has been the formation of yet another commission on top of the previous countless one’s whom recommendations remains unpublished. Another proposal came from the tourism minister on bringing back the outdated corporal punishment notwithstanding it would contravene the Children Act 2002 and the UN Convention on the Rights of the Child 1989 which prohibits such measures. Not to forget that even during its hay day when I was at school, corporal punishment did not resolve these crisis nor stop strikes occurring. The opposite effect was suppression of grievances, rebellion, communication and relationship breakdown with teachers. The worst case scenarios, quite common those days were the physical and psychological traumas inflicted by rogue disciplinary masters via arbitrary punishment. There was also the heart-retching punishment of children with physical, developmental or intellectual difficulties such as dyslexia, Attention-Deficit/Hyperactivity Disorder or Autism. Admittedly, many have argued that present day violence and dysfunctional systems directly correlates with the experiences of that era.
Tellingly, such a proposal also disregards the various research findings on appropriate child moulding onto a physically, socially and emotionally secure and healthy adult. John Bowlby (1957) the father of attachment theory between child and care-giver points the key to moulding such an adult is consistency compassion, affection, understanding, sensitive, listening and empathy. More recent studies by Gaffney (1997) and Andero (2002) similarly conclude that the effects of corporal punishment are intergenerational and last for years, with the family and society at large paying the price for teachers' actions as individual often develop fear rather than respect for authority.
Worryingly, the minister’s proposals demonstrate the government scarcity of ideas and lack of adequate preparedness in responding to major crisis facing the country. Need I mention the 2007 violence, Mau forest amongst others. It is also an indictment of failure to learn from history as these crises are not new.
However, there has been laudable solutions put forward one such from the rightful education minister who is however the assistant minister for Higher Education, Science and Technology a position widely known to hold little sway or veto in policy development and implementation. He looks at the students grievances from a social rather than medical model, that, it is a society problem not just the students or schools.
Such a solution relates to the revolutionarily preventative and cost effective approach that has produced effective results elsewhere through the integration of multi-disciplinary professions in primary and secondary schools. These professions includes Educational Psychologist, Social workers, Behavioural support specialist, designated nurses, police liason officer, child Psychologist or Psychotherapist, mentors and Parent support specialist. These professions should be readily available or attached to the schools on an accessible ratio. Their role would entail undertaking a holistic SWOT assessment of the social, behavioural, physical, psychological, family, financial and educational needs in partnership with the troubled students, their teacher and parents. Thereafter, the drawing up, coordination, monitoring and management of an intervention support plan both at school and at home.
Critics of this approach may however argue that it is a westernised model and impractical but, this can be modified to fit into the Kenyan context. Others might point to the implementation cost forgetting that a stitch in time saves nine.
Thus it is imperative that this revolutional approach is implemented to narture good future leaders from our schools rather than continue to lavish our current leaders in extravagancy in the midst of desparing crisis.

Below is the assistant minister's response.

Thanks for your honest view Bwa Maina.

Kilemi

Hon. Dr. Kilemi Mwiria (PhD),M. P. Tigania West & Assistant Minister,Ministry of Higher Education, Science & Technology,Jogoo House " B", Harambee Avenue,

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...

Tuesday's Shorts

Oh KQ. This summer, I needed to book direct flights urgently and to fit my pocket. So I noted that KQ were offering good prices and tried its new booking facility. After going through all the various pages, I got to the paying web-page. And discovered, there was nowhere for one to insert the 16-digits of the credit card! Incredible...

RVR seems to have done something right at long last. Puffet always looked like he didn't have a clue where he had landed.

We said it. Hiring professional wailers to moan about Kimunya mumunyaring, but then we all missed the crucial point that Grand Regency was now owned Libyans. And then the professional defenders of the establishment come out with stuff like, GRH was never public proponent. CBK is a public institution that held a property in lieu of unpaid debts. Thus by extension GRH is a public property. This week, I sincerely hope parliament finds Kimunya to be an incompetent liar and more importantly that GRH is public property that should be auctioned publicly to the highest bidders.

Where Kenyans fear August, I worry about July. A few years ago I lost my grandfather, who brought me up. This July I lost my father-in-law and our family lost close a close family friend. Then my pastor who is barely in his 40s was discovered to have cancer of the kidney which necessitated being taken out. Its also a time that reminds me that a life is very short. As such one must do what they've set out to do and not leave it for tomorrow because tomorrow may never come. And spend less time on quarrels; negativism; or the past.

EA Stock Exchange

If this does come into effect from January next year, it could have the same effect as the NSE's automated trading system and introduction of CDSC. With upside and downsides. Nevertheless exciting. Imagine trading in Bongo-land who are notoriuosly fearful of the Kenyan avarice.

Speaking of which, I think I'll test how easy/difficult it is to trade at the DSE. National Microfinance Bank is about to do its IPO from the 18th of August. I tried buying its shares last year when I saw it'd be listing, but the CEO politely told me to wait for IPO. So here we are...


NCD is a sort of a microfinance bank, but unlike most of this found in Kenya, its currently majority government-owned. Gova will be selling 21% of its holding so that the shareholding will be:



RABO Bank (Dutch community-type bank)- 34.9%

TZ Gova-31%

Public-21%

NICOL (a mostly investment company that listed recently)-6.6%

Exim Bank TZ (i.e. is a parastatal)-5.8%

TZ Chamber of Commerce blah blah-1.7%

Stellar Numbers from KCB for H1 2008

KCB posted KSh2.46bn PAT for the first half of 2008, 67% higher than prior year. Of the big 4 (BBK, Stanchart and Equity being the others), KCB is the only one that looks to be keeping up with Equity (though the later has now surpassed it in terms of PAT having posted by khs432k more :-)). Interest income was higher driven by KSh20bn growth in loans as well as interest from t-bills (up Ksh7bn). I assume it also benefited from Safcom IPO commissions (Ksh1bn in "other income"). Cost/income ratio has improved though from among the highest in the industry to around 65%.
Price comment: My number one rule when investing in a stock is usually the growth rate of its PAT and how sustainable this is. With these kind of numbers, KCB still remains a buy as it moves into Uganda, Rwanda & Burundi and expands in TZ and very successfully in South Sudan.

Prior to the announcement on NBK, I was running it through my investment thought process, but I think this makes much harder to decide on the way forward. The upside is that reduced GoK involvement is very welcome as it'll mean getting a strategic investor who can hopefully ease it Marimbi out. The downside is that the proposed increase of shares floated on the NSE will have similar effect to a that announcement on KenGen. Ultimately, will have to take a position either way.