Bond issues and the NSE

GoK kicked off '09 with a small-ish but oversubscribed Ksh18bn so-called "infrastructure bond". Since then, its done some smaller issuances. Significantly, its $300m international bond never got off the ground due "le credit crunch". Since the NSE remains sideways, and there are likely to be few takers of its assets on a premium, I can a situation where it continues to issue more t-bills. Result, interest rates will climb slowly upwards.

Corporate bonds are also on the way:

• Safcom confirmed its forthcoming Ksh12bn issuance although I don't recall it retiring the other lot. The funds are apparently to upgrade network in preparation for fibre optic.
• Centum has a Ksh4bn bond, though only 2bn in '09-see excellent investor presentation here. Centum wants to take advantage of low prices as well launch a private equity and a real estate fund
• KenGen has several bonds coming into the market including a Ksh15bn this year.

Apart from the well-known supply-side factors contributing to the inflation situation, the other has to be amount of cash in the economy lying idle. Some of it is finding it way into real estate, with a bubble now building up nicely in prime areas.

So what of the NSE? Well market cap is now down Ksh300bn from last July's high (admittedly Safcom induced) to Ksh680bn. Although some of the bucks are hotmoney, a significant portion is being diverted to everyday uses until the NSE cleans up its act. And the economy picks up.

For banks, the bonds will further compress interest rate margins, but also offer stable earnings.

Reducing 900k cases- a novel suggestion

If you've ever been unfortunate to have a case running through the hallowed turfs of Kenyan courts, you'll notice that unless you grease the clerk's assistant's palm; the clerk's palm; the court registrar's palm; the magistrate's palm and possibly the prosecutor and that branch, if its a criminal case, your case will take long because of

• of the existing and looong line of cases
• missing files-where the greasing comes in
• magistrates and judges holiday, seminar and training schedule.

Most are off for the whole of December, April and August. Additionally, they have seminars every few weeks.

So my novel suggestion is to take a month's holiday like every other civil servant and do some cases so we can see a 30% reduction.

CMA & Brokers: Kudos for some transparency

At last, investors know which broker is on their avoid list. Given that DSL was in a similar situation last year, investors should make their own conclusions and move on to either bank-owned brokers and ibs or the high net wealthy serving brokers such as Kestrel. The sea has indeed gone out and all those previously swimming naked can be seen. The issue appears to be liquidity i.e. inability to meet all the demands for payments as they fall due in layman terms. Its as bad as being short on capital and is ofcoursse what brought down Lehmans, Merill Lynch and Bear Stearns, 3 of the 5 largest ibs in the world. How about Unreliable, Suntra and Ngenye Kariuki?

My preference would be for CMA to think like an investor. If Abroker has no cash, they'll use my cash to pay their staff. SO suspend their licences untill they can sort out their liquidity issues. 2ndly, please get brokers to publish quarterly financial statements. Insurers have to do it, all banks have to do it. Kwani whats special about brokers?

For the brokers:

1. Stop employing everybody and your relas. Get a working online brokerage system. Its initially expensive but cheaper in the long-run.
2. Pride comes before a fall. You know, we know and everybody who needs to knows a broker licence isn't worth Ksh250mn. It wasn't worth that much even in the bull days.
3. Find partners: Banks have something you don't have. Distribution networks. They'll fill the gap.

KCB Q1 2009 Results- 3% on Q1 2008 plus history

KCB announced Q1 results showing Net Interest Income up 16% driven by the Ksh30bn growth in the loan book; Fees and Comm up 3% as Other Fees fell. Therefore total income increased by 10% compared to the dreadful Q1 2008. Hhhm. Then the story gets even worrying because in a classic BBK scenario, costs went up by 13% hence the shrunk yoy movement in PAT. The other eyebrow raising number was the halving of loan loss provisioning despite that fact the economy is still not out of the woods yet.

Reading its own results commentary, I note that KCB reckons Q1 tends to be a slow quarter. This is not borne by historical results or even by simple accounting. You take the loan amounts multiply by interest rate times the number of days in the quarter (would have an extra day last year) and that should be that. Loans are Ksh30bn higher this quarter compared to last quarter and interest rates don't seem to have moved. Interesting...

I await Equity's and DTB results with interest.

Which city or town?

My limited Jewish tells me schmuck doesn't mean gold...


What is this?

Is this the ladies or the gents?
Would you eat here?
Multi-colored buildings are a novelty for one from London.

Sausages and potatoes are favourite dish.

NSE weekly catch up- bear is over

NSE was up 14pts on week at close of play in April and is now up some 25% since its low January signalling bear is behind us.

Results:
This week it was the turn of the insurers. Anybody reported 2008 after Thursday will be doing so in overtime (4mnths after year end), but would in any case not incur any fines.
Kenya Re was up 85% primarily due to some overdue revaluation of its property portfolio. The revaluation is ofcourse a one-off event performed either every year or in most cases every 3 years. The performance has helped caution it from the falls in its equities portfolio. Aside from that, KenRe did grow its underwriting while keeping claims flat over 2007. DPS is 50c some 15c higher than last year. All in all, good job Mrs Mbogo. Looks well shaped for the future. Please stop restating every prior yr's numbers.
Jubilee also rolled in with a weirdly presented set of annual results. PAT is up 10% on prior year driven by higher premiums. Solid insurance company compared to Pan Africa. Strong cash flow.
Express announced PAT down some 32% on last year driven by lower sales I suspect on the back of the slowdown in the economy. The company has been showing some seriously good momentum since its takeover by the Greeks. Cashflow looks a concern as it more than doubled. Negatively. Funnily enough, no dividend was proposed.
Crown Berger reported some Ksh28m PAT for the 2008, down almost 2/3rds clearing feeling the effects of oil costs, the fuel debacle and of course of worsening economy. DPS is Ksh1.
Sasini announced excellent interim numbers with turnover up 57% allowing it to record a profit of Ksh78m compare to a loss last yr. No detail was given on its beverage shops although they seem to be doing well.
KCB became the first bank to report the highly anticipated Q1 earnings and immediately blew my predication out of the water by only managing 5% PAT growth from the dreadful Q1'08.
Announcements: CMA confirmed that 3 brokers are short of cash and therefore won't get their licences for another 3 months. This sort of asymmetrical information remains a big no-no for investors and CMA need to be bright enough to figure out that if it announces 3 unnamed brokers are short of cash, investors will be wary as the 3 brokers will fix the situation by dipping into investors' cash. Eddie Njoroge is new NSE chairman. Nice enough chap, though perhaps not the step change that NSE investors are looking to see.
Macro: Despite my disappointment about the eventual outcome of the HBC issue, looks like many have taken it positively. Medium/long-term we are still in a swamp. Govt finances are in bad shape and now affecting banks' liquidity. All about the economy.
FTSE: In good shape. Pity US bank stress tests won't be announced on Monday as they are keeping some twitchy investors out of the markets. Need to get a move on and the sooner Tim G realises the better markets will perceive him.

Stock trading in times of credit crunch-lessons so far…

• The greater the risk of huge losses, the greater the risk of huge returns
• In other words, it’s all about marginal returns.
• If you were to buy a share at a 1/10th of its peak price, you’ll get to 100% gain faster than one who buys it at a ¼ of its peak price or the laggard who buys it at half its peak-price.
• Don’t analyse (you’ll get paralysis), trade.
• Ignore brokers' recommendations. If you are cautious and nervous after the getting pounded or seeing the pounding investors took last year, imagine how risk-averse somebody whose job depends on getting stocks right is…Classic, Nomura upgrade of Barclays this week from £1.10 to £3.20.
• Once you buy, volatility will be your biggest enemy. So have stop loss in your order, but upgrade it as you go along.
• Pick nuggets. Of info and all the happenings at your finger tips. There is still a recession out there, so share could still spring nasty surprises…
• Get it right when buying is as important as getting right when you sell.
• Take profits if you think there is likely to be a dip to a place below where you bought . Otherwise, stay calm.

NSE listed firms and information

From a shareholder point of view, out of the 52 listed shares, only 13 (and I'm being charitable with ARM, Pan Afric, HFCK, Express and CMC which only have their 2007 annual report) meet minimum investor information standard. A real surprise has been Sasii Tea. The minimum standard for a share's website should be:

1. Annual report-either as one humoungous file or in chunks. This is has all the information investor needs in one place. Its the company version of its truth and suffices for the best part of the yr before the next is produced.
2. Share price updates
3. AGM, dividend and other corporate announcements
4. News page
5. Products and services menu
6. Org chart showing company structure and leaders

Contrast with LUSE where at least your broker will email you annual reports as they come through and even interim results. I won't even compare with FTSE, but its noteworthy that when I was trading Barclays, I used to get almost every bit of news out there even press cuttings via email.

Companies need to realise that a share is a product and its competing with anohter 50 at the NSE (including bonds); real estate; savings et al. So as a minimum a shareholder should be albe to go the website and find out latest shareprice, eps, where to buy the share etc.

Investor's hopes must be that fibre optic will usher NSE firms into the 21st century, the era of information.

Pigs getting in the way... again

Just as the markets were absorbing and had partially digested credit crunch and the recession and beginning to kick-on, up pops some flu to spoil the party. That combined with the upcoming US bank stress test releases (scheduled for Monday), almost certainly means stepping aside with the cash handy to re-enter asap.

It seems to me that the greater the pressure to feed the growing world population, the greater are the dangers of unseen side-effects of mass production means applied. Animal feed and rearing seems to a particularly dangerous source of manner of diseases.

SARS gave us 0.6% global economy downturn, will get the same from swine? I don't think so, but its spread (which by the way has not been proven in every case), suggests it will be a close call.

PS: Btw, another one in the eye for Tim G. Some of the stress tests have already been leaked. Inevitably its the lousy ones that have found their way to the press. Citi and BoA (poetic justice as it bought the wrong i bank), are the two big fishes without enough water. And surprisingly Wells Fargo,  WB's favourite bank of yrs gone by. Market reaction in states was understated and more so in the UK. Only the swine flu is causing jitters...

The wow factor in life

Your CEO may pay personal complements to you for having discovered a loophole to generate revenue. Your latest stock gamble (for share trading can be thus on may a day), may turn 10% in a day.

But for a real emotional high/wow moment of the day, you can't beat, sitting with your two sons. The older at 2 counting to ten; singing some songs and lo and behold, his younger brother is soothed to sleep.

God does it better.

Well done Samuel Wanjiru...

Kudos. 

NSE weekly catchup

Bourse was up 2.6% on last Friday's close with Kenol recovering its price and post-spilt Equity continuing northward movement. Some prices are still very good so those that think we are well placed for the long-term need to take positions.

Results and announcements:

Konzolo CEO and owner of Unreliable Securities was aligned in court of stealing and resigned from political position ass head of the Broker Association. So that is another broker taken care of.

Everready announced (surprise surprise), 95% drop in half yr profits from an year earlier. I am not sure, but I hope it has a new product strategy because clearly batteries are not its future.

Centum will attempt to raise Ksh4bn (staggered over 5yrs) presumably to cover cash flow shortfalls in the near term. As well as invest.

Maina Mwangi, formerly CEO of RenCAP, will head Equity's IB business which is very good addition to its team.

Macro:

KRA missed its targets for the year. There was already a deficit of Ksh25bn. So is the deficit bigger?

The politics is and will mess up any serious headway towards 7%+ growth rates. As I've mentioned before, a 42 minister cabinet is not going to grow the economy. A grand coalition added on top of that mix makes for a good headache.. RAO has made one mistake time and time again in his dealings with Kibz. He thinks he is dealing with a gentleman. He is not. For Kibz, he is not astute enough to realise that if you undermine or build mistrust, you'll be paid with the same coinage soon enough. 2ndly, he is not observant enough to notice the talker no action PM in front of him and just give him this head of HBC role. Look at the unga fiasco, Mau forest and even RVR. So far, the 2nd term is going as per the 1st except this time there is no economic or stockmarket growth.

FTSE:

Volatile this week. Plays on Barclays are now limited to taking the odd 10% gain every other day. Some other shares are looking playable though.

Q1 results for NSE Banks

Q1 results will shortly be upon us. In bullish times, you tend to get pretty much every MIMS listed firm releasing some form of quarterly update. However, the opposite applies during these times of the bear. With the exception of banks which have to do so due to their mandate, I expect to see very few quarterly updates. In any case, for the banks, I am predicting near flat results of several banks with the usual exceptions. Loan defaults will be a feature of every earnings release this year from any bank and one should expect nasty surprises on the P&L depending on how well the particular bank has provided for npls so far.

Equity up 40% on Q1 2008 just because it has a bigger loan book compared to last year. I think its Waterloo moment will be Q2 when I can’t see it going higher than its Safaricom quarter of last year. Will start benefit of push in Ug by Q3 and beyond
KCB up 20% though I am expecting it to surprise in a positive way given its larger book vs q1 2008.
NIC, DTB 20% and 40% up respectively.
CFC down on Q1 due to the insurance business. Think link to NSE via its broker as well insurance arm.
BBK and Stanchart-I am expecting one of these to be down on Q1. Only, slightly but down nevertheless.

Was Jomo Kenyatta a British agent?

Evidence for

1. Kapenguria trail and jail time: It seems strange that despite being recognised as the supposed leader of Mau Mau, Kenyatta was given a fairly comfortable jail term on strange inept and so obviously trumped up charges. Dedan Kimathi on the hand was hanged without much ceremony. Could it be the case that Kamau was a sleeper who was to go to jail so as to emerge a Kenyan hero fit to be president? The man was married to an English lady was fully anglicised. He would take of British commercial interests, protect Brits wanting to continue living here and would be anti-communist.
2. Mau Mau: for someone who was apparently a freedom fighter, his treatment of the Mau Mau was abhorrent. It is notable that he never ever recognised the group say in the way he even recognised the Nyakinuyua dancers that used to entertain him. He never ever once invited General China (who he at least gave a job) or any of other to join him on Uhuru day. He of course gave them so many days to come out of forest before pursuing the same. It wasn't until one of his mentors became president that Kenya honoured Dedan Kimathi.
3. Coexisting: Bruce Mackenzie who was a M16 agent was given command of Agriculture one of the most important ministries at the time. After Finance, and possibly constitutional affairs, getting Kenya's agriculture moving was seen as key to its growth as an economy.

Against this:

• no smoking gun: in this case, one would expect to see some mention of Kenyatta in the British records. In a similar manner to the Mckenzie dude.

NSE weekly catch up- out of step

NSE has in the main been tracking western markets this year. With the odd variation here and there. And this week's 61pt is one of them. I suspect a portion of this is driven by the 25% post-spilt Equity drop. My own estimate was that the inflexion point for Equity spilt shares would be Ksh10, but Friday buy and sell volumes were not that different. So it appears that for now, principals are not reducing stakes.

Results:
ScanGroup-now with a stake owned by WPP one of the world's largest ad firms announced 29% PAT uptick on 2007 driven (translating to 20% in EPS), by 21% growth in turnover. DPS is 0.75, a little lower than prior yr. ScanGroup has a huge market share in Kenya (53%) and a third in TZ and Ug. And these markets are growing. Forecast for 2009 is 10% yoy growth. Btw, I predict ScanGroup will be fully/majority owned by WPP within next few years.
EA Cables was first off the block with quartely numbers. PAT was down 19% on turnover falling by 3%. One of the reasons given for this is a bit ambigous to say the least. Apparently LME prices fell. LME is ofcourse London Metal Exchange. So why would falling copper and aluminium prices be a bad rather than a good thing for a company that uses these are raw materials? I don't recall mention of any hedging in the annual results.

Macroeconomy: World Bank projects 2-3% growth for 2009 while Africa Development Bank projects 5.5%.

Other markets: A nice study in contrasts with USE by Bankelele.

Taking Mungiki down: Kenyans start reclaiming their lives

I've really been waiting to read or see something like this. Mungiki like our dishonourable wabunge are parasites preying on the poor who need to increase and keep all they earn from their long daily hours not be told to support idlers. 

So its good to see this community in Ndia saying enough and going after some of these idiots. Imagine someone coming and telling you they have your husband's head. 

Equity buying NBK... What for and how much?

JM has apparently expressed serious interest in NBK as GoK looks for a strategic partner for it. Why would anybody be interested in NBK? From the chart, the following stands out:

• Ksh34bn customer deposits (primarily GoK parastatals and GoK), but would only be accessible with a full or controlling stake. GoK and NSSF together hold 71% of the bank, but it'd be unusual for GoK to surrender such a huge stake in one go.
• Branch network: 26 well located and distributed branches would be a real boon. If you were a bank seeking to enter the Kenyan market. Equity has 128 branches throughout the nation and in some places will there definitely be duplication. Can it go against its customer ethos and close some of these to reap cost synergies?
• And that is that unless you can count in the low cost/income ratio.
• And unless you count any npl skeletons still rattling within its loan book, its a small bank to swallow.
• Equity needs 50%+ stake to enjoy the above benefits (I am fairly sure it'd seek to retain the GoK deposits by agreement at least for a few yrs otherwise it'd be a dud). At Ksh31.25 a piece, that would make the stake worth just over Ksh3bn and then you add 10-25% premium to entice GoK.

Dambisa Moyo articulating her message

With others...on this very opportune time in the debate.

Essentially, these are the questions.

1. Would you dance all night to the same song? As Einstein/Benjamin Franklin said "insanity is doing the same thing over and over and expecting different results".
2. If you were 45, won't be ashamed to be asking for aid for the same reasons you did when you were 20? Maybe not, but for sure you'd want to have tried doing things differently ala Equity and microfinance; CDF; commercialising agriculture; increasing trade with local economies
   
3. What is the underlying message of aid? That Africans can't do it for themselves, they are at war, poverty and disease ravages their continent et al
4. What about humanitarian aid? Even this has changed form the days where bales of wheat would be dropped at the airport for gova to distribute. Now, NGOs spend $4,500 per hr on helicopters distributing the aid. Its harder to raise the funds these because of donor fatigue...

Time to think out of the box.

Think investing in banks is dangerous? Time for a reality check

With a few exceptions, buying bank shares is currently associated with buffoonery in the west after the banks brought us the credit crunch and deepest recession since 19twendia waru (the year we sold potatoes). With hindsight, what has happened in the last 18months should not have come as much of a surprise. That banks don't fail more often is a miracle given the role they play in economies. Banks in essence bear an economy's risk. And because, of this owning a bank's share is a handy way of keeping tabs on an economy's direction.

A conventional bank borrows for short-term and lends for the long-term. When you deposit money in the bank or your employer/contractor pays your salary into your account , a large proportion of it will have left the account by the end of the month. Now a bank working on the old assumption that only 10% of its account holders will access their deposits on daily basis, lends the other 90%. It can lend to credit card holders thus matching monthly spending patterns. More importantly for the economy, it can lend for much longer periods than a month to house buyers, businesses and even to govas. This phenomena of taking short-term deposits and using the same to lend long-term is known as maturity mismatch or transformation.

Even if banks didn't do anything but be conventional, this would make them dangerous and risky.

NSE weekly catch-up

NSE saw a mild week with index slightly down on Monday's opening. I suspect we've seen the best of this rally and may even head south for a spell. There was also opportunity to shoot itself in the foot via usual funny price plays.

Results:

CFC Stanbic disappointed (down 8.5% in PAT and won't be the last time, even the old CFC used to frustrate because its universal banking model seems to be just a cover for a weak insurance associate). Universal banking has defeated even banking giants (UBS and Citi recorded the highest credit-crunch related writedowns) and the only successful that I know of today is Barclays Plc. The reason? Varley the CEO is an ultra-cautious accountant who can handle retail banking and insurance while Bob Diamond the head of Barcap is an alpha-ib type banker. This means both businesses perform well. Equity's supposed hire of Maina Mwangi of Rencap should be seen thru this lens.

Jubilee performed credibly 9up 3% on prior yr), especially compared with volatile listed counterparty, Pan Africa.

Corporate actions, announcements and wonders:

Following Kenol's results announcement, the 10% allowed what looks like a circular trade to be carried out leading to a 33% drop in price which nobody will sell at. CMA waited a couple of days then opened the 10% rule hoping to push guys upwards. This nonsense has gone on since the Stanley Hotel days and awaits the injection of new blood into the bourse.

Equity got suspended and suspension was revoked the same day apparently because it owed CDSC Ksh47m from the Safcom IPO and other levies. CMA revoked the suspension as unprocedural. Sounds, looks and smells like the old "patel" file over again. Apparently, even though Equity has a custody licence it somehow earns more of the 2% transaction fee that the brokers. At a time like this with anaemic volumes, brokers are naturally aggrieved. Equity now has to factor in reputational and operation risks. Brokers need to look for other jobs. Its a plain vanilla bourse that shouldn't be seeing the kind of stuff investors have put up with for so long from brokers.

More changes at TC where it seems all the guys who came in with Tony Wainaina have now moved on. Group possibly took hits from the RVR-debacle and the bear in the NSE, EA Cables its prime estate had a high of Ksh104 in October 2006, but closed Ksh24 today.

Our role in promoting diversity

Diversity in employment is a key indicator of a society's progression and greater promoter of equality. While many in the diaspora complain about the lack of diversity at our work places, we also have a key role to play in changing this. Namely, once we get into these positions, proving that Kenyans/Africans/blacks are not just as good but due to the fight to get their, are better than many of their peers. It doesn't involve turning oneself into an uncle Tom or a coconut i.e. losing one's identity. Merely understanding that in a meritocratic system, delivering on your role is more than half the battle.

Risk and Uncertainity and impact on investment

Risk is a quantifiable probability that your investment will go bad. Uncertainty is an unquantifiable probability that your investment may make or loose your money. When you know the risk, you’ll adjust your investment adjustment strategy appropriately. You'll be able to take long and short positions as appropriate to the investment instrument.

Where there is uncertainty or ignorance about, the investment strategy takes the option of a short in the dark or following somebody's opinion. Somebody’s opinion could be an expert or a gossip. And sometimes the two are indistinguishable. You’ll in turn impart the same to another who regards you as an expert and so forth until you get herd mentality. Which is good in a bullish market as the positive sentiment ("aka animal spirits") push investments upwards. And destructive in a bearish market as a negative feel devours itself.

Bottomline: your knowledge of your risk appetite, understanding and quantification of risk allied with certainty in SWOT analysis will improve your success in equity investment and investment generally.

Martha Karua next step: President of Kenya

Martha Wangari has never done things by half. She is a Kenyan of the generation that is only now getting into corporate ladder. She has done her woman juggling career and motherhood thing as a lawyer and magistrate. She has brought up two kids as a single mother. She took care of her in laws despite divorcing from her husband.

As a politician, those who have the unKenyan habit of remembering things beyond one year, recall her walking out on the former presidential reprobate who was feared throughout the land when he deigned to disrespect her in her constituency. And of course her defense of the slumberer one in statehouse in Dec 2007.

Martha Karua has admirable human qualities one doesn't normally associate with Kenyan politicians:

• Loyalty-she one of two or three long-serving MPs who can show allegiance to less than two parties
• Integrity-I don't know of any corruptions acts even by association. Wamugunda was not married.
• Courage-I think I saw a cartoon with akina UK, Kalonzo et al hiding behind her skirts during the 2008 negotiations. And of course resigning where others would rather die does take courage.
• Reformer-water boards were her creation, and she played a huge role in the so-called 2nd liberation.
• Intelligence-Again in short supply in our bunge but her debates in parliament and elsewhere tend to bring some balance.

I think her as president of Kenya would be a fitting way to close 2012.

NSE weekly - gently recovering

Equity pre-uploading of the extra 9 shares per account is almost up 90% from its Ksh9.3 low a month ago and as of yesterday close the index is up around20% from its low of the year. Still...how does one take a long-term view on the NSE given the econo-political side of the equation?

Results & Corporate Actions:

Kenol announced first results in its merged form and went up 20% on a 12 month basis. Note the ballooning finance costs partly due to the hostile business environment in Kenya. Generous DPS of Ksh3.50 payable in June. Oil industry can expect another tough year as it clears old stock and due to the economy.

Total its rival in the market, seems to have dealt better with its financing needs. PAT is up 34% on slight improvement in gross margins. Usual Ksh2.50 DPS will be paid in June.

ARM was up a disappointing 19% (and underperformed its budgeted Ksh442m), though fertilizer and its non-cement products are growing very well. Fuel and other input costs clearly played their part. DPS is Ksh1.25. Cement share in Kenya remains low so there is room for growth.

TPS had a terrible yr as expected with PAT down 46%. Notably however, turnover was only down 11%. Methinks 2009 maybe a flat yr owing to global crunch.

Centum confirmed writedown on RVR investment as well as effects of NSE falling (index fell 71% yoy to end of March). I suspect part of the problem looking at its portfolio is that it has a lot of filler i.e. stock that a good fund manager won't hold. A bit of a hospital pass for James Mworia from current NSE CEO.

PS: Are we going to catch up technologically in the NSE now fibre is here? Today you can't find one website where you can chart even the Index.

FTSE: breached psychologically important 4,000 mark.

Raila gets saved for votes, also exploring changing name to Mohamed

Kweli the two principals have a lot in common. Including clowning. The thinking is that RAO will now be able to compete for any born-again votes that the born-again "wiper" may get in 2012.

Apparently you can now expect RAO to be beginning his speeches like this. "Before I got saved by the Lord Jesus, I took some underhand deals at the Energy ministry, exchanged my party for land in Kisumu, co-opted the corrupt into my orange party, infact I'd make a deal with the devil himself if he'd give me the presidency. Now I am making deals with Jesus. Soon I'll be doing some with Allah. Until I get the sit."

I understand the prophet (is his beard a wig?) who converted him also prophesied about him becoming president in '07. Lets hope he has better track record going forward.

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.

Agriculture: Developing a sustainable, self-sufficient industry

To add some ideas on developing and sustaining agriculture self sufficiency:

1. Land reform: There is the headline grabbing recapture of grabbed land. But how about online maps of land. The ideal situation would like in the US where you can google someone's name and see a map of their boma, but if we start with just scanned copies of maps residing at Ardhi house, corruption in that house will be cut in half. Then absent landlords are another bugbear. My neighbour in Nai has a 3 acre piece of land. But has been in the diaspora since '94... And stop giving away land to some foreign muppets.
2. Farm sizes: 1/2 acre of very arable land would just about sustain a family of 4. So stopping smaller subdivisions in agriculturally rich areas would be useful. 
   
3. Water: becoming scarcer with time as we love cutting trees down for charcoal, building and furniture. More tree planting, water storage and irrigation are all things that need to become part of every farmer's menu.
4. Infastracture: Roads, machinery, vetinary services are all missing in vital food growing areas of our nation.
5. Value addition: We tea farmers sell fresh green tea at Ksh9.50 per kilo. In Europe, its roughly Ksh700 for the same kilo in the supermarkets! Why don't we have more tea being packaged and exported and less of the leaves or berries?

Review: Mbugua Githere- A handful of Terere

This novel is excellent for the simple reason that its rare for anyone who is remotely influential in Kenya to write about how they did it. Presumably because the wealth acquiring wasn't straight.

I was interested to know how Mbugua survived the Emergency period of 1952-56 because my understanding was that it was ruthlessly enforced in Central with kipande required for daytime movements and curfews keeping you company at night. Collaborators were also key Mau Mau targets. Answer, he greased the homeguards' palms; gave money to the Mau Mau cause and lent his lorry to the colonial masters to go and arrest Mau Mau in the forests.

As with many entrepreneurs, he started with one idea and grew his confidence and financial muscle from there. Terere, is a naturally occurring weed in many parts of Central, but was in his formative years, popular food with Wahindis. He'd help his mother pick, carry and sell the stuff to Parklands, Ngara and those areas. So its true some Kiuks did benefit from the proximity to Nai, but when you read what they had to endure (under payments, chased away without being paid), you can't really call it an advantage. Having survived the emergency and colonial period, the Uhuru day found him and others like his friend Njenga Karume very liquid and they were able to partake in the only sport of the day. Acquiring assets being disposed by Odiero. Of note for NSE investors is that he at one time held 6% of the then recently listed Pan African.

The book suffers in having been written by a fictional writer. Mwangi Gicheru of "Across the Bridge" fame has brought his fictional style to bear and IMHO it spoils the book. The best biographers are journalists who know how to record and tell events. 2ndly, as with Ndegwa's autobiography, A handful of Terere suffers from poor editing.

Overall, its a page-turning rags to riches tale of a man who (again like Njenga Karume), was barely literate. Its very important that we get more of these types of books because they become a later-day reference for our grandkids.

NSE weekly catch up

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

Results:

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

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

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

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

Other markets:

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

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

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

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

Intro: Mortgages in Kenya

A mortgage is a loan taken out to buy a house with the house acting as the collateral. This bears repeating. A mortgage is loan just like any other.

Basics:

For the borrowers

Things to consider are;

1. Can you afford a mortgage? A mortgage will rarely ever be less than your monthly rental. By itself. Once you add council rates, utility bills, furnishing, maintainance bills (these will be there whether the boma is new or old), you'll see your monthly costs go up by a third of your rent. So you must look at the likely monthly repayments. Your mortgage repayments will depend on...
2. Price of property: Prices have rocketed in Kenya though the upmarket areas are now seeing a much needed cooling off. I think the key driver was the cash-only buyers primarily remittances and these are already falling off. However, the lower end of the market has sufficient demand to see it continue growing but I doubt we'll ever see the frentic pace in the upmarket areas. Websites that will get you a feel for prices are many but a few are villacare; estates.co.ke; hassconsult; nyumbanet and uzanunua. Many think that there is a bubble in the market and this may well restrict your resell price should there be a marked corection.
3. Your deposit: The higher the deposit you put down, the lower the loan you need to borrow. And of course the lower the amount you want to borrow, the more interest rate options you get. The key criteria is always, are you better off reducing your monthly mortgage repayments compared to earning a return in some other form of investment. Put another way, can you invest the deposit in another venture that gives you more than say the 15% interest rate that you will save by oputting the deposit down? However, its rare in Kenya to get 100% mortgages so some deposit will be required.
4. Interest rates: There are two things you need to know about interest rates generally, the current rate and the future expectations of where interest rates will go. There are two types of interest rate deals that are currently offered in Kenya. Current interest rates are set depending on amount you want to borrow and duration (term) you want to borrow for. Variable interest which basically means that it moves as general interest rates. So future expectations become of added importance. And initially fixed interest rates. I have put together a little table that I'll update from time to time.
5. Monthly repayments: From the above, you should now have the bits that will help you decide what type of house you'll buy based on its monthly/annual cost. You just need to plug the numbers into this Excel equation... = PMT(interest rate/12,term*12,property price less your deposit). Alternatively, go here and input the same numbers to get your monthly payment.
6. Location: This is a feature unique to Kenya where some banks only offer mortgages in specified towns. Reason is obvious.

For the lenders:

Important factors. With mortgages, its as important for the borrower to know what the bank will look for before lending.

1. Income expenditure gap: Most lenders want to know that should they have to or decide to jack up interest rates, there is enough of a gap in your income-expnditure to allow for this. So for example CBA won't allow repauyments that sccount for more than 50% of your monnthly income.
2. Loan to value ratio: aka LTV. Should be no greater than 80% or anticipated price correction at time of appplication.
3. Income mulitples: Simply put this is the ratio of your annual gross salary to mortgage amount required. Prudence dictates that this shouldn't be more than 4 times.
4. Screening reqquirements: Many banks tend to have more onerous requirements when they want to reduce lending and vice versa when they want to increase it.
5. Other mortgage set up costs: These are noticeably higher in Kenya and include stamp duty, legal, processing fees et al.

Final point.

• Take a mortgage to suit your stage in life. If you are young or have a young family, you'll surely be making a move to another house at sometime in your life. Therefore, consider a mortgage as you'd any other investment. Without getting emotional.
• Late edit: If you are in the diaspora, avoid if you can, taking a mortgage in Kenya and if you already have one, exchange it. The difference in interest rates is just too big especially now. Instead, borrow from a local bank at a lower interest rate and buy the property or pay off your Kenyan loan. Kama ni makaratasi, find somebody who can do this in exchange for your title deed and an agreement.

BTW: the word mortgage is of French origin and literally means dead pledge.

Monthly Remittances to Kenya '04 to 01 09

I think the picture hasn't gone off the cliff. But expect to see the downward path for at least the first half of this year. Some of exchange rates especially £/Ksh currently almost discourage any but family-related remittances. The clear over-valuation means investors are better off coming in later in the year.

Discount Securities finally goes bust-Key issue is liquidity

DSL had the widest distribution network of the brokers in Kenya. In that respect, its a welcome relief that it didn't have some many customers as Nyaga. The pity is that some NSSF funds maybe lost in the process. Apparently dividends were manufactured to keep NSSF from asking too many questions.

This is the first real red mark against Stella since she was in the CEO job for almost a year before she moved to put Murungu & Son under some management restructuring.

A lot of this bother could have been avoided if she had listened to all those complaints against DSL and a myriad of other brokers.

So where do we go from here?

• Apart from setting minimum capital standards and the ownership limits, Stella should also consider making capital requirements correlate to amount of business a broker is doing.
• Ultimately, whether a broker is doing all the right things or not, what will make it collapse is lack of cash to settle up client sale needs. Hence, Stella should consider getting brokers to set aside additional capital as a liquidity buffer correlated to their volume of business.
• CMA should change the composition of the fee to increase the compensation fund. They are very few investors who hold less than Ksh50k.
• Faster action to weed out weak and rogue brokers. There still many other brokers involved in malfeasance and its important that we use this bearish period to rebuild a brokerage industry for Vision 2030

Brokerage business at the NSE should be a simple lucrative affair. If you have integrity.

PS: If you'd hvae a CDS account with DSL, you need to file a claim asap.

NSE weekly catch up: bear rally?

NSE closed up almost 10% from its Monday opening with demand unmatched by supply on some stocks. Some of this seems to be being driven by the rising water effect i.e. Western markets rising and picking up everything else globally. Some might be illusionary however and nimbling rather than chunky bites of share-buying is advisable. Reason being nothing has fundamnetally changed from last week or the week before. Still, fortune favors the brave and the pickup might extend to one or two weeks before reality sinks in. From my point of view, I may exit one of my bigger positions because gains made from fx rates alone mean I can walk away and come back later once things come back to earth.

Results:

DTB announced 48% rise on prior year and with a regional footprint, looks set to compete with the likes of KCB and Equity for the fastest growing banks in EA. As I mentioned previously, I remain a big fan of this bank and especially because of its AKD connection. Would prefer it to KCB ( higher EPS (therefore lower fwd P/E); much much lower NPLs and a broader footprint regionally). DPS is ksh1.40 payable in June.

NBK grew by 10% from 2007! And deposits actually fell by 1% which does limit its ability to grow the loanbook going forward. I don't know how NBK shareholders can optimistically look forward to a dividend in 2010. And there is the prospect of the OFS later in the year.

Macroview: UK got trashed by this blogger when he was appointed FM, but made two positive announcements this week. The freeze on expenditure is way overdue, and the only disappointment is that it didn't go further and sink to be used as arguement for rationalising governance. Still, I think implementing will be much harder. Some cash should definitely be set aside for his PS to travel to Iceland, Mexico, Argentina among others to learn than yes GoK can get broke. The 2nd positive announcement was to manage expectations downwards on economic growth. 3.5% is doable where anything above 4% would have been a stretch.

Other markets:

I'm gonna make a call. FTSE has priced in most of the bad news and has either bottomed or will in the next few weeks. The only remaining pieces are Yanqui sorting their banking industry and the UK treasury's decision on how it'll treat Barclays' request for inusurance vs its toxic stuff. At close of business jana, Barclays the parent was trading at Ksh75 while BBK was trading at Ksh39. Go figure. Tullow Oil announced another oil find in Ghana and 80% growth in profits. Time for me to exit though...

Another IPO coming at DSE. Fuller details later.

Finally:

Jack Welch has apparently changed his mind about the place of shareholders in a listed firm's priority list. And Babcock & Brown, an IB that was being considered for a role in RVR collapsed jana.

Yo Americano, sort out your banking industry

You can buy into a small position in the FTSE in the morning and be up 10, 15,or even 20% by 1pm. As you can't obviuosly trade at work, you await hometime to book your grocery expenses. Wapi! 2pm, Wall St bell dings, by 4pm, you are back to square one again.
Reason-everybody over there in the US knows there as an equivalent of the "dead man walking" in the the US banking industry, and thus looking to lock gains made in other markets.
So Americanos, we can all admit "makosa yalifanyika" in the past 5 years, but like the dude who uttered these immortal words, its time for you to take your whipping by accepting to nationalise Citi and Bank of America as a minimum and possibly shut down AIG.
Then we can start looking and defrosting markets for mortgage-backed securities and credit derivatives...

We can make change happen, be part of the change or be perennial bystanders

One thing we Kenyans suffer from is a virulent from of the free rider problem. Otherwise known as a liking for eating of the sweat of others. And yet, our involvement in making Kenya's a nation, its political system clean, our environment green, our economy grow at 10%+ per year need not be for altruistic reasons. Look at the dudes that supported Kibz from his DP days. Most have now ensured that their great grand children will be well-off. Some who had no time for English or Swahili (literally) still made Cabinet. A small part of me can't begrudge RAO for enjoying his 15-car motorcade. After all, he knows Kamiti better than most of us know our houses. Infact it can never be altruistic to want good for Kenya if you are a Kenyan.

You can make change happen by standing for MP or even President (PS: if you have to wives, makes sure one is not from Nyeri). You can make sure you interact directly with the various candidates and fine tune their thinking on matters affecting Kenya. You can work with and for them in similar manner to Sarah Elderkin and Jerry Okungu used to do at Standard. You don't have to wait until 2012 to do this...

You can be part of the change intellectually by being part of think tank on ideas to change the political, environment, economic and legal situation in Kenya. You can do Bankelele and promote your constituency's choice candidate. And of course if you have deep pockets, you can contribute funds. If you invest in the NSE, keep 5% aside and either support Kenyans who have ideas and ideals that you would like to see in our leadership. Or to finance your own candidacy.

Or you can be the perennial bystander forever whining about Kenya's problems, Kenyans, the weather et al...

Kenya Listed Banks: Comparison of 2008 Results

• An almost positive correlation between low cost/income ratio and high EPS.
• Return on capital is a bit of a misnomer as it sometimes represents unspent capital e.g. Equity and thin capitalisation (StanChart and BBK).
• Tell me how BBK and Equity have similar proportions of NPL to loans and such a difference in terms of LLPs for 2008. Wonder what Co-op is upto- it actually reduced its loan loss porivision in 2008, yet it has the highest proprtion of bad loans. I am assuming some of this is historic...
• Some banks lent out a lot in 2008-a proportion of these loans may turn bad if economy doesn't recover in '09.
  
• Fwd P/E of 6.3 shows Equity has among the cheapest bank stocks at the NSE today. Will wait for it to drop once spilt is effected. And KCB and DKB are cheaper too.

NSE weekly catch up: the next bull run

So, you've done your SWOT analysis, looked at recent share performance and finally you want to know how the share will perform i.e. when the NSE will have another bull run? Have a look at this 18 year chart for some clues. I believe without a shadow of a doubt that the NSE will only have another sustained bull run, if we have political changes that capture Kenyans' aspirations and imagination. Of a similar nature to the coming of the multiparty era of early 1990s and the Rainbow coalition of 2002. Why? Stock markets are about psychology (positive national mood has a positive effect on the stock market performance and vice versa). These changes also extend to the economy. Finally, those foreign investors who like to have some exposures emerging and frontier bourses will pick up on such changes and bring in their funds.
Bottomline: rather than averaging down and other bear tactics, why not invest some of that cash to change Kenya for the better? If 5% of the ksh690bn of the NSE turnover was invested in changing our politics for the better, we'd be far. And create the next NSE bull run.

Results:

Stanchart showed that you can be too cautious and it will hurt as PAT fell by 4% from '07. Its explanations about effeciency investments ring hollow unless there is a targetted revenue generation stream. Btw, it still remains the best share, dividend-wise (another Ksh5 will be paid). But also in terms of RoC.

Co-op: became the only bank so far that reduced its loan loss provision for 2008 (apart from HFCK). Many know that it has had previous history with bad loans so expect this move to bite it on the backside in 2009 or 2010. DPS of a whole Ksh0.10 was also thrown in for good measure.

HFCK's PAT was up 86%. Equity midas touch rubbing off on it perhaps?

Kakuzi also pulled a shocker with profit growth of 47%. And not only attributable to revaluation of tea leaves. DPS of Ksh1 to be paid in May.

FTSE: Finally got my second lot of Barclays's shares at a decent price. Otherwise very choppy waters as investors are fatigued by the bad news' stories. Mainly from across the pond.

Breaking news: kibz makes his 1st coherent speech

Who said the guy can't do comedy? Number two for the history books today.

Delayering Kenya's governance structure for faster trickle-down

It is said that the more fatty layers yopu have, the more likely you are to suffer a heart attack, cancer and sugar diseases like diabetes.
In Kenya today we have two parellel layers that are fatal to our economic or any other health. When you think about the trickle down effect (think GoK funds as a plate of chicken pieces being passed down the layers), how is it going to happen in these two fat parallel structures?

A political one
president->pm->vp->2dpms->40ministers->52 assistant ministers->210mps->3800councillors-> CDF committees
and an administrative one
president->minister for internal security->ps->8pc->107dc->262do->1000chief->2500sub-chief.

For the political structure, I propose we do away with the councillors from the political structure and if we must, just have an elected mayor to work with town council civil servants to deliver. Councillors are an expensive (Ksh200k each) waste. 12 ministers with two or three substantive assistant ministers would also do nicely.

On administration, I propose firstly that we have 10 provinces with Rift Valley and Eastern provinces being divided into two. Then do away with districts or by converting divisions into districts. I am not sure what districts viability currently is. Then do away with locations.
So that slims the administrative structure by two levels by removing the dc and chief posts.
I also propose that we make the officers in these positions part of the wider civil service so that job holders are all rounders rather than just good at administration. It'd also widen the career scope of say a land officer in Kajiador to go and be a division officer in Vihiga.