Wednesday, February 25, 2009

Nairobi Stock Exchange Fiddles

While investors burn or run

Fresh off the appointment of a new chairman of the Capital Markets Authority, the owners of the Nairobi Stock Exchange welcomed him with another pledge to:

-Cap broker ownership of the stock exchange (NSE) at 40%
- Reinforce compliance and supervision through implementation of a risk based supervisory approach yada yada yada.....
- Deal with the findings of the PWC Forensic Report on Nyaga Stockbrokers once the report is received from the CMA i.e. they officially haven’t seen it!

So they throw the ball back to the Government (to fast track the demutualization process - and what this entails) and the CMA (new Chairman to act on the report) while investors rush back and forth like headless chicken changing brokers in search of the one honest broker left in Nairobi, while also yearning to return to the good old days when share certificates were kept in bank vaults or under mattresses.

Monday, February 23, 2009

Crunch time for supermarket

Over the weekend, the Receiver/Manager team of Uchumi Supermarkets (under receivership) published their six month accounts for the ½ year to December 2008

- P&L: Sales Kshs. 4.43 billion ($55 million - up 30%), gross profit 845 million (up 20%), operating expenses 676m (up 24%), financial 99m (unchanged), pre tax profit 69 million (up 10% from 63m in December 07)
- Balance sheet: fixed asset 706 million (down 7%), current assets 1,123 million (up 20%), current liabilities 1,742 million (up 57%), net current assets (-619 million), total assets 87 million (down 85% from 589m in December 07).
Liabilities: capital 900 million, reserves -1,835 million, loans 1,021 million (down 36%), total liabilities 86 million

The attached notes state that cash & equivalents were 130 million, debenture holders were paid 23m, and principal banks have received 346m to date (including 16m in the last 6 months).

However, despite increased sales, basket size, customer numbers and product ranges, the statement notes the urgent need to address the technical solvency challenges in the balance sheet through
- restructuring of some secured obligations (bank loans)
- increased equity from shareholders,
- or failure to that, (imminent) invitation to third parties (search for strategic investor is ongoing ).

The ultimate objective of Uchumi receivership plan (URP) is re-listing at the Nairobi Stock Exchange (NSE)

Property Expo

The Property & Home Living Expo 2009 was held at Sarit Center this weekend. It was rather subdued (fewer banks and exhibitors) compared to the last homes expo held in October 2008. The only banks in attendance were perennial mortgage lenders Housing Finance and (KCB) - Savings & Loan

Most of the exhibitors were property agents including:
- Knight Frank Vipingo Ridge golf villa for Kshs. 19 million, rents at Riverside Park and the (under-construction) Sameer business park
- Villa Care
- Regent (also the Hacienda eco-city Africa’s first eco-city, 2,3,4 flats & bungalows in Mwakirunge – north coast and (under construction) Green House a huge shop /office complex next to Adams Arcade)
- Others were Sedco and Vidmerck

Other exhibitors included a Dubai property company, the Kenya Power & Lighting Company (KPLC) who now have a stima loan for new customers to get loans through Equity Bank to pay for electricity installation/connection charges, Climacento green tech (info@climacento.co.ke) who advertise 50% savings on electricity bill through their solar water heater and Mekan Mattress experts (found at Nakumatt)









Friday, February 20, 2009

Barclays and the NIC-ex

A few days after Equity led with their 2008 results next comes Barclays Bank Kenya and NIC Bank.

Barclays Kenya have shrugged off a difficult year to report a slight growth in profits while also admitting a slowdown in lending and shift in plans to consolidate after an expansion period that saw the bank go on an expansion splurge in the last two years. Barclays Kenya 2008 profits (PDF)
- Growth of in assets of 3% every quarter of 2008, except Q4 which had a reduction of 2% to end the year. Overall asset growth in 2008 was 7%, while in 2007 it had been was 34%. Assets at December 31 were Kshs. 168.8 billion ($2.1 billion) compared to 172.3 billion at September 2008
- Deposits grew by 12%, 5%, 3% in first three quarters, followed by a decline 5% in Q4 – and overall up 16% for the year - same as in 2007
- Loans were up 3% from 2007
- Income up 25% compared to 24% in 2007
- Expenses up 33% compare to 37% in 2006
- NPA up 22%
- Despite modest growth, edged past Equity as most the capitalized bank

NIC was spun off from Barclays as an asset finance specialist, a business it still dominates while competing against Barclays itself now. The Bank is still in expansion mode with a rebranding under the 1 bank banner as a one stop shop for all their customers business needs. NIC Bank 2008 profits (PDF)

- In 2008, growth in assets was 36%, including 18% in Q1 (while the country was fighting?) and 8% in q4
- Deposits were 42% up from a year ago, again with 17% in Q1 and 10% in Q4
- Loans were up 35% in 2008, with 9% in Q2 and 14% increase in Q3, followed by just 2% in Q4 the lowest (went big on Q3 and decided to slow down in Q4?). NPA's still just 4% of loans
- Despite re-branding, income was up 33% with expenses up 25% in 2008
- Profit was up 41% in 2008, compared to 55% in 2007.

KCB overtook the overtook Barclays as the number one bank, a position it should hold, despite the hit it will take from the link with Triton Oil , the collapsed, scandal ridden oil company. Results should be out in a few days.

Conflicting signals - crunch or not?

KCB’s housing subsidiary Savings & Loan (S&L) extended financing to real estate developers this week, increasing lending limits to Kshs. 250 million ($3.12 million) and willingness to finance of 85% of the construction costs of property developments. Some already wonder if they are contributing to a real estate bubble in Kenya.

Meanwhile there was an offline story in the Standard this week where the MD of listed paint maker, Crown Berger, lamented that banks are behaving strangely, reluctant to lend money, and he was now looking to launch a bond to raise working capital funds for the firm.

Monday, February 16, 2009

Kenya Infrastructure Bond

The government of Kenya infrastrucre bond closes on Wednesday and looks to be a successful fully subscribed offer that will raise Kshs. 18.5 billion (~$231 million).

It will have proved irresistible to funds and institutional investors who have been looking for investment outlets as the Nairobi Stock Exchange slump persists, and the sure 12.5% annual return from the Government of Kenya over the next 12 years is a sure bet. The 12.5% interest payments will be paid semi annually with principal repaid in 2015, 2017 and 2021. Bonds from Mabati and Barclays were fully subscribed in 2008

Through the minimum investment is just Kshs. 100,000 (~$1,250) it looks like there’s little interest from retail investors, with many smarting from the free falling NSE and more concerned with protecting their existing investments (read these great tips) from rogue stockbrokers to sign up for bond which, the fire-fighting Capital Markets Authority (CMA) has not gotten round to providing much investor education. The short window (about 3 weeks from Jan 28 to Feb. 18) may also not have favored retail investors.

The success of the bond which is earmarked for road, geothermal and water projects comes despite some reservations (little infrastructure spending identified, limited oversight, may affect Kenya’s credit rating). The bond was first set out in the 2008 budget by the Minister of Finance.

Read more bond perspectives from the Kenya Capital Investment Group blog

Opportunities

Start your own collection agency from Collection Africa

- Join embattled Suntra investment bank as a manager - investment banking & fund management or manager - stock broking

Friday, February 13, 2009

Equity leads the Kenyan Economy

The first Bank (as usual) out with the 2008 profits is Equity Bank with the usual staggering financial results (PDF) for 2008 with 101% growth in profits and 103% in loans.

But a closer look at the numbers show some more subdued stats that may indicate an economic slowdown, and which may be confirmed when other banks (especially Barclays and KCB) release their year-end results in the next two months.

- Equity’s growth in assets is 45% from a year ago, but 6% in Q3 and 3% in Q4
- Equity’s deposits are 55% up from a year ago, but this breaks down to 23% in Q2, 10% in Q3 and 6% in Q4
- Equity’s’ loans are up 87%, but the 41% increase in Q2, was followed by 17% in Q3 and 2% in Q4
- Expansion costs - income up 98% from a year ago, but expenses have kept track – up 97% from a year ago (in 2007, the spread was 73% and 52% in 06/07)
- Factor in Safaricom IPO lending (interest and fees) estimated at– and Q2 income was 3x higher than in any of the other two quarters
- Cross-checking against the 2007 election and disruption in economic activity, in 4Q of 2007, Equity had growth of 18% in deposits and 33% in loans with 54% in profits in same quarter, with in 1Q of 2008, had 8% deposit and 11% in loans, rates which outpace 4Q of 2008

Shareholders will be happy with the Kshs. 3/= dividend, but the 1 for 10 share split, will add a huge float of shares to an overflowing NSE pool.

Bank opportunities
most from the daily papers this week
- African Development Bank is currently accepting applications for its Young Professionals Program . Apply online by 20/2
- Barclays seeking debt recovery agents – auctioneers, re-possessors, valuers and investigators. D/L is 28/2
- Commercial Bank of Africa: senior manager finance. Apply through KPMG by 25/2
- Family Bank Bancassurance Manager. D/L for online applicatiosn is 6/3
- IFC Investment officer (private equity & investment funds division) Africa, based in Nairobi. D/L is 27/2

Tuesday, February 10, 2009

Share Portfolio February 2009


Quarterly portfolio review after last snapshot in November 2008



The Stable
Diamond Trust ↓
KCB ↓
Safaricom ↓
Scangroup ↓
Stanbic (Uganda) ↓

Changes
- Best performer: Diamond Trust -8%
- Worst performer Stanbic – 33%, Safaricom -23%
- In: none
- Out: none, but sold a little KCB in January

Events & Outlook
- Performance: Portfolio is down 20% in the last three months while the NSE Index is down 25%
- Did not buy KQ and Kengen as expected, but that should happen in the next few weeks as prices continue to drop
- Sat out the Co-OP IPO and made just one trade in three months (sold some KCB in January). Are brokers generating enough income to stay afloat? I hope they don’t try and introduce new charges levied on dormant investor accounts
- Money markets: Got started in money markets by signing up with a CBA Unit Trust
- Bond markets: The Government of Kenya has lowered the minimum investment for GoK treasury bonds to just Kshs. 50,000 (~600)
- Investor awareness: The CDSC started sending out monthly statements by e-mail to investors, cutting out the postal service, and alerting investors each time shares are bought/sold using their account.

Saturday, February 07, 2009

Missing the TED Party

The ongoing TED Conference in California makes me thing back to the remember TED Global that was held in Arusha, Tanzania in 2007. From the opening talk by Euvin Naidoo President to the last talk President Jakaya Kiwkete this TED conference was a unique event; it was a magical event full of euphoric, optimistic and inspiring moments. Links, networks and friendship were formed and the path was set out to open a new chapter for Africa, through business & investment, with diseases & poverty largely eradicated. Sadly in 2009 not much has change in the continent and even some of the shining economic models then like Kenya, Nigeria, South Africa, have had politics overshadow and handicap their economic ambitions.

Housekeeping

New tools
- Heard about Twitter in Arusha, but only signed up last month. It’s a bigger world than blogging, and fills in a lot of the gaps e.g. found something unique, but too small to post, or you just want to share in a second via mobile phone? Twitter’s the answer!
- Never has much interest in photography as a blog tool, but got a camera now, so fellow shutterbugs - Hash, Mental, Afromusing, Mweshi - your influence has rubbed off, and I’ll be throwing in random photos of travel and daily work events here are a few


forest near Kericho



I found the Ark



would you steal these hotel sandals?


Getting some love
- Bankelele is listed as one of the 100 best blogs to learn about Africa - not sure how selection was made, but there are some interesting reads on that list 87 Bankelele. Banking and business are at the forefront of this blog written by a Nairobi banker.
- The best way to learn about blogs in other parts of Africa or the non western (US, Europe) world is through Global Voices. They have a post that mentions the top ranked blogs in Africa with Bankelele (ranks 18) from Kenya who writes about baking banking, finance and investment in Kenya and Bongo Celebrity (ranks 20)
- The Business Daily ( a Kenyan financial newspaper) had a feature on blogging with topics like Blog post revolution hits corporate Kenya, Blogs command attention of corporate world, Blogs emerge as avenues for making money, Companies use online platform to monitor views from the public, Fibre optic cable to pave way for corporate blogging, Mounting lawsuits could sound death knell for social sites and What is likely to compete with the mainstream media which noted Some are born out of events like bankelele.com Bankelele, started in 2004 after the blogger attended a “very riotous AGM.” And he describes his blog as “ It’s my diary of financial events —and as a banker and investor. I use it to keep track of pertinent events.

Anyway, I hope to link up with some friends from TED and collaborate on projects in the future and that the Business Daily leads to more corporate blogging opportunities and ideas in this part of Africa.

Friday, February 06, 2009

Profit Warning Friday



KQ Profit warning for Who?
Kenya Airways issued a profit warning a few days after media reports had painted a rather rosy picture of operations at the airline with increased capacity and utilization. (That’s what happens when you release operating results without any shillings or dollar attached.

The fuel price , PEV, and reduced tourism has been well known within the investment community and this did not appear to impact the price until the actual ad and media corrections were carried in the newspaper , perhaps spooking retail investors and the stock is down 22% this week. The operational figures already show that the airline is in turnaround mode and is being hammered when it has already hit the bottom. I need to attend more investor briefings. Nether announcement appeared at the Nairobi Stock Exchange (NSE) website where company quarterly announcements usually run

Profit warning at the NSE
On Thursday, the Capital Markets Authority (regulator) release a brief (copy here ) addressing issues perhaps that should have been said by the NSE. It noted that bear markets do happen (NSE declined 50% between 2000 and 2002), stockbrokers are in trouble (reduced activity, means low turnover and low commission), are restructuring (layoffs and branch closure s), and exposed (risks could arise from fraud. Nevertheless, shares are safe and better left to long-term investors!

We are not rogue this came a day after directors of Suntra Investment Bank, made a similarly candid admission of trouble ”business is so low at the moment that we are actually eating into our own funds” - one of the few times a financial institution has admitted being in difficulty, as they tried to contain damager (a single court case), but which left spooked customers flocking to transfer their shares

Executive on profit
Michael Joseph the CEO of Safaricom, Kenya’s most profitable company, launched an unusual rant against the government and business climate saying the first three things an investor needs in Kenya are (1) a generator (ii) a 4WD car (iii) a security firm – before they can even think about making any investment in Kenya. he said they spend 1.5 million euros on diesel and called the new universal service fund tax stupid as mobile sector is already over-taxed
- Man who sees no losses on the horizon is the CBK governor, an eternal optimist after launching an infrastructure bond. Kenya plans to raise Kshs. 18.5 billion (~$245 million for roads, electricity generation & distribution) from investors who will pay a minimum investment of Kshs. 100,000 or ~$1,250). 12.5% interest will be paid semi-annually with principal repaid 2015, 2017, 2021. He had earlier commented that global meltdown should not have much impact because Kenya is primarily a rural agro-based economy

What else happening?
- Kenyan knows Madoff: listed among the hundreds of fabulous fraudster Bernie Madoff’s clients is Sangare Ranch of P O Box 24 Mweiga Kenya Africa
- Barclays Uganda counters rumors of a collapse/closure
- Global credit rating of South Africa, previous rate triton high credit ratings of Kenyan companies with collapsed oil firm Triton downgraded to DD, Sasini’s ratings maintained at BBB+ (triple B plus) and A2 (single A two) for the long and short term respectively, and Eveready East Africa Limited downgraded to BBB+ (triple B plus) and A2 (single A two) for the long and short term respectively. Moody have downgraded Toyota today, so who’s safe?
- Fuel shortage was experienced in Nairobi – back and forth between Kenya pipeline company, ministry of energy, oil companies who all absolved themselves for any responsibility; Read more at Coldtusker
- Who’s the Total Man at the NSE?
- Mumias profit down 73% to 231 million at the half year half year on sales of 6.2 billion (down 8%)

Thursday, February 05, 2009

Insuring the masses

In a quiet month for banks Equity Bank is making some quiet strategic moves for the long term, that may shake up the insurance sector in Kenya.

They have started selling insurance cover to their customers through their wholly owned subsidiary Equity Insurance Agency. Like with the health care package they started selling last year, it is quietly marketed to customers within the banking halls only – no public adverts so far and little mention elsewhere. Customers can sign up for motor vehicle insurance, domestic over, personal accident & travel, medical, and fire & burglary for businesses.

Equity continues a trend of rolling out products that are useful but have low penetration in Kenya like medical insurance and mortgages (they own a ¼ of Housing Finance)

Also they were earlier reported to have acquired an investment banking license from Juanco Investments - a little known company who's also one of their shareholder.

Monday, February 02, 2009

Sporting Moment: GTV Out

GTV folds
It has been a bleak weekend for Kenyan sports – Gor Mahia lost 0 - 5 to a visiting team from Rwanda, Zimbabwe has now defeated Kenya four matches in a row in Cricket at Mombasa & Nairobi, but most shocking was the sudden shutdown/collapse of GTV – who for the last two years were the main broadcasters of the English soccer premier league in several African countries.



Their statement attributes the collapse to the ongoing global credit crunch, but their demise seems similar to that of Kirch Media who spent big in the late 90’s to acquire the rights to broadcast two World Cup events and also 100 years of formula one races among other media properties - but who folded shop a few years later in one of Germany’s biggest corporate collapses.

What next? I expect Multi-choice DSTV to step in and pay the liquidators of GTV about 30% and take over their broadcast rights in Africa (and perhaps hike their prices too), while in Kenya, a successful bid for GTV’s soccer rights could also be an opportunity for Wananchi's Zuku to make a nationwide impact.

Business impact in sports
The local impact of the economic crisis is likely to be replicated in sports.

- The local soccer league did well last year (2008) with private interests participating and sponsoring the teams & competitions – there was huge fan interest, media interest (for once local radio stations actively previewed, reviewed and encouraged attendance of local soccer matches) and a private security firm (G4S) was in charge of the ticketing and match revenue collection.

But will the economic crisis affect things? Will sugar teams like Sony and Chemelil continue to support sports when even the only profitable company in the sector (Mumias) has profits down 80% this year? And what about Sher (Flower) and other small company-sponsored teams?

- The local motoring scene was mainly supported by KCB last year and fortunately, despite the banks ongoing problems - particularly with a fellow sponsor (Triton), they have agreed to also sponsor the 2009 rally season. However the loss of Paris Dakar to South America shows the global nature of sports and that events (like teh Safari Rally) can be translocated elsewhere if countries don’t pay attention to details of sports management. in 2009, pressure shifts to South Africa to progressively move nearer the completion of stadiums for the 2010 world cup.

- Rugby continues to be well organized, attract top notch sponsors, and the annual Safari Sevens is the premier sports event(party) - with Kenya's Sevens Team off to participate in the IRB Sevens World Series next weekend.

Bad management
Another problem in Kenya is bad management - and while every sport has behind the scenes ramblings and wrangles, Kenya is no exception with motor sports, cricket and soccer feuds that have long been a distraction for the sports.

Also all sports go through generational changes - and in the off season, Athletics Kenya management went through elections that were well contested. However in Kenya we need to have longetivity of athletes, not management officials; it is rare to have someone (except for Catherine Ndereba) participate successfully at more than one Olympic event. Other countries stars like Haile Gebreselassie, Hicham El Guerrouj and Kenenisa Bekele have successfully represented their countries at consecutive Olympics - while in Kenya it is sad that it is mainly the officials who show such endurance - and that people who were ‘in charge’ of sports like soccer in the 1980’s and 90’s are still in charge today (Sammy Obingo, Sam Nyamweya) – and continue to bicker and blame each other for the problems in the sport.

Having recently read Foul, FIFA comes across as a corrupt institution that does not care about individual countries attempts to improve management of their sports affairs – FIFA wants to dictate who will be the local managers of soccer, and no matter how bad or corrupt they are, they are FIFA’s people who should not be interfered with unless a country wants to be suspended from regional or international soccer competitions.

EDIT: Feb 4 2009 - South Africa based DSTV SuperSport channel reclaimed the rights to broadcast live all English premier league matches, including those from collapsed GTV in 22 African countries over the next two seasons

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