NSE;Stocks to Watch in 2009

(The views expressed herein individual evaluations and should not be taken to mean a strong buy advisory but an indication of the likely movers and shakers of 2009)

As the year progresses several investors at the NSE are lost for words as their hard earned investments go down the drain however this is my take for 2009;

Likely Movers
Accesskenya
The enactment of the (in)famous media bill has opened a window of opportunity for investments by this company and indications are that Accesskenya is likely to launch a portal fashioned in the way of ebay to compete with others like mamamikes and find. This new window of orpotunity is likely to enhance the synergetic component and thrust the company to a higher level of profitability.
AccessKenya has been one of few star stocks at the NSE since its listing in mid last year, and for the better part of 2008.The information technology company had its share price pegged at Sh32 until May 2008, a valuation that was way above its IPO price of Sh10.Many will be watching as it flexes its muscle.

East African Breweries (EABL)
Day in day out the company continues to churn out large quantities of the famous 'imbibed froth'-beer that continues to attract new customers by the day. Despite the addition of sin tax by the Kenya Revenue Authority continually leading to substantial increase in the prices of this commodity, users continue to throng entertainment places to down the same and this will not stop any day soon.This only serves to enrich the company Earnings Before Interest and Tax (EBIT) and eventually net profitability that will affect share prices at the bourse.

Financial results released in September 2008 indicated that the giant brewer returned a pre-tax profit of Sh12.3 billion compared to Sh10.6 billion in 2007 and things are bound to get better.
EABL has maintained one of the highest dividend payout ratios among the NSE listed firms.The company will be doling out to investors an estimated total of Sh6.4 billion in dividends this year equivalent to a payout of Sh8.05 per share- representing a 10 per cent growth over last year.EABL is also turning to fully service the beverage market with the introduction of non- alcoholic drink.


CFC Stanbic
CFC-Stanbic Bank has set off to revamp its retail banking section over the next three years. This will see the bank, which is mainly considered to provide banking and financial services large corporate institutions, parastatals, non-governmental organizations, diplomatic missions and multi-nationals, open up a number of new retail branches across Kenya. In the last six month the bank has opened four new branches and its planning to open five more by the end of this year, bringing its outlets to 30 with over 40,000 clientele.
The expansion plan after the takeover/merger is likely to be well though out and planned to bring greater returns making it a good stock.

Equity Bank
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.Their expansion programme is growing and expectations are that its performance come the next quarter will still be sterling and hence a darling for most stock pickers.


Centum Investments
Centum investments has announced a 5 years strategic plans (2009-20013) that will help it raise additional capital and take advantage of the investment opportunities created by the global financial crisis. Though the amount and financial option was not detailed, the firm seeks to increase its foothold in sub-Sahara Africa has private foreign investors divest from the region. centum’s asset value has grown from Ksh.3 billion in 2004 to Ksh.8.4 billion at the end of last year with equity portfolio accounting for approximately Ksh.7.9 billion.
As the next quarter results draw closer many are watching for any surprised herein that might significantly transform its share price after the departure of its CEO earlier.

Despite Raging Bear Run at NSE, All is not Lost

As the stock market reels under the global financial crisis, contrasting with the bull run realized in early 2007, and lack of investor confidence, a group of investors are feeling most of the heat with their stocks plunging below issue prices. Never mind the fact that some of the victim companies surpass their industry average performance and experts forecasting a bright outlook.January analysts report card gives NSE an empty return.

New IPOs
As most analysts expect more Initial Public Offers of most companies this year, Investment advisers, brokers and investors alike might be taking a back seat before venturing to take up the Offers for sale coming their way.Kenya Pipeline is set to be made public(read an analysis by Bankelele) In fact the Government offered papers are now more secure and give better returns on Investments and this might have informed the issuance of the Infrastructure Bond by the Government mid this week.
Kenya has budgeted over Sh51 billion in infrastructure bonds comprising Sh33 billion and Sh18 billion through a debut international sovereign bond and long term domestic bonds respectively to finance rehabilitation and expansion of the road network.At the onset Treasury has issued a Sh18.5 billion infrastructure bond.Potential investors expected to take up this issue include commercial banks, insurance firms, pension funds and private firms.

Market Performance
Overall, all investors at the Nairobi Stock Exchange have lost considerably if the market performance gauge —the NSE 20-Share Index— and market capitalisation are anything to go by.The index has been oscillating around the 3100 and 3500 mark and the psychological 3000 mark might surpassed what with the low investor confidence, considerable erosion of the investments in most counters and low trade turnovers. The bear run might persist butr not for long as it is a cycle like in any other market of the world.

20 Share Index and NASI
In close to 3 years, the index has slid from a high of 6161 points recorded in February 2007,opening levels of 5016 points for 2008 and peak of 5445.66, on June 9, and the NASI has declined by 41.13 per cent from a peak of 116.243 to 68.52 in the same period.

Global Financial Crisis
The global financial crisis has exacerbated the situation as foreign investors, who were expected to cushion the stock against any panic sale, have joined the retail investors in offloading the stock to consolidate their investments and probably explore other possible investments in other emerging market that promise to retunr good earnings on investments.

Strong Fundamentals
The above notwithstanding, the Kenyan financial market is still growing stronger by the day and though the effects of contagion might be felt, it is not all that bleak a future after all.
A company like Safaricom that entered the market with alot of expectations amongst the investing public remains fundamentally strong,though its shares have slid below the Sh5 offer price since they debuted at the NSE on June 9 this year, and oscillating around sh 3 by the end of January 2009.

Most Profitable Company
Safaricom is currently ranking as the most profitable listed company in Eastern Africa, whose only undoing has been the huge supply of the 40 billion listed shares into a market that previously had a mere 15 billion shares which brings in a case of poor structuring by the investment advisors for the IPO or the greed to raise so much money from the public that would stop at nothing to acquire the company.

Profitability
Safaricom saw its pre-tax profit rise to Sh8.9 billion for the six months ending September 30 last year, up from Sh8.7 billion recorded over similar period in 2007, is strong since it controls about 80 per cent of the market and is operating in a growing industry—Information and Communication Technology.

Regional Comparison
Compared to its regional counterparts, the NSE has registered the biggest loss so far since the beginning of the year.

The Allure of NSE Growth Despite Electioneering Politics

20-share Index
It is noteworhty that the Nairobi Stock Exchange (NSE) came from an earlier 10% plunge this year to exploit one of its most prosperous years of the decade with the 20-Share Index, rising to above 6,000 points at one point.The phenomenal growth of the 20-share index, a reflection of the investors' growing wealth, is expected to continue into the New Year as the capital and financial markets shed fears of political uncertainty, expected to end with the December 27 presidential polls.

New Listings
This year's stock market trade was continually dominated by the events of 2006, which saw the successful listing of the Kenya Electricity Generating Company (KENGEN). This warmed the once dormant market and brought in 250,000 first-time investors.The NSE owes its milestones this year to the increased market confidence, exemplified by the coming to the market of family-owned businesses. The listing of the Scangroup, a multiparty marketing, advertising and research firm and Access Kenya, enabled the NSE to diversify its source of income and grow its market capitalization to new heights, with the later becoming the first ICT company on the bourse.

Panic Selling
The market took a mid-year beating from political activity this year with the 20-Share Index plunging by 9.24% due to panic selling of shares, mainly by the first-time investors who did not understand the meaning of market correctional activities.The June market plunge initially seemed to be a bad precedent but it came as a blessing in disguise as foreign fund managers, who had exited the market in the mid-1990s, and had been watching the market from the sidelines, came back rushing to buy the shares.

Collapsed Stock Broker Replaced
Investors panicked after the market regulator took action against Francis and Thuo Partners, one of the oldest stockbrokers, which was found to violate trading rules by using investors' funds without consent.Mr. Francis Thuo was replaced by Renaissance Capital, which purchased the seat at Ksh420 million. The money was used to partly pay off investors who had lost money with the collapse of the rogue investment firm. The NSE paid up over Ksh.200 million.

Investor Numbers
The number of investors at the NSE rose to historical levels this year to hit 750,000 compared to the 80,000 investors who traded at the NSE in 2003. The NSE, however, estimates that only 100,000 shareholders trade actively. NSE still faces stiff challenges, especially on investor education, a portfolio which falls with the market regulator, the Capital Markets Authority (CMA). The NSE reached its decision to sell the vacant seat to the Russia-registered Renaissance Capital in a bid to deepen the capital market in Kenya, by bringing in foreign capital.

Renaissance Capital and Morgan Stanley
RenCap ecured a stockbrokerage license from the CMA, allowing it to enter the growing market in Kenya, while one of the world's greatest investment banks, Morgan Stanley, also gained entry into the Kenyan market, thanks to the pending Safaricom listing.
Morgan Stanley partnered with Dyer and Blair Investment Bank to win the coveted bid for transaction advisor for the Safaricom Initial Public Offer (IPO), which is expected to be the next big bang in Kenya's capital market.The mega deals which dominated the NSE in 2006 trickled over into 2007, constantly putting bourse on a steady growth path and shaping the market activity.

Kenya Reinsurance
State re-insurer, Kenya Reinsurance Corporation, statutorily allowed a 30% share in any insurance deal in the market, also came to the market this year, bringing on board a hoard of fresh investors, both local and foreign, who came to profit from the June meltdown.

Market Capitalization
This year, market capitalization increased to historical levels, from Ksh112.5 billion in 2002 to Ksh732 billion in mid 2007 before peaking at close to Ksh800 billion in December.
The 20-Share Index has also stabilized at an average of 5,500 although it breached the 6,000 mark within the year before taking a deep plunge due to political volatility. The growth of the share index from 1, 364.85 in 2002. The index stood at 5,332.03 as of 11 Dec.
The share index shed nearly 600 points in October this year, closing the second week of the month at 5005.89 points compared to a high of 5611 points in early September.

Scangroup, Equity, PTA and Barclays
The listing of 69 million Scangroup shares, the Equity Bank placement in the market's main investment segment, the listing of the PTA Ksh1 billion bond, the listing of Barclay's three-year corporate bond of Ksh5 billion, played as major movers of business.

Banks Profitability
Stock market analysts say the first six months of the year was dictated by the high after tax profits posted by the listed commercial banks increased.

Parting Shot
The new year portends new growth heights for the NSE as foreign investors flock into the Kenyan market after a decade of shying away. This is a clear indication that Kenya as an emerging market is going places.

Don't be left out!!!!

NSE Amidst Electioneering Frenzy

Kenya is one of the few countries in the world that has the uncanny knack of being gripped by election fever from one election through to the next national polls due to politicking amogst its leaders.

Big Investors
Traditionally the big-time investors take a wait-and-see stance during an election year and the result is sluggish economic activity, which could result in slower GDP growth. On the Nairobi Stock Exchange, which is a barometer of economic performance in the country, share prices nosedive.

Political Uncertainty
Kenya’s equity markets could face their hardest test in four years amid heightened volatility caused by political uncertainty ahead of the general election. Massive offloading of shares by individual investors in anticipation of the Safaricom Initial Public Offering could also spark market fluctuations and depress market activity.more
Already, the market is showing signs of a slow down with the benchmark

NSE Index
NSE 20Share index that tracks the performance of the 20 select listed companies, threatening to dip below the 5000 point mark.In the last one month, the NSE 20 Share index has shed an estimated 600 points, closing last week’s session at 5005.89 points compared to a high of 5611 points in early September.

Election Frenzy
The looming general election in Kenya cannot escape investors’ minds. As much as they wish to celebrate a new beginning and the anticipated Safaricom IPO, at the back of every investors mind is a dark cloud of uncertainty as to what the election frenzy will bring to the bourse.

Investor Education and Protection Key Amidst NSE Growth

Growth: The Nairobi Stock Exchange has grown by leaps and bounds in market capitalization and number of listed firms thanks to an increased Offers For Sale by private and public companies including Kengen, Scangroup, Eveready, AccessKenya, Kenya Re and Mumias Secondary offer. Alongside these Initial Public Offerings (IPOs) there have been increased rights issue by companies starting with the suspended Uchumi others are KCB, Diamond trust, Housing Finance, Olympia capital, NIC Bank amongst others. The activity at the bond market has also realized improved performance over the last few years and expectations are high for this emerging market with a focus by the Wall Street leading investment banks.

Heightened Activity: In the past one and half years, activity at the stock market has risen tremendously, drawing many new investors and the number of CDS accounts rising to over 600,000 occassioned by by heightened interest in IPOs during the financial year 2006/07 and this is expected to rise meteoriclly with expected increase in listings during the FY 2007/08.

Limited Knowledge: However, many Investors have limited knowledge on how the stock market works. Other than being attracted by the possibility of quick gains, the investors are sometimes shocked to learn that the prices also go down.
Most investors do not have much knowledge of the factors behind share price formation. But stockbrokers, fund managers or stock market analysts have more superior information on what goes on with share prices. They often have the technical know how on how to undertake technical and fundamental analysis. Further, they have the proximity to corporate decision makers and the shakers and movers of the Kenyan investments cycles as well as the Board of Directors and management of most listed firms who can confide fundamental information to guide their investment endeavors.

These information ranges from major announcements, mergers and acquisitions, profitability, rights issues, bonuses, dividends, splits, new products, new business deals, management changes and much more.

Standard and Poors Rating: From 2002 to 2007, the main NSE index rose 787% in dollar terms, according to Standard & Poor's, the investment research firm, making it one of the world's best-performing markets.

Anecdotes Doing Rounds: In the year 2006/07, stories of overnight wealth creation have created a huge frenzy for shares from people who have never invested in the stock market before. When KenGen, the state's biggest electricity company, listed its shares last year, there were queues at brokerages all over the country. Local media reported how small-scale farmers were selling their cattle to buy the shares. Banks suddenly offered "share loans" to people who had been considered unworthy of credit. This even extended to other subsequent IPos although with the market correction witnessed in early 2007 many have held back until prospects look rossy again.

Kengen IPO: The KenGen IPO was more than 3 times oversubscribed, and 70,000 people were allocated shares. The price quadrupled (Rose from 11.90 to everage at 40) on the first day of trading. Demand for a stake in last year's other big listings - including Eveready, the battery maker, and Scagroup, an advertising company - also dwarfed supply. By the end of the year, 15bn shillings of new money had poured into the market. This year AccessKenya was also oversubsribed as well as the state monopoly reinsurer-Kenya Re that realized 334% oversubscription. This implies that investors will get as low as 200 shares. However Qualified Institutional investors were favored by the allocations and got substantial portions.

NSE 20 share Index: In 2006, the NSE 20 Share Index had risen 60%. The NSE's resurgence began towards the end 2002 after emerging from a nine-year bear market. From a low of 1,000 points, it more than doubled in President Mwai Kibaki's first year in power bursting through the 6000 mark for the first time. This can be attributed to the following:

-A sound macroeconomic variables-Interest Rates, Inflation rates, exchange Rate.

-Economic growth figures of around 6% with positive future prospects for 2007/08.

-Tax collection has nearly doubled with plans to increase government revenue from taxes with the installation of Tax registers and stringent tax rules which are paying off.

-Vast sums of money have poured in from the diaspora with heightened marketing by government, NSE, real estate businesses and other ventures.
-Increased online blogs devoted to stock market investments and the investing in the emerging markets of Africa. This has created interests amongst foreign investors targeting emerging markets.

Information Asymmetry: The company insiders including brokers, Investment banks, fund managers have more information unlike any other average Kenyan stocks investor on the street and will always capitalize on this to make informed decisions. When the degree of information asymmetry is high, then there is more uninformed trading. This leads to price volatility that is unrelated to fundamental value of the listed company. But in an efficient market, no market player (investor, stockbroker or dealer) has an opportunity for making a return on a share that is greater than a fair return for the risk associated with it. I think Kenya however cannot be described as an efficient market.

Investor Education: The above neccessitates the development of comprehensive investor education programs by the NSE and the Capital Markets Authority (CMA) in their bid to enhance the growth of the capital markets, encourage most listings as well as attract more first time investors. It is noteworthy that there are hundreds of analysts and thousands of traders receiving new information on companies through electronic and print media and as such might not make any meaningful decisions within such a short time.

However, in emerging markets, policy makers and regulatory agencies should take up the case on behalf of investors who may not be aware of their entitlements. The quality of information is important for market liquidity. Quality accounting disclosures, for instance, are considered means of reducing information asymmetries and increasing the ability of equity traders to effectively execute stock trades when needed and at reasonable costs.

Investor Protection: In trying to bridge information gap, the International Organisation of Securities Commissions has championed investor protection as one of three core objectives. Investor protection has a positive effect on the efficiency of corporate governance, breadth and depth of capital markets and economic growth.

Further, there is need for proper and effective investor education programs being in place to woo many to stocks market investments that have been the preserve of those in the financial field and elites.

Securities and Exchange Commission: The SEC's Office of Investor Education and Advocacy in the US provides a variety of services to address the problems and questions you may face as an investor as well as help the to invest wisely and avoid fraud. This is a neccessity in our economy that is emerging from corruption quackmire and economic stagnation phase towards an era of heightened growth, equity investments and unparalleled stock market activity.

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)