Mass Cross Listing in the Offing

11 Firms:

After my earlier posts on cross border listing (see Below), it is now emerging that eleven (11) firms have approached the regulators to cross list on the East African bourses. It is noteworthy however that although the regulators have been trying to level the playing ground, alot of issues still need to be addressed before companies join in this bandwagon.

East African Exchange:

With the establishment of an East African Exchange (EAE) also in the offing, the eleven companies are said to be as follows: Kenya with 5, 3 fromUganda and 3 from Tanzania.

Pioneers:

Earlier the Kenyan companies that had taken the cue to pursue cross border listing include East African Breweries (EABL), Kenya Airways (KQ) and Jubilee Insurance.

Listed Companies:

Among the east African players, Kenya still leads the pack with 53 firms and the number is expected to rise with the listing of Kenya Re,Safaricom and others soon to come. Der es salaam and Uganda Exchanges follows in the number of listed firms with only 7 and 6 respectively. This is excluding the Kenyan firms (EABL, KQ and JHL) that have poineered to cros list in the exchanges.

New Incentives:

The regulators have put in place alot of niceties for companies striving to cross list which include:

-Issuing a summarised Information Memorandum.

-No requirement of reporting accountant’s report.

-An abridged financial statements for the last five (5) years is acceptable.

-Provision of the latest annual or interim accounts submitted to the home exchange would be accepted as the latest financial statements.

-Standard initial fee of US$5,000 (Sh360,000) against previous amounts of US$21,126 (Sh1.5 million) to cross list its securities across Kenya and Uganda.

-However, only companies listed in the Main Investment Market Segment (MIMS) of both bourses will be eligible for cross listing. (Business daily)

Nonetheless, more still needs to be done to make the East African Integration a reality in all aspects then we can proudly talk about an Economic Integration, Political Integration and finally adopting a one currency for the East African Union.

Investing In Africa Against whose Index?

Historical Bull and Bear Runs:

As the Nairobi Stock exchange (NSE) basks in the glow of a historical bull run that was was witnessed during the second half of 2006, as well as the increasing number of Initial Public offerings (IPOs) that have stirred the market and susbstatially adding to the market capitalization, analysts and market players alike have continually expressed concern that the NSE 20 share index may not be reflecting the true picture of the market.

The sales of the shares at the NSE have hit historical highs and the stock market has been flirting with irrelevance after failing to adopt new and more robust market performance indicators that are reflective based on the share price movements and mode of computation.

New NSE Index:

As you may wish to know the newly revised NSE 20 share index that was announced last month led to the replacement of 6 counters out of the 20 stocks that constitute the index. The new index saw the inclusion of ICDCI, Kengen, Mumias, Rea Vipingo, CMC (Cooper Motors Corporation) and equally led to the dropping of NIC, BOC, Unilever, Kakuzi, Uchumi and Williamson Tea.
The index that is used an indicator of activity at the bourse has declined by a total of 30.03 points in the 2 days since the inclusion of 6 new constituent counters on Wednesday. Contrary to this, the former index had shown a sustained rally in the recent past, rising by 180 points (3.61%) last week. This is indeed a clear disparity between the two indices in terms of composition and computation and further is a reflection of the lower prices of the 6 new stocks as well as the weights assigned to the new constituent.

NSE in the global market:

Statistics available indicate that the Kenyan stock market is the world's 6th worst performer this year after declining by about 5% between January and June when the market experienced an unprecedented bear run where the index declined from all times high of around 6000 points to around 4000 Points. The bear run was occassioned by surging sales due to increased investor news e.g school fees, low demands for shares, plummeting prices, emergent hig return investment schemes (Pyramids/Ponzi schemes) that have hirtheto collapsed. Furthermore was the evident market scare due to low returns from previous IPOs that had been expected to provide significant returns (excluding Kengen that realized remarkable feats).

The Nairobi Stock Exchange (NSE) is only outpaced by Sri Lanka, which declined by 6%, Trinidad Tobago at 8%, Saudi Arabia at12%, Jamaica at13% and Venezuela at 24%.

China's Unrelenting courtship:

On a positive note, China's CSI Index continues to surprise investors and has gained 112% year-to-date, an indicatio that local Chinese investors have discovered the stock market with a vengeance and China in turn seems to have discovered Africa in a big way this year with a rally to play a bigger role in Africa's development initiatives to the chagrin of the western counterparts who are feeling threatened by this emerging courtship.(Does the building of fly overs in Nairobi and dual carriage ways ring a bell?).

African Capital Markets:

The noticeable trend is that Africa's capital markets are expanding rapidly with corresponding adoption of the Information and Communciation Technology (ICT) in its operation. The NSE for example moved quite fast to adopt a Central Depository System and a computerized shares trading system acquired from Millenium Technologies of Sri Lanka at substatial capital outla. Other markets includinf johannesburg are ahead of the pack whereas others are still following suite.

All African markets with the exception of Kenya have performed very well so far this year. Nigeria and Botswana are among the world's top performing markets. Lagos Stock Market has risen 52% while the Gaberone Index gained 43%. South Africa is up 16%, Namibia 17% and Mauritius 20%.
Market Correction:

There are indications that the Kenyan Stock market has alot to offer and looks rather interesting with good risk/reward entry at current levels of valuation after shedding significant points (5%) beween January and June a trend seen by analysts to have been a market correction. There is a growing probability that the NSE will catch up with other African stock markets from the third quarter of this year, especially once the Initial Public Offer (IPO) of East Africa's most profitable company, Safaricom, is listed on the bourse.
Kenya hopes to raise Ksh 35bn from the sale of a 25% stake in Safaricom, East Africa's biggest mobile-phone company.

Foreign Direct Investments (FDI):

It is noteworthy that larger flows of foreign funds are expected to come into the NSE, which should again bring new confidence and renewed hope to the local bourse. For the longer-term investor, the market seems to be at an equilibrium now and the potential for upside gain most probably will be greater than the downside risk at current levels

NSE Making Progress:

Foreign investors are often positively surprised to hear that proportionally more people make

mobile phone calls in Nairobi than they do in New York. The younger generation of Kenyans more outward-looking, enterprising and better educated, less dependent on the patronage of state and local politicians are re-shaping Kenyan busines. More and more foreigners seem to take notice. Overall investment into African capital markets, however, is still rather small. But stock markets like the NSE are making significant progress. In October 2006, the NSE began automated trading, moving away from the open cry system of trading that had been used for 15 years (All Africa).

Global Fund Managers eyeing Africa:

A positive trend is that more global fund managers seem to agree that the risks of investing in Africa in general and in Kenya in particular are less then they are perceived to be. Africa often rakes in better returns for investors than Europe, Asia or America. For instance the Kenya Electricity Generating Company (KenGen) IPO that heralded more retail investor participation on the NSE saw the exchange's equity turnover rise by almost 300%, in May 2006 when KenGen was listed, to Ksh11,4bn.
New era of long term investing vis speculation:

With a significant number of Kenyans now partaking in the NSE, it set in motion a new era of stock market investing in Kenya, which went from one extreme of bullish sentiment to the other where some investors lost more money than they thought when the market had an expected and natural pull back. Instead of being "once bitten and twice shy" local investors might want to see the stock market more as a long-term investment instead of short-term speculation.(All Africa)

Of Cross Border Listing and Cross Trading (Part II)

Cross trading is the emerging trend where investors seeking to diversify their portfolio of investments would seek to venture into other markets and invest in such available options as equity, bonds, commercial papers, derivatives and other available products in that market.

East African perspective:

In East Africa for example, Investors have been craving for the stock market pie with Kenya leading the pack with several IPOs having been significantly oversubscribed with others slated for the year expected to follow the same record trend. Over the last 5 years, turnover at the NSE has grown phenomenally from Sh2.9 billion in 2002 to Sh95 billion last year while the number of CDSC accounts that have been opened have in the last 2 increased from 80,000 in 2005 to an estimated 700,000 investors to date.

Insatiable Appetite for Investments Opportunities:

The rally at the NSE has produced millionaires overnight.Take the case of EA Cables price rally that produced all times high of around Shs 1000 per share among the other shares price surge occassioned by the unprecedented news of stock splits, dividends and bonuses declared by most companies including Barclays, ICDCI, Sasini, CMC, KCB, Cables etc. It is evident that investors are hungry for other viable stock market investments as seen with the latest trend of switching to the emergent high return promising pyramid schemes that have sprouted in every corner of this country. Sadly though, most of these schemes were scams meant to defraud unsuspecting investors of their hard earned monies as seen with the widespread closures, default rates and collapse of even the seemingly big wigs of the pyramid scheme-DECI. Most investors lost their monies and statitistics available shows that this ran into hundreds of millions.

Some investors who had sold their stocks, leading to a bear run had the NSE, are now back with whatever little they managed to salvage.

Nonetheless, the oversubscription of all the IPOs from 2006 to date is a clear testament to the insatiable investment appetite in the country. The strong returns posted by Kenyan equities listed at the NSE have not gone unnoticed with international interest in the country’s markets building up in recent years latest among this is the interest receive from top Wall Street operatives.

African Stock markets:

Africa has only 15 active stock exchanges which include exchanges in South Africa, Nairobi, Uganda, Tanzania, Botswana, Nigeria, Cairo, Malawi, Mauritius, Namibia, Ghana, Zambia, Zimbabwe, Tunisia with the regions equity markets incomparable in size to other emerging markets worldwide posting a combined market capitalisation of US$39.2 billion, excluding South Africa's JSE, in 2005. The JSE which is the 16th largest exchange in the world, had a market capitalisation of US$ 566billion, accounting for 94 per cent of Sub—Saharan Africa’s total market cap. As it is, the JSE’s market cap is 14 times larger than all the other African markets combined(Business Daily).

Cross Trading, Stanbic Experience:

The continued media hype in Kenya lead many streaming to the appoitment banks and stock brokers to have a stake in the much publicizedStanbic Uganda IPO. However, after the rigorous process of filling forms and paying for the shares, Kenyan investors were the losers as they were considered for residual shares after all the local investors had gotten their share. After the meagre share allotted came the issue of share certificates that reminds us of the days NSE was still without the Central Depository system.

Dividends:

Recently, after the wait, the arrival of the Stanbic Bank Uganda’s dividend payout cheques (7%) was an excitement to many investors though this was short-lived as those who received the cheques were surprised that the dividend almost amounted to nothing after being converted to the local currency which is of higher value than that of the East african counterparts. Further, the paying of Ksh.1,000 bank charges for cheque clearance inorder to cash the cheques proved much higher than its value, especially for most investors with minimal share allocation. This made the dividen almost worthless if not useless. With some intervention, the cahrges were readjusted as follows; amount below 1000 cost ksh 100 and amounts above ksh 1000 would cost ksh 150. Read Bankelele's experience!

Cross Border Trading:

As earlier alluded, most investors who thronged dealers offices and banks to buy Stanbic had not considered the perils of investing in another currency and all associated stumbling blocks. The company and even the Ugandan Authorities had not instituted a proper dividend reinvestment program (DRIP) that would enable investors reinvest their dividends until such a latter date when cashing them would be worth the rigor.

Most investors did not understand that cross trading is normally affected by the market performance in the market concerned as well as the fluctuations in the foreign currency rates. Read more

Of Cross Border Listing and Cross Trading (Part I)

Cross Border Listing (CBL) has become important in the last decade as companies have become international in their orientation. Technological progress and liberalization of capital flows has fostered considerable competition amongst global stock exchanges for equity listings and trade. The US exchanges over then last few decades have attracted a sizeable share of the cross listed firms.

Emerging Issues:
There issues currently brewing in Kenya yet investors may have taken a back seat, not out of will but, due to inadequate understanding of the issues at hand.

1. First and foremost is the much hyped East African Exchange that will bring together the Exchanges of Kenya, Uganda and Tanzania.

2. Secondly, is the issue of listing securities of our locally quoted companies in other exchanges as well as allowing foreign companies to list at the NSE.

3. The other issue is the clause in the budget of 2007/08 that would allow East african residents to invest in our bourse (NSE) as locals without going through the rigours of the selection process for east african corporate and individual residents.

Cross Border Listing (CBL):

Cross-border listing refers to the listing of securities issued by a foreign issuer on a domestic securities exchange. Therefore when a foreign company decides to expand its horizons and wants to go public in another jurisdiction, this is considered a Cross border Initial Public offering" or Cross border IPO.

The implications of cross border listing are immense and with every country stipulating its own listing regulations for companies it is noteworthy that corporate entities seeking to list elsewhere are no exception to the rigorous vetting process. Several factors still hampers cross border listing which encompass, language barriers, currency conversion, and different regulations.

Clearly, cross-border IPOs are often complex and challenging transactions that demands strict adherance to laid down rules of the exhange in question whereupon the company intends to list.

Reasons for Cross border Quotation:

Cross border listings can help the company raise more capital by targeting new shareholders. However not all cross border listing are accompanied by share placements as this may affect liquidity and share price. Publicly-listed foreign corporations would therefore undertake to list on overseas exchanges for a variety of reasons:

1. To boost its status as a truly global player.

2. To raise Capital through debt or equity.

3. To increase trading volume.

4. To improve shareholder relations.

5. To enhance its visibility among overseas investors and consumers.

6. To tap into retail and institutional funds and benefit from changing global attitudes toward equity investing.

Media Interests:

Normally, cross-border listing would attract media interest in the host country thereby improving brand awareness and corporate image. This can be a valuable asset for companies in the consumer products sector and other groups that depend on product or service recognition and visibility, possibly leading to spill over benefits for product or service-market sales.

Implications of CBL:

Shareholder Base: It leads to the diversification of a company's shareholder base thus spreading their financial risk in the same way that diversifying a portfolio can spread investment risk. This can alter the volatility and liquidity levels of a stock. For most companies this is a positive development.
Institutional Interest: Fund managers consider the company's fundamentals, quality, skill and accessibility of management, leadership position in the market, the scope and scale of the competition, and the stock's liquidity, important particularly for small and mid-cap stocks.
Retail Interest: Cross-border listing is an effective vehicle for increasing demand by overseas retail investors, who currently invest in foreign equities.

Liquidity: Increased liquidity can inspire market makers to compete with the new market to the lower bid/ask spreads. The increase in average daily trading-volume through new investors from foreign markets often results in an increasing share-price, higher market-cap and additional sponsorship. Moreover, a targeted equity offering through a new share placement may ensure deeper liquidity.
Raising Capital: Cross-border listings often assist foreign company in targeting new shareholders for fresh capital. However, not all cross-border listings must be accompanied by a share placement. There's always the possibility that a share placement might affect liquidity and share price.

KQ No Longer the Pride of Stock Punters

Kenya Airways is a premier airline that for a long term had been christened the pride Africa. KQ the national airline of Kenya, based in Nairobi and operates scheduled services throughout Africa and to Europe and the Indian subcontinent is the largest airline in Kenya, and operates more transcontinental flights than any other African airline.

Accidents:

Kenya Airways is still reeling from the tragic accidents that removed a significant junk of asset from its balance sheet. Fresh in our minds is the tradigc accident of KQ 507 in cameroon that was carrying 105 passengers from 26 countries and 9 crew members and all perished in the incident. The Airline also suffered a fatal accident of flight 431 off the coast of Cot d'Iviore killing 169 of the 179 people on board.
Profitability:

Kenya Airways announced another record profit after tax of Ksh. 4,829 million for the year ended March 31st 2006, being 24% above the previous year's result of Kshs. 3,882 million. Though th company realized a 24% increase in profitability, the company is yet to make significant strides towards profitability and the reduced profitability trends by the company scare aware investors who are keen to make extra bucks from dividends.
Volatility:

The Airline industry is very volatile and with increased accidents the demand for airline shares will remain low. The industry is replete with issues of terrorism scare, flight hitches, changing customer needs and preferences etc. This volatility is an issue that has implications on the company.
World Oil Prices:

The volatility of world oil market prices is also an issue and the company has to contend with higher expeditures on gasoline to power its aircraft. Oil and other commodity prices continued to rise against a backdground of security concerns in the Middle East anf risks to oil production in Niger Delta in Nigeria.

Customer Service:
After rebranding to be referred to as the pride of Africa there have been concern of poor customer service that has also had negative implication on the company's bottomline. With other airlines coming into the region, competition for clients is bound to rise and with poor customer services as alleged of KQ, customers will most likely shift to other established Airlines as Emirates, KLM, British Airways, Virgin Atlantic, South African Airline, Qantas etc. Therefore KQ should up the game in its customer service.

Competition:

The emerging competition from Virgin Atlantic with significantly reduced faires on its London route will also affects the long run run prospects of KQ. Virgin Atlantic enterred this route with a bang and promised to significantly reduce flight fairs in most of its routes clearly bringing into focus the issue of heightened cut throat competition that is likely to set in.

New Aircrafts:

As Kenya Airways was voted East Africa 's Most Respected Company for the second year running they needto keep up and even exceed this recognition of no mean feat.However, despite the company planning to add 5 new aircraft to its fleet over the next few years the cost outlay is significant and the company might have to borrow heavily from world lenders a syndicated loan that will also lead to high payment of interest (Expense) which will reduce Earnings Before Interest and Tax (EBIT).
Stocks:

The company may have to contend with low stock demand ,for awhile, at the bourse that is signifiantly hampering price appreciation. The company on traded 117,300 shares at a price between 76 and 67.50 from a 12 months high of 147 a few months ago. The company has a 12 months low of 36 and with investors taking a wait and see attitude things might turn for the worse.The company may need new strategies to improve its bottomline and stir the market.

Thumbs Up

1.Leadeship Center

KQ has opened a Sh500 million Leadership Centre near their Embakasi Headquarters in Nairobi that will be used to train the airline’s staff and also staff of other air operators.

2. New Embraer Jet

KQ has already taken delivery of the first 70-seater Embraer jet, with the second regional jet expected next month. The two 70-seaters will try and bridge the gap created by the accident where we lost the third B737-800.

3. Corporate Center

KQ has also opened a Corporate Centre and a Sh21 million service centre for its frequent flyer club members. The airline is a partner on the frequent flyer programme with Air France and KLM, called Flying Blue. Both facilities are located at the Barclays Bank Plaza, Loita Street, Nairobi.

The corporate Centre will:

-Serve over 80 corporate members.

-Offer dedicated reservations and ticketing

-At as a call centre.

-Provides email address for efficient communication with customers.

-Have ‘Commercially Important Person (CIP)’ code for recognition at the check in.

-Besides Kenya, the Flying Blue Centre will serve Uganda, Tanzania, Rwanda, Burundi, Sudan, Ethiopia, Zambia, Malawi and Mozambique.

WE REMAIN WATCHFUL AS INVESTORS TAKING A WAIT AND SEE STRATEGY AND FOR THOSE WITH THE SHARES YOU CAN AS WELL HOLD FOR THE LONG TERM.

Equity Still Rocks Despite Controversy

Enviable feats:Against a backdrop of controversy sorrounding the shareholding of its Chief Executive, the company has realize such enviable feats in recent times that the players in the banking sector are yearning for.

Being Kenya’s largest retail bank, Equity, has posted an impressive growth that put its ahead of most companies in the banking league.

Growth: The company recorded a 107% growth in pretax profits to Sh1 billion for the half-year period ended June 30.

Operating Income: This increased by 83% to Sh2.6 billion from Sh1.4 billion in a similar period last year.

Customer Base: Its customer base rose by 300,000 in the 6 months since January to 1.3 million customers representing about 35 per cent of all bank accounts held in the 42 licensed banks in the country.

Customer deposits: This went up by Sh7.3 billion to Sh23.6 billion since January.

After Tax profit: The bank’s after tax profits increased by 137 per cent to Sh830 million up from Sh350 million in a similar period last year.

Interest Income: Net interest income for the period was Sh1.2 billion compared to a total non-interest income of Sh1.3 billion.

Overhead expenses: This increased by 70% from Sh903 million to Sh1.5 billion as the bank forged ahead with its branch and staff expansion.
Total assets: This went up by Sh9 billion to Sh29 billion.

Staff numbers: It grew by 600 to 1,919 in the period.

Awards: The bank recently won the global vision award in microfinance jointly with Grameen Bank of Bangladesh, during the annual G8 summit held last month in Germany.

Shares: The bank’s shares continued to maintain its stability and liquidity with sizeable investors still streaming in to buy a piece of the companies stake. This is after the shares fell to an all time low of around Ksh 80 just after the effecting of a bonus issue. However this was only shortlived as the the shares were priced at between Sh133 and Sh128 in yesterday’s trading at the stock market.

Housing Finance stake: The company has already signed a deal to buy 24% of the the stake in Housing Finance, the listed mortgage company, after successful boardroom negotiations with CDC to take up its shareholding in the company once the impending rights isue is effected.

Financial Supermarket: With the company in partnership with Britak in the Housing Finance deal, it appears theat the company might be headed towards the establishment of a financial supermarket with British American Insurance, British American Asset Managers, Dyer and Blair, Housing Finance and Equity Bank in the deal to provide a one stop shop for insurance, Capital markets Investments, Corporate Finance, Asset management, retail lending , mortgages etc

East African Tiger?

Economic Survey

The recent economic survey released by the Central Bureau of Statistics (CBS) in collaboration with the Ministry of Planning and National Development reveals that the global economy continued expanding in 2006 with economic activity in most regions exceding expectation. The global growth recorded a rise of 5.1% in 2006 mainly boosted by robust growth in US, Euro Area and China.

Oil prices continued to rise with metal prices being driven mainly by the high demand in the emerging Asian markets.The Sub Saharan Africa region experienced the strongest period of the economic expansion since 1970s with 5.2% growth which is projected to increase to 6.3% in 2007.

Real Gross Domestic Product

GDP expanded by 6.1% in 2006 compared to 5.7% in 2005, 5.1% in 2004, 2.9% in 2003 and 0.5% in 2002. The growth was boosted with agriculture and Transport and communication being the main source of growth.

Over these few years of the NARC administration the economy has grown marginally with further projections of even better growth in the next decade. It is worth noting that the economic projections for the 2007/2008 is expected to near the 7% mark if all macroeconomic variables at play continue being stable as the major economic drivers realize increased activity.

With this in mind i was left wondering whether Kenya will one day realize such spectacular growth as was witnessed within the Asian economies that came to be know as the Asian Tigers.

The Tigers

This term was coined in reference to the economies of Hong Kong, Singapore, South Korea and Taiwan. These economies were also known as Asia's Four Little Dragons and were noted for maintaining high growth rates and rapid industrialization between the early 1960s and 1990s. In the early 21st century, with the original four Tigers at or near to fully developed status, attention has increasingly shifted to other Asian economies which are experiencing rapid economic transformation at the present time which include India, China, Japan, Indonesia and Phillipines amongst others.

East African Tiger?

With the foregoing spectacular growth of many economies in East Asia over the past 30 years which amazed many professionals i wondered whether some day Kenya will realize such no mean stature. With the current upgrading of Kenya in the world map from the Least Developed Country (LDC) to the Developing world status might be a sign of good tidings to come and a step in the right direction. The Kenyan economy has realized significant activity in Agriculture with alot of Investments by both local and foreign investors has also been boosted the transport and commucation infrastructure showing signs of further growth. Transport and Comunication, Business Process Outsourcing (BPO), Information Technology etc.

Vision 2030

I believe that with the launch of the vision 2030 by the government Kenya is so close yet so far to becoming a nation to reckon with interms of the world economic muscle. However alot of things have to be in place if Kenya is to go down the road of economic prosperity with the three vision pillars of Economic, Political and Social being at interplay. It is neccessary to provide a conducive environment for Foreign Direct Investments (FDI) in industrial production/manufacturing, agriculture, business process oursourcing, financial markets/money banking and finance, technology, infrastructure, mobile telephony, transport and communication, tourism, energy, building and construction etc.

The vibrancy of the Kenyan stock market is notable and with further listing of more companies in this bourse investors across the global divide will stream in to invest in the country. Correspondingly, corporate governance within most corporations will be enhanced greatly as the watchful eye of the Capital markets and the Nairobi Stock Exchange keeps them in check. The capital market activity in recent times is much touted to spur economic growth leading to eventual development that would propel us to be an economic TIGER.

I HAVE A DREAM!

TPS Serena to Benefit from Tourism Upswing

It is clear that TPS Serena will cash in on the projected increase in number of tourists into the country. It is projected that the country’s annual tourism revenue will hit the Sh350 billion mark in the next 5 years from the current Sh56 billion. Kenya Wildlife Service (KWS) director Dr Julius Kipng’etich has also revealed that the number of tourists visiting the country will increase from the current 1.8 million to 5 million.

Influx of Tourists

The influx of tourists into the country has seen Tourism Promotion Services (TPS) Eastern Africa Limited, Serena, profits before tax for the half year ended June grow by 78.9% to Sh215 million. Turnover also grew by 14.7% to Sh16 million compared to Sh14 million during the same period last year. Earnings went up by 61% from Sh191 million the previous year to Sh309 million in the year ended December 2006 due to the integration of the firms unit into a single holding which saw the company bring together its Tanzania and Zanzibar units into a single business unit name TPS East Africa formerly TPS holdings. However, the Units in Rwanda, Uganda and Mozambique are not owned by the listed company.

TPS Shares

TPS (EA) is the only listed company in the tourism sector, has shown strong performance in the stock market and the continuous growth in the sector is expected to continue driving the company’s profits up. It is further expected that there will be an increase in the demand for the company shares after a slow demand during the first half of the year. The company’s share closed at a stable Sh77 on Friday having moved 9,800 shares, and the good results are expected to increase demand for the share among the investing public.

Serena Brand

AKFED's involvement in tourism development in South Asia and East Africa takes place under the aegis of Tourism Promotion Services (TPS), with companies incorporated in Kenya, Tanzania, Zanzibar, and Pakistan.Tourism Promotion Services operates under the “Serena” brand name and owns and manages 15 hotels in East Africa and Asia.

The Aga Khan Fund for Economic Development (AKFED)

This is an international development agency dedicated to promoting entrepreneurship and building economically sound enterprises in the developing world. AKFED focuses on building enterprises in parts of the world that lack sufficient foreign direct investment. It also makes bold but calculated investments in situations that are fragile and complex. AKFED operates as a network of affiliates with more than 90 separate project companies employing over 30,000 people, with annual revenues in excess of US$1.5 billion. The Fund is active in 16 countries in the developing world: Afghanistan, Bangladesh, Burkina Faso, the Democratic Republic of the Congo, India, Ivory Coast, Kenya, Kyrgyz Republic, Mali, Mozambique, Pakistan, Senegal, Syria, Tajikistan, Tanzania and Uganda. Read more

Fintrade's Verdict: Buy and hold for the long term

Corporate Cook-Books, How safe are we?

Corporate governance

As the year slowly draws to an end, several companies that are quoted at the Nairobi Stock Exchange are releasing their results as per the corporate governance requirement for listed corporations.The quarterly reports for most companies are streaming into the market as investors ravenously delve to unravel what they might portend but the big question here is whether these results are trully reflective of the goings-on at the company?. Are these reports often witfully prepared and portrayed in the ever attractive, juicy presentations correct and factual or is it that investors are just among thr growing number of victims of the emerging trend of what i would call corporate 'cooking of the books' as was witnessed in corporate America a few years ago.

Enron Scandal

As was the case in the Enron scandal, the company was hailed by many as the symbol of effective corporate management, a great company by any standards, until revelations of its major corporate fraud started streaming in and spreading like wild fire accross the world media houses. As journalists, investors , governments, anticorruption bodies and all stakeholders went on to delve into the nitty gritty of this issue, it emerged that Enronwas in collusion with one of the top five audit firms in the world (Now collapsed) Arthur Andersen to doctor its books. It was later discovered that many of Enron's recorded assets and profits were inflated, or even wholly fraudulent and nonexistent. The company was putting debts and losses into entities formed "offshore" that were not consolidated with (included in) the company's financial statements and, in addition, by the use of other sophisticated and arcane financial transactions between Enron and related companies formed to take unprofitable entities off the company's books.

Tip of the iceberg

These is the tip of the iceberg in what has emerged as the growing trend of cooking of the financial statements by most firms inorder to show a rossy picture that would leave most investors scrambling for the company's pie through purchase of the stocks in the world major equity markets. This leads to skyrocketing stock prices as demands hits the roof. Though these results are not reflective of the company fundamentals, many investors out to make quick bucks and get-rick-quick find themselves in this gold rush only to remain trapped with massive losses once the market corrects itself, others will even loose substantial portions of the hard earned cash.

Why quibble?

Though many would be quick to ask, why quibble over flimsy murky details whereas the company is 'doing well' in most fronts? As you may wish to find out ,these companies are teetering on the brink of bankruptcy and drawing demise and its time investors be aware and beware.

Loss of objectivity

In Kenya, with 53 listed companies at the bourse (and the number is bound to increase with the entrance of Kenya Re and latter in the year Safaricom), the Enron debacle is also emblematic of another problem that has become all too evident in the last few years. It is from the hallowed Wall Street's of the grand corporate deals in America to the emerging Kimathi Street of the Kenyan capital, Nairobi that corporate linchpins have lost their objectivity in preparing and releasing their quarterly reports.

Auditors and Analysts at these firms often face conflicting loyalties. They are often in a dilemma and can be put in the position of having to worry as much about whether a chief executive might find a report offensive as whether an investor might find it helpful. These auditors are in business and though they are expected to maintain integrity and high standards of professionalism, sometimes this is compromised and sacrificed in the altar of business contracts and continued gains.

Prickly questions

Therefore, Investors should ask prickly questions and probe such juicy financial reports before making any investments decisions as they are often skillfully and strategically crafted to paint a well-to-do picture.

Be aware and Beware!

NBK out of the Woods at Last!

No longer at the edge

The results released yersterday by the National Bank of Kenya board/management show that the company has reported a 35% increase in pre-tax profit to Sh617 million for the half year ended June 30, a proof that the repayment of a Sh2o billion debt by the Government is bearing fruits and has helped to pull the company from the edge.

Bonds issued

The debt repayment by the government was effected after it issued bonds worth Sh20 billion as a repayment of Government guaranteed debts advanced by the bank to state corporations. The government has further promised to pay the remaining Sh1 billion by March next year thus clearing its bad debt portfolio with the bank and hopefully enabling the company to significantly reduce its bad debts provision which had significantly reduced its profitability margins over the years.
It was evident that the bank’s investments in government securities shot up by a whooping 743 % from Sh2.8 billion to Sh23.6 billion (The 20B increase in the balance sheet) reflects the loans that were converted into government bonds.

National Bank of Kenya has reported an after tax profit of Ksh.432million compared to Ksh.320 million during the same period last year. This translates into an increase of 35% over the same period last year.

The company's financials summary is as presented below:
1.Interest income on loans & advances:
This reduced from Ksh.2.3billion to Ksh.1.8billion.

2.Interest expense:

This reduced from Ksh.439million to Ksh.375million due to the general decline in interest rates.
3.Provision for bad & doubtful debts:

This reduced from Ksh.1billion to Ksh.350million marking the end of the bank‘s provisioning for all historical bad debts.

4.Commission income:

This improved from Ksh.600million to Ksh.725million.

5.Total deposits:

Deposits increased from Ksh.27billion to Ksh.33billion.
6.Gross Non Performing Loan’s portfolio:

The level not fully provided for and therefore to be managed in NBK balance sheet is Ksh.5.5billion against which a total provision of Ksh.4.3billion is held leaving a net of Ksh.1.2billion. This is covered three times over by securities hence the zero exposure shown.Fully provided for NPL’s which therefore cannot negatively affect operations are being managed by the bank separately outside its balance sheet.
7. Core capital:

This stands at Ksh.3.6billion against the current statutory requirement Ksh.250million and the extended limit of Ksh.1billion. Following the restructuring of the GOK debt (20billion) and full provision of NPL’s, the asset quality of the bank as measured against the core capital has improved significantly.

New Branches:

New branches to be opened are at Moi’s Bridge and at Egerton University.

ATM network:

This continues to expand after the partnership with PESAPOINT last year that saw NBK customers access an additional 110 ATMs. The bank will soon double the existing ATMs in the branch network.
Asset Financing:
The bank recently introduced asset finance and unsecured business loans to meet the changing needs of our customers. Our existing products are currently being reviewed and repackaged with a view to making them up to date with the market dynamics and the ever evolving customer needs.
Mortgage Financing:

The company is working on a mortgage product which is set to be launched soon. The bank will continue to introduce new products that provide solutions to the financial needs of our customers and Kenyans in general.

From the foregoing, the bank is likely to have come out of the woods at last...

Right Time to buy ICDCI

After looking through all the companies listed at the bourse, i though it would be wise to share with you this verdict on the ICDCI counter listed in the financials and investment sector of the Nairobi Stock Exchange.
Facts:
1. Earnings: ICDCI invest in companies that are expected to shows significant increase in earnings.
2. Strategic: The company in its strategy identifies companies that are strategic and require substantial cpaital outlays.
3. Partnerships: In its investment strategy, the company normally partners with like minded companies with expertise and essential business skills. This enables the company get the requisite board advice as well as avoid 100% risk in its investments portfolio that would have far reaching implications in the long run if deals go sour.
Prudence: The company undertake due diligence and stick to prudential allocation of assets to continuously create and enhance shareholders value.
Passion: The company has a passion for excellence and integrity through proactively managing a well diversified portfolio.

Shareholders % Shareholding
Government of Kenya (ICDC) 24%
Institutions 27%
Public 49%
Associated Companies Portfolio (%) Sector
1. Nairobi Bottlers 27% Beverage
2. Kisii Bottlers 17% Beverage
2. Rift Valley Bottlers 47% Beverage
3. Mount Kenya Bottlers 28% Beverage
4. Kenya Wines Holdings Beverage
5. Kenya National properties Property
6. General Motors 17.8% Industrial-Automotive
7. Eveready Batteries EA Ltd Industrial
8. Mather and Platt (K) Ltd 35% Industrial
9. AON Minet Insurance Brokers Financial and Services
10. UAP Provincial Insurance 24% Financial and Services
11. NAS Airport Services Services
12. Wildlife Works Industria- Textile
13. Uchumi Supermarkets Retail
14. Public Equiy Investments
15. Fixed Income Securities
16. Rift valley railways

Portfolio Percentage
1. Beverage 42%
2. Property 5%
3. Industrial 16%
4. Financial/Services 21%
5. Public Equity
6. Fixed Income Securities 5%
7. Transport

Note:
ICDCI is keen on expanding its private equity portfolio and is interested in companies not listed but have a robust business model in whatever sector they operate so as to provide equity capital and prefer companies looking to expand.
Verdict:
From the foregoing and the price movements at the NSE after the split which shows a 12 months high of Kshs80 and an average price of Kshs30 the price is likely to shoot up come the new calendar year.

Just invest and watch this space for more...

From the Thinktanks

Today i read through a couple of blogs just to get a feel of whats happening and these are some of the notable works i found in my clicks and close.

-Kengen vouching for night shifts among industrial companies so as to safe on costs as this will be priced differently as an inducement. Further, this will help the country safe on alot of electricity costs that would have gone towards the building of new power plants accross the country. Read more

-The Ato Z of the prospectus as analyzed by the ever critical bankele provided with the candour it always has.

-Investing ideas for 2007 as provided by smart business magazine that will blow your mind (hopefully) and stir you to look beyond the here and now.

-If you been running up and about looking for the Kenya IPO propectus you can access it here. Read through and make informed investments decisions. Knowledge is power. You know that er...
-The Central Bank has sounded an alarm bell over the increase in counterfeit notes that have continued to dent the image and the credibility of the country's payment and settlement system.

Just a thought:
Could the predictions about the Earthquake that had earlier been delivered by a one Pastor Awori be coming true. The guy had been behind the scenes only to appear with news of doom and called for repentance.

Speculators Crave for Mumias again

The week saw speculators running to buy mumias shares in the bid to make a quick kill after several months of depressed activity and price reduction.

Speculations:There are also speculations that:

1. Acquisitions:The miller is the front runner in the acquisition/management of the other dormant competitor (Miwani Sugar Company) which would add to its portfolio and subsequently future returns from the company.

2. Electricity generation:The company has been pursuing an extensive expansion programme that saw it make inroads into electricity co-generation that will enable it save on costs and enhance revenue. The project cost was deemed to be around $50M.

3. Bonus:There are also talks of an impending bonus issuem (2:1) by the company though this facts are yet to be confirmed officially.

4. Contracts:The company has also signed a 10-year agreement with the Japan Finance Corporation(JFC) to sell carbon credits from its power generation activities with expectations to displace about 100,000 tonnes of carbon which would be traded in a system similar to trading of securities or commodities.

5.TARDA project:Mumias also eyes to put up a new sugar mill within the Tana River delta. In a recently signed joint venture with Tana River Development Authority (Tarda), the company envisages to put up a plant with capacity to crush 6,000 tonnes of cane a day within the delta even though the venture is likely to include co-generation and ethanol production.

Price rally: The above fundamentals support the latest surge that has seen miller’s stock price rise steadily in the past three weeks.Last week, the Mumias stock clocked a high of Sh32.30 after nearly six months of poor performance that saw it plummet from about Sh54 in November last year to an average Sh25. At the close of trading yesterday the stock was trading at an average price of Sh29.75.

COMESA FTA:
However, the Comesa Free Trade Area (FTA) will expire in March next year and as such is expected to negatively affect the performance of the stock.

Court Allows Kenya Re IPO to Continue

The court yesterday allowed the Kenya Re IPO to continue by throwing out a court suit filed by a one Mr. Apollo Mburu Gichuhi on behalf of the collapsed United Insurance policyholders.
Prospectus:
The prospectus was released to the public though there were concerns that the vendor did not make public the forensic audit report that tried to delve into the corruptions allegations at the company. The prospectus said that potential investors can pick up upto 16 documents for inspection from the company head office though many feared that the audit report might not be among them.

IPO Debut:
The Kenya Re IPO, which debuted in the primary market yesterday, offers investors a chance to buy a stake in the company at a price of Sh9.50 per share. The offer draws to a close on July 31, with trading at the Nairobi Stock Exchange set to commence on August 27. The IPO involves the sale of 240 million shares valued at Sh2.3 billion to the public which is equivalent to 40% of the company.
The company assets are worth 12.8B. The company in the last financial year made a pre-tax profit of Sh700 million on a revenue base of more than Sh3 billion.

Allocations:
Public-47%
Insurance Companies-20%
Qualified Institutional Investors-30%
Kenya Re Employees-3%
Delivery Vs Payment:
The IPO offers institutional investors a chance to pay for shares only allocated to them thus reducing on the refund payments as other investors wil be left to grapple with underallcoation and chasing refund payments. Why this preference???

KCB Expansion Plan

35 New Branches:
Kenya Commercial Bank will open 35 New branches in Kenya over the next 12 months according to Susan Mudhune the group chairperson. This is in line with their elaborate expansion plan that will also see the bank open a subsidiary in Kampala after its successful expansion to Southern Sudan and Tanzania. The company also intends to increase its branches in Tanzania and Southern Sudan.
ATMs:
The bank will also install 35 new Automated Teller Machines (ATMs) to cater for the expanding customer base.
Core Banking System:
The bank would also implement the new core banking system-T24 from Temeons- in order to provide technology-driven products and enhance efficiency.
Dividends:
The bank yesterday paid KShs 314.1 million to the goverment as dividend payment for the year ended December 2006. The Government is the bank’s majority shareholder possessing 26.2 per cent.
Turnaround:
The company being the largest indigenous bank has come from a loss making entity to a pre-tax profit of Ksh 3.2 Billion in 2006 and its expansion plans attest to this fact and confirming that Banks's prospects in the future are good.