Tuesday 22 April 2008

To pay or not to pay dividends - Stanbic Uganda's case

Stanbic bank Uganda announced its results today.

Loans and advances grew 20% from 340BN to 478BN
Net Interest Income increased 20% from 89BN to 107BN
Operating expenses grew by only 12% from 112BN to 126BN
Profit before tax increased by 37% from 50BN to 69BN
EPS grew 34% from 7.72 to 10.36
Dividend Per Share grew 9.57% from 6.06 to 6.64

As at 22/4/2008, given that Stanbic is trading at a share price of 230, this implies a dividend yield of 2.89%, PE ratio of 22.2 and a PBV of 9.6.

What can I say? Good results per se! But then again where's the bar set? For the second year running, Stanbic continues to at least meet expectations of shareholders. Other factors constant, this share has potential for appreciation in the near future especially given that the institutional investors will be swooping for all dividend payments in the next 31 days. Place your buy orders now lest you wake up after the share has peaked by doubling the current price.

On a lighter note, the Safaricom IPO comes to an end in less than 24 hours which is quite good since we will be back to the business of considering fundamentals all over the Nairobi and Kampala bourse. Believe me they are quite difficult to identify given the high levels of irrational exuberance.

Elsewhere, in search of growth, we ditched the fundamentals this week and decided to pick up some AccessKenya shares. Given the levels of IT penetration in East Africa and the potential, we believe there is long term value in this little minx of a share and we'll see how it goes.....the key being the investment horizon.

Besides, how bad can it get????????????????????????????????????????Ta

Thursday 17 April 2008

Bank of Baroda Uganda: How conservative can a listed company get?

I managed to get my hands on a summary of the abridged (and I really mean abridged) financials of Bank of Baroda Uganda Limited which is listed on the Uganda Stock Exchange. The main changes were that Interest income increased to Ushs 25,181,793,000 from Ushs 19,322,580,000 (30%), Interest expense increased to Ushs 8,368,683,000 from Ushs 4,875,075,300 (72%), Net interest income was Ushs 16,813,110,000 from Ushs 14,447,504,700(16% growth), None interest income increased to Ushs 5,385,547,000 from Ushs 4,091,285,000 (32%), Impairment losses decreased to Ushs 30,283,000 from Ushs 47,811,000 (37%) moreover with the net non performing assets being nil, Non interest expenses increased to Ushs 8,403,502,000 from Ushs 7,567,427,000.

As I was reading this, I was like hmmmm, as expected the results were in deeply positive territory (at least compared to other competitiors such as DFCU. I use DFCU because this is Baroda's ilk. Profit after tax grew to Ushs 10,802,466,000 from Ushs 8,021,827,000 (35%)resulting in an increase in Earnings per share from 201 to 270. these positive results really eased the company's PE ratio, which was still impressive at about 17 to about 13 which would suggest that there's lots of value to uncovered.

Lo and behold, the dividend per share remained stubbornly static at a paltry Ushs 70. Now, don't get me wrong. I do believe in long term investments especially where stocks in our economies are concerned but hello, the characteristics of a good stock must include dividend payouts that resonate with the company's performance and results. As a result, the company's dividend yield is 70/3,640 =0.0192 or 2%.

We all know that as investors, we consider higher dividend yields as evidence that a stock is under priced or that the company has fallen on hard times and future dividends will not be as high as previous ones. And yes the increasing emphasis on price appreciation over dividends as the main form of return on investments may lead us to decide otherwise when analysing investments. But for the sake of investments, please, pay some dividends to the shareholders. At this point, I'm tempted to ask (albeit a bit prematurely) whether the bank may be having cashflow problems which question in itself sounds folly.

Looking at the ownership of the bank, institutional shareholders, as opposed to individuals, hold significant chunks of the the bank. Because these tend to primarily be long term investors, they do not necessarily analyse the financial performance of some of these entities regularly. The negative impact of this practice is such that the share prices for some of these stocks are no longer (if they have even ever been) driven by fundamentals but rather by the simple principal of demand and supply.

Before anyone crucifies me on this, prudent financial management dictates that persistent historic low dividend yields are indicative of markets that are still overvalued. Are we there yet????


Not really sure about this but I believe listed companies are supposed/required to publish results annually or semi annually or even quarterly. Why on earth don't we get to see the quarterly financial statements of companies on the Uganda Stock Exchange??? We do see them published by Kenyan companies on the Nairobi Stock Exchange. Moreover if my broker had not availed these numbers, we would not have had access to them. This defeats the efficient markets hypothesis crap that we've been learning in our financial management lessons. The Uganda Securities Exchange needs to style. And with all the growth in these nascent markets, you'd expect that the institutional investors would really rally in favour of this but no they don't.

A first time investor singled out the Nairobi Stock Exchange in particular and asked me which were viable companies that would generate a decent return on his investment. Now, of course as we do know the Kenyan Stock Exchange is one of the most robust in our chosen sphere of investment. Given that it currently has over 6 sectors (including the alternative investment market segment) the question would require serious consideration lest one's fingers get burned.

As explained above, I would personally favour, stocks which have a high dividend yield, low Price earnings ratio and increasing positive cashflow. this doesn't mean that one's portfolio should be full weighing up stocks that, on the face of it, look cheap but have a higher risk of downgrades in future. Similar thing happened with BAT Uganda in 2003 and 2004.

On a lighter note, a fund manager of an investment fund in which my peanuts were invested returned really poor results for the last month or so and blamed it on the market. Now I really have a problem with these professionals....and he had the guts to state that over the longer term, they were increasingly of the view that value is emerging in the sector. In my understanding, I believe timing the market is the key. There is no point in long term view if the timing in the market is wrong. An investor who entered the market at the trough of the credit crunch would have made a killing in the FTSE now or an investor who invested in Kenyan stocks on 31 December 2007 would be laughing all the way to the bank now. I'm taking my fund manager's commentary with a pinch of salt.

Wednesday 16 April 2008

What's happening..............

in Sub Saharan Africa at the moment?

I ran into colleagues of mine over the weekend and I discovered that we all think along the same lines regardless of whether we correspond or interact over issues relating to investment. More often than not, we all believe in investing but are many times dumbfounded when the issue of what to invest in comes up. Nevertheless it was quite nice and intuitive to exchange ideas over the various investment opportunities that are on the table at currently.

Safaricom, the hottest potato at the moment is in its last week with the closing date for applications for individual investors being effectively a week from now (23/4/08). Much has been said about this IPO. Issues such as under/oversubscription, who the hell is Mobitelea, Impact on the Nairobi Stock Exchange and Uganda Stock Exchange, First on line application process in East Africa cetera, cetera. I've personally been privy to the prospectus (as is every eligible potential investor out there) and also IPO research reports and investment recommendations from some respected investment advisors out there. All I can say is that they all seem to say is that they all recommend Safaricom as a long term buy. But the simple advice, without going into technobubble is that one can never go wrong with African IPOs (more over East Africa at that). Whatever happens, the share price will take some pummelling to fall significantly below Ksh5.

Unfortunately, in my view, the factors all point to an undersubscription but hey what's to lose?

On a sad note, the Bank Of Tanzania denied Tanzanians the right to participate in the IPO by refusing to ease the capital market and foreign exchange restrictions. The restrictions have always been there. I remember trying to invest in Tanga Breweries sometime back and my broker telling me that if I bought any shares, it would result in the proportion of foreign ownership of the company exceeding the statutory minimum required for foreign ownership. Duhhhh, I only wanted a few shares!!!!!!!!!!!!!!!! So much for the East African Community/cooperation blah blah blah.

Unfortunately, the same thing just happened with respect to the Celtel Zambia IPO for which the prospectus is expected to be issued on 28/4/2008. Naturally and as I have just explained, one can never go wrong with African IPOs so if you ask me, this is a very strong buy. Save the numbers for the shareholders general meeting.

In Kenya, the only marketing company listed on the exchange SCANGROUP scared the hell out of investors by filing financial results before 31 March but they ultimately were published in today's papers. As an investor and ex-auditor, I am always skeptical when companies do not abide by a financial calendar since after all, it is only financial statements whose audit follows a set timetable, with board approval and ratification. Hopefully, we'll ultimately understand the reasons for these delays.

On the lookout for IPOs, generally, we expect Cooperative Bank, Transcentury to list this year.

Tanzania's NICOL, a microfinance/investment company is also programmed to list if they can overcome procedural hurdles.

There is also Crane Bank in Uganda which should list in the 3rd quarter.

The pressure is on for Ugandan listed banks to publish their results. Again, I must point out that DFCU Ltd, Stanbic Bank, Bank of Baroda Limited need to explain why their financial statements take so long. By the time they are published (25 April) for a December year end, they are no longer useful to decision makers. But the only positive is that at the end of the day, the chickens must come home to roost. DFCU's mid year results portrayed a really negative picture which prompted one of my favorite bloggers to opine that it felt like the bank staff just went on a hiatus for a whole 1.5 years and hence forced him to cut his losses and run. Ouch..that hurt! But hey, on the bright sight, so many things have happened to the bank this second half of the year. We would expect the new MD's fingerprints to be all over every decision that the bank has taken.The effects of the disposal of the subsidiaries which were not in line with the bank's business strategy and vision completely effected and the gains utilised to good effect thus creating value. Lo and behold, the loan book must have improved unlike in the prior year and mid year period where these had no change except for increased provisions.

We will expect some good news from Stanbic and Baroda. (No stories from these two) And we will definitely expect some dividend growth. Given that the value of listed companies on the USE has quadrupled, the PE ratios of Baroda and Stanbic, which stand at about 15 and 30 respectively tell a story. The implication is that Baroda has some room to manoeuvre with less than ideal results. (Come on we always considered management very conservative). However, Stanbic does not have any room to manoeuvre. With its PE at a high of 30, you'd expect significant growth to support the faith that the investing public has vested in Stanbic.

Otherwise the bull run that has befallen the Uganda Stock Exchange will have a rude awakening as institutional investors start applying their irrelevant fundamentals to a nascent exchange.

Oh, and I was alerted by a friend that the USE has redesigned its website which is great in so doing, the daily trade summaries appear to have vanished. We'll keep looking.

Welcome to Value Investing In Sub Saharan Africa

Yes, welcome to value investing in Africa.

We are all doing what we do on a daily in search of excellence one way or another. Myself, as UGinvestor, have gotten to that point where I feel audit has taken its toll on me. If I continue the way I'm going, I'll miss out on opportunities out there which exist but generally ony require a little bit of scrutiny to identify.

I have decided to look and think outside the box. (Don't ask me which box?)

This blog is aimed at providing that extra bit of scrutiny which is necessary to facilitate enlightment of the capital markets to the masses and also to exchange ideas and comments on the various companies out there in Sub Saharan Africa.