This fortnight I stormed the Pearl of Africa in search of value and I believe a gem has been unearthed. I will look at this gem later. First the surprises.
Well, well,well, what do you you know?? My most well kept secret on the Uganda Securities Exchange, Uganda Clays Limited has set up a website(www.ugandaclays.co.ug). Isn't that promising?????? I know what you are thinking! ......so what???? We who have always believed that knowledge is power to the value investor have reason to believe that this represents a major development in terms of the company's investor services. The only problem at the moment is the fact that while the website commendably showcases the company's products, there is no section for INVESTORS YET. As a result, we are unable to review its performance over the years. I'm sure management will say that this is what the website was meant to do. I beg to differ in the current business environment where stakeholders directly affect the fortunes of the business. But hey, I am willing to live with this one little step taken at a time. Hopefully, this will be looked into.
Interesting news from BOBU's AGM/annual report. Shareholders have been asked to consider and approve the splitting of shares, which currently have a face value of UGX100 per share to UGX10 per share during the AGM on 2 June 2008. This might do wonders for the share with respect to affordability. But given the current shareholding structure, I highly doubt that this will do much to improve the liquidity of the share. As I blog, it is trading at UGX4,000. By the time the split is put into effect, moreover the share may have doubled, for what its worth.
On a serious note though, why does BOBU not have an investors website if only to avail the relevant shareholder information to shareholders for just a couple of daysURGHHHHHHHHH.
Companies on the USE should pick a leaf from Stanbic Bank Uganda which has availed the relevant information (Check out www.stanbicbank.co.ug). Thumbs up for Stanbic Bank Uganda for another first in Uganda after the distribution of annual reports to shareholders by email. I reassert that Investor services are key to a company's image. I will demonstrate this in future blogs.
Well, now we know that Safaricom is for tomorrow with refunds of up to Ksh129BN as per Business Daily Africa. Isn't that a downer for retail investors???? Given that the bulk of this will ultimately end up on the Nairobi Stock Exchange (NSE), this has got me thinking about how this will impact the current shares. One thing is for sure, as I mentioned earlier blog, the level of speculation and technicians on the NSE, would suggest that there will be high demand for the low priced shares (low price being in absolute terms). As a result, shares like Mumias Sugar, Centum, and (for investors with some gall, agriculture stocks) will see some upward movements I believe.
NOW 4 THE MAIN MENU
We now know that Crane Bank's IPO is due in September 2008. Looking through their financial statements, its interesting to contrast them with Bank of Baroda (the already listed bank). Now if you thought BOBU was a value investment, take a look at Crane Bank Limited's accounts for the year ended 31 December 2007. The bank's report card paints a really rosy picture (going by the numbers).
Profit Before Tax increased 62.6% from UGX15.4BN to UGX25BN in 2007.
Profit After Tax increased from UGX12.5BN to UGX18.8BN.
Dividend of UGX4BN were declared
Loan loss provisions had a marginal increase from UGX1.7BN to UGX1.9BN (6.98%)
The increase in loan loss provisions did not worry me however given that the bank's advances also increased by a whopping 22% from UGX118BN to UGX144BN.
Customer deposits also increased by 68% to UGX290BN from UGX172BN.
The bank currently has issued and fully paid capital of 34BN shares out of an authorised capital of 50BN shares. The par value is UGX1.
Now for other tidbits worth mentioning;
The bank's auditors are Deloitte though 2007 was their last year. (No disrespect but big 4 audit firms are a plus for me regardless of how shoddy their work may be occasionally).
Managament and Directors have been with the bank for sometime (3 to 4 years at least). With Sudhir Ruparelia as vice chairman. I personally know them to be hands on especially when it comes to customer service.
One minor glitch however is the goodwill carried on the balance sheet which presumably arose from the acquisition of Stanhope Finance Company Limited in 2006. That the directors still consider this worth UGX690M unimpaired (as in 2006) is something I would have wanted explanation for. I still do not believe this would be unchanged. But hey, if the auditors are happy...........................
SO the big question is whether it is a gem
From the above, the key numbers are as follows:
Earnings (PAT) - UGX18,754,195,000
Shares - 34,000,000,000
EPS - 0.53
I would estimate the historical net asset value per share (NAV) based on its December 2007 balance sheet of the bank to fall within the range of UGX5 to UGX7 give or take.
Note ( I am not entirely convinced by the goodwill as explained above hence I have adjusted the PAT/Earnings for it)
Doing the maths, the PE ratio is not bad at all. Not bad at all and I would say this is a gem. So all we have to do is wait.
Next week we'll raid one more market in SubSaharan Africa in search of value....
DISCLAIMER: This blog does not constitute investment advice. Though utmost care has been taken while preparing this blog, I do not accept liability for investment decisions made as a result of this blog.
Thursday 29 May 2008
Thursday 15 May 2008
The search for value continues further south
We ultimately got done with the IPO of the most profitable company in East Africa (Safaricom Ltd offered at Kshs5 per share). As the dust settles, it appears that the institutional investors will have to part with Kshs5.5 as the book building price advised by Morgan Stanley- the book runner.
A few of my colleagues have decried the 20% premium being paid by the institutional holders nothing more than a give away of Kenya's pearl by the government. The argument is that since the local investors oversubscribed their allocation by between 250% - 350%, why not sell the company to them?????Yeah right!!!!If only patriotism was the catalyst for the growth of our nascent capital markets.
My take on this is that the price being offered to institutional holders will play a crucial role in maintaining constant/regular demand for the shares in the post IPO period. If only folks could understand that speculation does not a market create. As a staunch believer in fundamentals, I believe this is good for the market since we will ultimately see the value of the share as a result off this demand. Watch this space for the allocation results due on 31 May or thereabouts.
Out goes Safaricom, in comes an even bigger fish to fry. Celtel Zambia Plc is ours for the taking. The offer opened on 30 April 2008 and closes on 20 May 2008 with the anticipated listing date/commencement of trading on the Lusaka Stock Exchange slated for 11 June 2008. An extract from the LUSE website reads as follows: 'Celtel Zambia shall list 5,200,000,000 ordinary shares of ZMK0.20 par value on the LuSE, which will be deposited in the Central Shares Depository of the LuSE. Celtel International B. V., Celtel Zambia's parent Company, has provided an offer for sale of 1,040,000,000 ordinary shares in Celtel Zambia Plc at an offer price per share to be communicated to the public before the offer opens and all the necessary regulatory approvals have been granted. This represents 20% of the share capital in Celtel Zambia. The shares will be offered to the Zambian public, Zambian Institutional Investors, employees of Celtel Zambia and International Institutional Investors.)
According the press reports, it is the biggest telecoms company in Zambia, let alone Sub Saharan Africa (excluding South Africa). The company's EPS 31/12/2007 was 40Kwacha. The offer price of K640 is not so taxing given the company's results. The only problem is that the offer is restricted to Zambians and institutional holders. moreover the prospectus omits some key information such how oversubscription will be dealt with. For institutional holders, this is a buy of course since trend analysis seem to suggest that one can not go wrong with IPOs in sub Saharan Africa.
Elsewhere, The Nairobi bourse has been undergoing a decline as investor activity settles in anticipation of the Safaricom refunds. One would rationally expect the activity to pick up once these refunds are done with. As a result, investment attractive opportunities are beginning to peek at investors with a keen eye for value. An good example is Kenya Airways, whose fortunes, let's face it, have not been so good. The national carrier was first hit by the rising price of fuel and related cost and then even harder by the post election violence that plagued Kenya. However regardless of all this, one would expect that the company's low PE of about 6 coupled with its relatively OK dividend yield of 3% would be an indicator of value. These two reasons, coupled with the fact that the tourism industry is slowly getting rebounding, clearly indicate a good buying opportunity given that this share is currently trading at a paltry Kshs47 today. Surely the earnings declines will not go on for eternity.
One more opportunity is the National Bank of Kenya. In a finance sector where the average PE ratio is in the region of 20, this bank is still languishing in the 7s and 8s. Some analysts have tried to beat down this stock because the bank hasn't been paying dividends and has also been loss making. A closer look at the fundamentals of the bank coupled with the fact that the losses have now been overturned and the non performing assets (which were due from GOVT) have now been swapped for treasury bills/bonds, has opened a cash inflow for the bank. I would expect the bank to turn the page this year or next and therefore would consider this an opportunity.
One misconception I've noticed is that local investors on the Nairobi bourse seem to believe that rights issues represent an investment opportunity and they seem to throw all fundamentals out through the window.
Tanzania has announced the next IPO for National Microfinance Bank Ltd but unfortunately, given the foreign exchange restrictions currently prevalent in the country at the moment, we can't do so much in search of Value over there.
Neighboring Uganda though has an IPO upcoming for Crane Bank limited, which has been consistently churning out profits over the years. Having interacted with the bank's management, I know that they are risk conscious and the IPO provides a priceless opportunity to break into frontier markets for those investors/fund managers looking to diversify their portfolios further. After all, we all learnt the relationship between development markets and frontier markets. Nil correlation.
Additionally, the Uganda Clays rights issue was oversubscribed. We had expected the share price to drop from the then Ushs6,ooo to about Ushs 3,500-Ushs 4,000 but this did not happen. Apparently the price continued skyrocketing even doubling on the announcement of results and whopping Ushs 140 dividend per share. My lesson from this share's performance is therefore not to underestimate the power of monopoly, the absence of substitutes, the high barriers to entry into the company's market and the low bargaining power of buyers............jeez, it is Micheal Porter's competitive strategy put into practice before my own eyes. Moreover subsequent to this, the company, whose management have traditionally been quite conservative, finally set up a WEBSITE....www.ugandaclays.co.ug
As a result of the above lesson, I am amending my investment strategy to attach different weights to the above conditions/market forces................Talk about FUNDAMENTALS
DISCLAIMER: This blog does not constitute investment advice. Though utmost care has been taken while preparing this blog, I do not accept liability for investment decisions made as a result of this blog.
A few of my colleagues have decried the 20% premium being paid by the institutional holders nothing more than a give away of Kenya's pearl by the government. The argument is that since the local investors oversubscribed their allocation by between 250% - 350%, why not sell the company to them?????Yeah right!!!!If only patriotism was the catalyst for the growth of our nascent capital markets.
My take on this is that the price being offered to institutional holders will play a crucial role in maintaining constant/regular demand for the shares in the post IPO period. If only folks could understand that speculation does not a market create. As a staunch believer in fundamentals, I believe this is good for the market since we will ultimately see the value of the share as a result off this demand. Watch this space for the allocation results due on 31 May or thereabouts.
Out goes Safaricom, in comes an even bigger fish to fry. Celtel Zambia Plc is ours for the taking. The offer opened on 30 April 2008 and closes on 20 May 2008 with the anticipated listing date/commencement of trading on the Lusaka Stock Exchange slated for 11 June 2008. An extract from the LUSE website reads as follows: 'Celtel Zambia shall list 5,200,000,000 ordinary shares of ZMK0.20 par value on the LuSE, which will be deposited in the Central Shares Depository of the LuSE. Celtel International B. V., Celtel Zambia's parent Company, has provided an offer for sale of 1,040,000,000 ordinary shares in Celtel Zambia Plc at an offer price per share to be communicated to the public before the offer opens and all the necessary regulatory approvals have been granted. This represents 20% of the share capital in Celtel Zambia. The shares will be offered to the Zambian public, Zambian Institutional Investors, employees of Celtel Zambia and International Institutional Investors.)
According the press reports, it is the biggest telecoms company in Zambia, let alone Sub Saharan Africa (excluding South Africa). The company's EPS 31/12/2007 was 40Kwacha. The offer price of K640 is not so taxing given the company's results. The only problem is that the offer is restricted to Zambians and institutional holders. moreover the prospectus omits some key information such how oversubscription will be dealt with. For institutional holders, this is a buy of course since trend analysis seem to suggest that one can not go wrong with IPOs in sub Saharan Africa.
Elsewhere, The Nairobi bourse has been undergoing a decline as investor activity settles in anticipation of the Safaricom refunds. One would rationally expect the activity to pick up once these refunds are done with. As a result, investment attractive opportunities are beginning to peek at investors with a keen eye for value. An good example is Kenya Airways, whose fortunes, let's face it, have not been so good. The national carrier was first hit by the rising price of fuel and related cost and then even harder by the post election violence that plagued Kenya. However regardless of all this, one would expect that the company's low PE of about 6 coupled with its relatively OK dividend yield of 3% would be an indicator of value. These two reasons, coupled with the fact that the tourism industry is slowly getting rebounding, clearly indicate a good buying opportunity given that this share is currently trading at a paltry Kshs47 today. Surely the earnings declines will not go on for eternity.
One more opportunity is the National Bank of Kenya. In a finance sector where the average PE ratio is in the region of 20, this bank is still languishing in the 7s and 8s. Some analysts have tried to beat down this stock because the bank hasn't been paying dividends and has also been loss making. A closer look at the fundamentals of the bank coupled with the fact that the losses have now been overturned and the non performing assets (which were due from GOVT) have now been swapped for treasury bills/bonds, has opened a cash inflow for the bank. I would expect the bank to turn the page this year or next and therefore would consider this an opportunity.
One misconception I've noticed is that local investors on the Nairobi bourse seem to believe that rights issues represent an investment opportunity and they seem to throw all fundamentals out through the window.
Tanzania has announced the next IPO for National Microfinance Bank Ltd but unfortunately, given the foreign exchange restrictions currently prevalent in the country at the moment, we can't do so much in search of Value over there.
Neighboring Uganda though has an IPO upcoming for Crane Bank limited, which has been consistently churning out profits over the years. Having interacted with the bank's management, I know that they are risk conscious and the IPO provides a priceless opportunity to break into frontier markets for those investors/fund managers looking to diversify their portfolios further. After all, we all learnt the relationship between development markets and frontier markets. Nil correlation.
Additionally, the Uganda Clays rights issue was oversubscribed. We had expected the share price to drop from the then Ushs6,ooo to about Ushs 3,500-Ushs 4,000 but this did not happen. Apparently the price continued skyrocketing even doubling on the announcement of results and whopping Ushs 140 dividend per share. My lesson from this share's performance is therefore not to underestimate the power of monopoly, the absence of substitutes, the high barriers to entry into the company's market and the low bargaining power of buyers............jeez, it is Micheal Porter's competitive strategy put into practice before my own eyes. Moreover subsequent to this, the company, whose management have traditionally been quite conservative, finally set up a WEBSITE....www.ugandaclays.co.ug
As a result of the above lesson, I am amending my investment strategy to attach different weights to the above conditions/market forces................Talk about FUNDAMENTALS
DISCLAIMER: This blog does not constitute investment advice. Though utmost care has been taken while preparing this blog, I do not accept liability for investment decisions made as a result of this blog.
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