Value Investing in Sub Saharan Africa

What's wrong with NIC Uganda?

2009-08-01T20:55:00.002+01:00

Phew, so long an absence.............like there’s not been anything going on in the investment world. Well, over the past two months we got back to Kampala, the land of all nice things served with pot-holes in all roads. But it is lovely. Although, it is somewhat interesting when you do not necessarily have to rely on the internet to access the goings-on.

Anyhow, I have a lot of beef as an investor and on behalf of other investors. I’ve recently been trying to assess the viability of long term investing on the Uganda Stock Exchange. All indicators are that it is possible within certain constraints.

The last time a company dilly dallied with regards to an IPO, several investors (both seasoned and amateurs) got burned. Now, on getting to Uganda, one would have expected that the NIC IPO would be in the air with all the publicity. HELL NO! Apparently, these chaps just couldn’t piece together a comprehensive prospectus. It is at this point that a certain Safaricom comes to mind.

When newspaper reports suggest that NIC’s financial statements for the year ended 31 December 2008 were qualified by the auditors, it begs the question? Is the company worth selling to the general public especially given the fact that financial deepening is the ultimate goal of the Capital Markets Authority/Government? Either way, I still would not expect any company to submit a prospectus with unsigned reports from accountants, auditors, lawyers and valuers.

I have never ever invested in a company whose audit opinion was qualified in any way, shape or form but given the scenario and rumour surrounding NIC, this may be a first for me and I’m sure for several investors. I honestly can’t wait to see the prospectus though I believe the 162 million shares on offer (40%) are very few which gives the company to misprice the IPO.

Foreign Banks and the Invasion of the Ugandan Banking Sector

2009-05-14T19:11:00.010+01:00

I am looking at the Ugandan Banking Sector in 2009, with cautious pessimism, if at all there is such a thing.

Performance for 2008
The rankings below are based on the bank profits according to annual financial statements for 2008*.

1. Stanbic Bank Uganda Limited: Ushs 78bn

2. Standard Chartered Bank Limited: Ushs 60.1bn

3. Citi Bank Limited: Ushs26.7bn

4. Crane Bank Limited: Ushs25.8bn

5. Centenary Bank : Ushs20.4bn

6. Bank of Baroda: Ushs13.4bn

7. Dfcu: Ushs13.1bn

8. Housing Finance Bank: Ushs6.9bn

9. Tropical African Bank: Ushs6.2bn

10. Kenya Commercial Bank: Ushs5.6bn

11. Bank of Africa : Ushs3.7bn

12. Diamond Trust Bank: Ushs1.9bn

13. Cairo International Bank: Ushs1.1bn

14. Fina bank: (Ushs 1.4bn) loss

15. United Bank of Africa: (Ushs 5bn) loss

16. Barclays Bank of Uganda: (Ushs 14bn) loss

*excludes the results of Equity Bank which I couldn't source at the time of blogging.

With the sporadic entry of foreign banks, the Ugandan banking landscape makes for an interesting review. I must admit that I would love to glean the strategic plans of Equity bank (in relation to its acquisition of Pride), or of United Bank of Africa, KCB my intention being to understand the principal source of generating value over the next few years.

Uganda Stock Exchange Annual Results Special

2009-05-09T12:55:00.005+01:00

Its been the results reporting season in Uganda and I took some time to obtain and review the financial results for 5 of the companies listed on the Uganda Stock Exchange (USE). Not the easiest process though we did get there in the end.

My only wish if for the Uganda Stock Exchange to post the financial results of each listed entity in their entirety as lots of information that is important to investors is lost or hoarded. Case in point, one has to look at the announcement provided by the USE for BATU results. (See http://www.use.or.ug/inner.php?cat=news&sid=306).

STANBIC BANK UGANDA LIMITED (SBUL)
Date of release : March 2009
· Customer deposits have increased by 20% to UGX.1,289,674B (2007 = UGX.1,072,857B)
· Loans and advances also increased by 6% to UGX.108,722B (2007 = UGX102,335B)
· Profit after tax at UGX.78,550B rose by 48% (2007 = UGX 53,017BN)
· Earnings per share up by 48% and growth in shareholders funds by 40%.
· A Dividend pay out of UGX.5.86 per share (2007 = UGX 6.64 per share).

The key question for Stanbic was really why the dividend was reduced by 20% despite the 45% increase in Earnings per share. The MD suggested this was a precautionary measure which would possibly be re-reviewed at interim to assess the impact of the credit crunch on the Ugandan Banking landscape. There should be an interim dividend declared by Stanbic soon. Lets get ready to rumble.

Investor information quality

+ Excellent with respect to shareholder communications. For more o this, see Bankelele’s post here (http://bankelele.blogspot.com/2009/04/ugandan-envy.html)

DFCU LIMITED (DFCU)
Date of release : March 15 2009
· Customer deposits have increased by 56.45% to UGX.254.7B (2007 = UGX.163B)
· Loans and advances also increased by 23.19% to UGX.282.8B (2007 = UGX 229.5B)
· Profit after tax at UGX.13.1B rose by 54.17% (2007 = UGX 8.52BN)
· Earnings per share up by 49% and growth in shareholders funds by 19%.
· A Dividend pay out of UGX.21.13 per share (2007 = UGX 13.09 per share).
· Cost to Income ratio down by 20.55% from 73% to 58%

Investor information quality

+ Investor information section on the group’s website provides the required information. However should consider taking the Stanbic Uganda approach of email communication with shareholders

- Unlike in prior year’s the company did not post annual reports and relevant proxy forms. Wonder whether this had something to do with cost cutting?

BANK OF BARODA UGANDA LIMITED (BOBU)
Date of release : April 27 2009
· Customer deposits have increased by 23.43% to UGX.214,132M (2007 = UGX.173,477M)
· Loans and advances also increased by 31.03% to UGX.112,715M (2007 = UGX. 86,022M)
· Profit after tax increased by 24.73% to UGX.13,474M and earnings per share grew by 24.73%.
· A Dividend pay out of UGX.8.00 per share (2007 = UGX 7 per share)

Investor information

- No positives to report in this respect for this company.

- I find it difficult to understand this bank’s reporting. The outgoing MD KK Shukla provided unaudited figures for the bank’s performance as early as January 2009 to all the local press in separate interviews.

- Companies that release their results on the last day allowed by the Capital Markets Authority are always fishy. There is always lots of haggling, adjustments, changes and errors that are being exchanged between the auditors and management and ultimately the financial statements are always a product of forced consensus by both the auditors and management to avoid breach of CMA reporting rules. My advice: STAY AWAY FROM THEM UNTIL THEY GET THEIR ACT TOGETHER. The financial year ends on 31 December 2008 for goodness sake. You do not need 4 months to complete an external audit.

- BOBU has no website. Local investors are always referred to the Baroda India (parent company) website is irrelevant for investors on the Uganda Stock Exchange. Infact there is hardly any mention of Bank of Baroda Uganda on that website. I guess this is the same with all of those big banks Barclays, Standard Chartered etc Management should style up with respect to this.

BAT UUGANDA LIMITED (BATU)
Date of release : April 15 2009

· Sales have increased by 16% to UGX.185,865M (2007 = UGX.184,555M)
· Profit after tax decreased by 2% to UGX.3,244M (2007 = 6,140M).
· No dividend payout declared.
· EPS decreased by 11% from UGX125 to UGX 66.
· Total equity increased by 57% to UGX600M (2007=UGX -2,291M)
· Current liabilities increased by 80% to UGX 112,213M (2007 = UGX 90,841M)

Current PE is approximately 5 which is high given the recurring losses that BATU has been making over the year. It is worth noting that current year profitability was materially affected by foreign exchange fluctuations i.e appreciation of the dollar relative to the U shilling resulting in over UGX10bn worth of exchange losses. I would have liked to question the FD about the possibility of hedging but I won’t attend the AGM.

Investor information quality

+ BATU is the only USE listed company which provides minutes of the previous annual general meeting as part of the annual report pack sent to shareholders before the meeting which I feel is a big plus especially if one did not attend the prior AGM.

- Between last year’s (2007) and this year’s (2008) annual report, the company MD Serhat Eroglu, who we felt had done a great job somehow left the company. A new MD Ricardo Fonseca joined the company. However there is no mention of when Serhat Eroglu left and why throughout the entire annual report....Not even in the Corporate Information, Chairman’s report....NADA. Is this a slip????? So I ask myself whether he was fired, promoted, transferred. Not even in the local press was anything been mentioned over this.

- The BATU website is CRAP. This appears as www.batuganda.com on the back cover of the annual report. Management should style up with respect to this.

UGANDA CLAYS LIMITED (UCL)
Date of release : April 30 2009

The main business is the production and sale of building clay products in housing and construction, including; roofing tiles, bricks, blocks, decorative gilles, ventilators, floor tiles, pipes and cable covers.

UCL released an interesting set of results for the financial year ending 31 December 2008
· Sales have increased by 16% to UGX.13,548M (2007 = UGX.11,699M)
· Profit after tax increased by 2% to UGX.2,152M (2007 = 2,108M).
· No dividend payout declared.
· EPS decreased by 11% from UGX3.05 to UGX 2.7.
· Non current liabilities increased by 57% to UGX2.,351M (2007=UGX 12,993M)
· Net Current liabilities decreased by 80% to UGX 2,166M (2007 = UGX 10,657M)

Current PE is way in excess of 45 and I’m still reluctant to delve into this company.

It is clear that financing costs and loan repayments for the massive debt issued to fund the construction of a new factory in Kamonkoli have taken their toll on a once debt free company. While the debt itself is not bad, it remains to be seen if the debt has been put to good use . Only time will tell.

Investor information quality

+ Uganda Clays advised its shareholders that; Annual reports and audited financial statements would be posted to the shareholders on or before 30 June 2009 together with notice of the Annual general meeting to be held on Friday 24 July 2009 at Kamonkoli Mbale at 11.00am. This is a good chance for current shareholders to have a look around the new factory which is responsible for introducing mammoth levels of debt to the balance sheet of a once pristine company and gem in the formerly unknown rough of the Uganda Stock Exchange. I suppose such efforts are to be commended.

- However, the company needs to understand that only a few shareholders have the ability to travel from Kampala (or Entebbe for that matter- where the head offices of the company are situate – in the name of attending an annual general meeting.

- Naturally, the shareholders of the company, given the nascent stage of the bourse, will be grumbling about the lack of a dividend especially given that Uganda Clays has traditionally been one of the companies with the highest dividend yield 9before the splits and rights issues). In my view an AGM 5 districts away is a recipe for disaster but I will endeavour to attend if only to make heads or tail out of it.

- As an investor, I still have a problem with the company’s website. There is no investor information for the website. Someone needs to raise this at the AGM.

- Companies that release their results on the last day allowed by the Capital Markets Authority are always fishy. There is always lots of haggling, adjustments, changes and errors that are being exchanged between the auditors and management and the financial statements are always a product of forced consensus by both the auditors and management to avoid breach of CMA reporting rules. My advice: STAY AWAY FROM THEM UNTIL THEY GET THEIR ACT TOGETHER. The financial year ends on 31 December 2008 for goodness sake. You do not need 4 months to complete an external audit.

Elsewhere, I have now given up hope of participating in the NIC IPO (if it ever happens of course). I have negative affinity for melodrama associated with listings especially since Safaricom debacle. Investors end up paying top dollar for mediocre companies and valuations are never reasonable due to lots of hype.

Also Reuters reported that Uganda expects to sell its 49 percent stake in Kinyara Sugar Works in two years time, its 40 percent stake in the National Insurance Corporation (NIC) this year, its 31 percent in Uganda Telecom (UTL) in three to four years and its majority stake in the Sheraton Hotel within four years.

Buffett, death of heart of Africa fund and the National Insurance Corporation of Uganda IPO

2009-03-01T00:53:00.005Z

It’s been a tough 50 days or so.

Buffett

Warren Buffett’s (he of the Berkshire Hathaway Inc) letter to shareholders for the financial year ended 31 December 2008 is out and for only the second time since 1965, there was a reduction in the book value per share of Berkshire (9.6% decrease per share to be exact. Contrasted with the S&P500 which declined by 37%, Buffett still outperformed the Index by 27.4%. Not bad given the tough times we are in.

Naturally, I was interested in the investments section of the letter. A closer examination indicates that basically, all the none-core equity holdings- you know –those that Buffett either has only recently acquired or probably does not consider really long term have depreciated in value. Here we are talking about investments like ConocoPhillips (which Buffett actually takes time to admit having been a mistake), Johnson& Johnson, Kraft Foods, Tesco and US Bancorp. Otherwise all long term investments are still way in the money.

Two main themes are important to me from this letter. i) value investing is mainly long term (as if i did not know this already) and ii) the belief that cash is king is short sighted. The one bit I can’t believe is what on earth Buffett could have seen in Irish banks. But then again, I have a few investments which would have my partners wondering what on earth i was doing with their money.

Death of a sub saharan fund

Its mourning time for me.

As readers may recall from my last post, mention was made of some big fish going belly up. Well, it’s now official. The New Star Heart of Africa fund has finally decided to throw in the towel. Apparently, “having temporarily suspended dealing on 9 December 2008, it finally became increasingly apparent that to reopen the fund to dealing would significantly disadvantage the remaining investors, who would be left with a residual portfolio of increasingly illiquid stocks.”

Who is to blame? .....the credit crisis, low trading volumes, illiquid markets and poor prospects for new inflows to the fund were it to reopen meant there was little likelihood of the situation improving in the short term. As a result, New Star and the fund’s depositary agreed that an alternative route must be explored to provide liquidity to investors. After due consideration, and in consultation with the Financial Services Authority, it was agreed the most appropriate course of action was to seek a winding-up of the fund. A process of communication with investors is underway with a view to winding up the fund and returning the proceeds to investors.

Duh!!!!!!!!

Are these not the factors that make sub Saharan Africa worth investing in at this point in time? In my opinion, these should not be presented as excuses to an investor. Of course the investor should not be submitting redemption requests as early as this. Recall that this fund was launched on November 27, 2007 shortly before we started blogging about our escapades in search of value in Sub Saharan Africa.

Make no mistake about HOA. This was a fund which had been set up to achieve long-term capital growth for “sophisticated investors” by investing principally in the securities of companies which in the opinion of the Investment Manager, exercise a predominant part of their economic activity in, or derive a predominant part of their income from, sub-Saharan Africa, excluding South Africa. Is there a part of long term capital growth that these sophisticated investors did not understand or appreciate?

This was also an actively managed fund for which the fund manager charged Initial fees of 5.25% annual fees of1.75%. On top of this, Performance fees (where applicable) were set at 20% of out-performance relative to three month – sterling Libor plus 3%. The fund fell 20.4% during the month of January. Now with a minimum investment of $10,000 and any additional subscriptions fixed at a minimum of $5,000, this clearly means that regardless of performance, the value of one’s investment will have significantly declined to such a low that I’d have expected any investor worth their salt to hold on at least until the market stabilises. After all, we all know that investment losses are not losses until we lock them in by liquidating our positions. But the tongue in cheek view of this grim situation, is that in substance, the fund manager has been paid fees for nothing since the launch of the fund. Surely value investors should avoid these situations.

Anyhow, now we know why our markets are taking such a big hit. It is these so-called sophisticated investors getting out of the kitchen because they can’t stand the heat. Thanks to them, we will continue to pick up bargains on the cheap in sub Saharan Africa.

National Insurance Corporation Uganda IPO

Following on from our last post again, the IPO of National Insurance Corporation of Uganda Ltd is scheduled for April 2009.

NIC was established by an Act of Parliament under the National Insurance Act 1964. In order to pave way for Privatisation, it was incorporated as National Insurance Corporation Ltd (NIC) in November 2000. In June 2005, the Government of Uganda successfully divested 60% of its shares in NIC to Industrial and General Insurance Plc (IGI) of Nigeria through an international bidding process.

The Government retained 40 % shareholding after privatization in 2005 which it intends to sell through an initial public offer. The listing of NIC is another milestone in the privatization program embarked upon by the Government of Uganda. The offer for the sale of 40% of the shares of NIC is aimed at providing the members
of the public resident in Uganda and foreign investors with an opportunity to own shares in a leading insurance company in Uganda.

In 2006 NIC was rebranded into a major corporate refocusing initiative and repositioned as the insurance company of choice in the insurance subsector. NIC has the reputation for exceptional competence in the delivery of customer-centric service and product innovation.

National Insurance Corporation Limited has witnessed tremendous growth since its privatization in 2005 due to the introduction of customer centric products and service excellence. Within three (3) years of privatization, NIC’s gross premium income grew by 100% from Ushs6.5billion in 2005 to Ushs13billion in 2008. Within the same period, profit after tax grew from Ushs981million in 2005 to Ushs2.3billion in 2007.

Asset base has grown more or less been consistent on average from Ushs50billion in 2005 to Ushs53billion in 2007

• NIC has an asset base of over Ushs.50bn
• NIC has the reputation of exceptional competence in the delivery of Customer centric services and product innovation; recent products introduced include the School Insurance plan and Employee Insurance Plan.
• Because of its strong asset base, NIC was able to settle the largest ever claim in the Ugandan Insurance Industry history to the tune of Ushs11bn to the Government of Uganda for the loss of MI-172 Presidential Helicopter
• To increase its presence in the region, NIC opened a subsidiary in Southern Sudan which was launched in 2007
• To bring services closer to the market, NIC maintains the largest network in Uganda with over 15 Branches spread across the country.
• In 2007 & 2008, NIC was awarded a certificate as the most innovative company in Product Development in the Uganda Insurance Industry

The above numbers compare well with peers in the industry. Case in point is Jubilee Holdings and Kenya Reinsurance Limited.

The corporation also does seem to have some really good re-insurers which is critical for any insurance company. These include:

Treaty Reinsurers: Lloyds, Africa Reinsurance Corporation, Swiss Re of South Africa, East Africa Reinsurance Company Ltd , Globe Reinsurance Company Plc, Hannover Reinsurance Company Limited, South Africa , PTA Re-insurance Company (Zep Re), Organization of East & Southern Africa Insurers (OESAI) Non Life Pool

Reinsurance Brokers: Marsh Limited UK, Aon Group, Willis, United African Insurance Brokers

My only hope and prayer is that National Insurance Corporation: - endeavours to maintain an up-to-date website unlike its peers mentioned above, doesn’t report investment gains and losses through the Income statement like Kenya Re to avoid the earnings volatility associated with in investments (much like Centum in Kenya which carries these through reserves)

Chances are that this may not happen given that management does not necessarily appear to have the highest regard for the general public. Any potential investor will want to know what exactly went on with the Ushs14Bn Makerere University pension scheme which in my opinion appeared a case of NIC wanting to fleece university pensioners, Much as we say the beginning of this conflict here http://www.globalaging.org/pension/world/2005/ugandauni.htm we did not see the resolution of this dispute so I guess it may come back to haunt them. But if the history of sub-Saharan IPOs is anything to go by, then I should expect the IPO to be successful whether or not these questions are answered. Besides, I believe that up to now, Safaricom Kenya investors still do not know who owns Safaricom.

For further information on NIC (U) Ltd, please see http://www.nic.co.ug/index.php

Noteworthy:
Cold Tusker has an interesting SWOT analysis on Kenya Airways (KQ) here http://coldtusker.blogspot.com/2009/02/kenya-airways-oversold.html. I must say its one of those investments where you're damned if you do and damned if you don't. So I leave that to ardent readers to consider. ...but remember that while Warren Buffett says he doesn't do airlines, he's the same dude whose portfolio includes Netjets http://www.netjets.com/ and Flight Safety http://www.flightsafety.com/

I would concur with ColdTusker that KQ at Ksh19.5 and a forward PE of 3 is a great long term buy. The only problem I foresee is a situation whereby KQ's management is hesitant to hedge the oil price in future as a result of the losses they have had to suffer due to the current ineffective hedges in place as the oil price tumbles.

To suspend investment dealing or not?

2009-01-02T10:50:00.005Z

These have been interesting times. One of my pioneer fund managers suspended dealing on 11 December 2008 citing the increased redemptions from investors, weakened liquidity in Sub Saharan markets and naturally the credit crunch. Apparently these big fish were heavily invested in Nigeria and Ghana (at 30% and 21% respectively).

From my experience such actions are usually self defeating. If I recall correctly, when the Nigerian stock exchange imposed a circuit breaker on the falls in value of its constituent stocks sometime back, the temporary stabilisation in values during the short period, which had all along been representative of a drizzle became more of a storm as the subsequent loss in value took to levels unheard of before.

Whereas we all appreciate the fact that these are tough times, I've never really believed that micro managing the market will beget sensible results. In my experience it always results in a vicious cycle of downward spirals that are even much harder to address, let alone control, than the initial circumstances.

However, the most disappointing aspect about all this is not necessarily the reaction of the fund managers but rather the investors. Hedge funds have historically been required to notify investors of the levels of risk; which they do or at least try to do. I've always understood that any funds that an investor (or even a speculator) will need in the short run (read one to 5 years) do not belong in the stock market. Apparently the definition of short run has now been shortened to 3 months. I now know that hedge funds and their investors are the biggest speculators of all.

Did we have a silver lining in all of this? You betcha - as the very powerful Sarah Palin once said. I recently picked up on the habit of coat tailing which has proved quite excellent in these dim times.

I took part in the Coop Bank IPO in Kenya and it was undersubscribed, we got our 100% allocation and are watching the situation very closely. There have been some discussions that the share price is being artificially propped up in some other fora.

Moreover, we are finally getting confirmation that the NIC Uganda IPO, which I highlighted in my earlier posts is finally kicking off sometime in the first quarter. The positive news about this is that the responsible investment bank sponsoring this IPO has come to terms with common sense and reasoned to postpone an IPO until after this credit crunch nonsense. Number crunching on this will be presented a little closed to the listing time.

As ardent readers will have noticed, we've been away for quite some time. Details of what we were up to will be provided in the next blog.

Value in Malawi - Get over Safaricom Kenya

2008-10-05T22:30:00.016+01:00

.,,....................Rising inflation, rising interest rates, rising food prices....How far we've all come:

The performance of the various markets in 2008 doesn't tell so bad a picture compared to what's happening out there.

Nairobi Stock Exchange Loss - 18%
Uganda Stock Exchange Gain - 9%
Malawi Stock Exchange Gain - 15%
Botswana Stock Exchange Loss - 15%
Zambia Stock Exchange Gain- 18%

The much touted Safaricom turned out to be an excellent choice for speculators. Apparently, any one who managed to offload their meagre allocation within the first 2 months did manage at least 20% to 40% return. Since then, Safaricom has been playing only one role and that is to draw the NSE 20 index as low as it can get.

So I did some soul searching and realised that this IPO was merely meant to shed light on one of the key principles of value investing as preached by Warren Buffett. One of his key principles, and which he touts year after year in his letters to the shareholders of Berkshire Hathaway, only invest in companies you understand.

Seeing the value of Safaricom plummet to Kshs 4.6 or thereabouts, I did ask myself the following questions:
i) did I really understand the goings on in Safaricom (of course other than the basic airtime/telecom crap);
ii) did management of Safaricom provide all the information I would have needed to make an advised decision;
iii) did the company have comparative advantage in the long time?

At the time of the IPO, some of the answers to the above questions were positive.

Unfortunately, over time the answer to these questions have since become NAYs. Seeing the company engage in unending price wars, coupled with the fact that 'scarcity of the share' is almost non existent have convinced e that I would be uneasy if the market closed for 10 years with my funds invested in this company.

I have convinced myself that this was a mistake but its not the end of the world. We will be looking to exit this share as soon as it gets into positive territory. (Of course this is to uphold the No 1 rule of investing:-never lose money).

It is on the backdrop of this that I'm introducing the discovery of potential value identified in Malawi.

Apparently, the Telekom Networks Malawi Limited ("TNM") announced the commencement of its initial public offer for subscription of 1,290,450,000 ordinary shares of MK2.00 each from 7 October 2008 and closing 17 October 2008. Results of the IPO are expected on 28 October and listing on the Malawi Stock Exchange on 3 November 2008. The free float after this IPO will be 20%.

A couple of pointers caught my attention:
i) TNM expects to distribute between 40% to 60% in August and investors in this IPO will participate in the second interim dividend in December this year. I personally prefer to place a significant level of emphasis on the company's ability to declare and pay dividends because as we all know, the company requires cash to do this. Of course I reinvest my dividends as I so wish and thus enable the compounding effect to work its magic. With respect to TNM therefore, this will play an even bigger role in my investment decision because of the fact that Telecoms is a cash consuming (hence the presumed question mark)
ii) The company seems to understand the value of providing timely reporting and information the its various stakeholders.
iii) Currently one of two wireless network operators with competition from Zain.

As always, there are some negatives:
i) In the event of an over subscription, the shares will allotted at the sole discretion of the directors.
ii) EBITDA is growing but with reducing margins due to its aggressive marketing policy
iii) High operational risk due to rapid growth and development over a short time.
iv) Investors in Malawi need to be mindful of the restrictions with respect to funds restriction in Malawi. This is occasionally implemented by the government as part of monetary policy.

Naturally, if you wish to crunch the numbers, you're better off checking out the prospectus in detail as per the link highlighted above.

My take - Never miss out on a sub saharan IPO; and more especially not in these crunch times. Now, while this may sound like a positive review, the timing of the exit is what will determine any investors gains or losses........and using the lessons learnt from Safaricom, this is most definitely one for the short term.

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

In pursuit of happiness during dire straits

2008-09-16T22:41:00.003+01:00

Rudyard Kipling’s poem http://www.kipling.org.uk/poems_if.htm has the most inspiring message I’ve heard in the recent past. The last time I heard it being recited was when the great man himself (ROGER FEDERER was on the cosh during the greatest tennis match in history) To put it into perspective, the great man was losing 2 sets to love when the rains came.

The message is really to keep your head when all about you are losing theirs. After all, this aint the first time we are experiencing these surges. Bill Miller said it best in his letter to shareholders http://money.cnn.com/2008/07/31/news/companies/miller_letter.fortune/index.htm

From the east to the West, investors, bloggers, fund managers, journalists and even innocent bystanders all we hear are wails and cries about the substantial loss of value. Some have even taken it a step further to proclaim the demise of equities as a share class. I had hoped that I would not have to blog about this but unfortunately there’s too many naysayers out there that I ‘ve had to say a word or two.

My portfolio which is fully invested in Sub-Saharan markets has lost a whopping 15% since 1 January 2008. Now, make no mistake about the significance of this loss in value terms. It is huge. Naturally some would beg to differ depending on the size of their portfolio and also the principles of stock picking applied. As a result of this situation, I chided the value investor in me for putting me in this mess. I’ve therefore had to go back to the drawing board and revisit all the investment decisions I’ve made and guess what, I noted the following:

i) all the share prices are currently weak;
ii) I still like the businesses I’m invested in;
iii) The businesses are even more undervalued now than they have ever been;
iv) The share prices are still under-performing

At this point I concluded that the fundamentals are still true. My investment analysis thus has me doing only one thing; BUY MORE .

Diamonds in the rough

2008-07-29T13:22:00.005+01:00

It is official, 2 highly watched Kenyan banks are due to cross list on the Uganda Stock Exchange and several investors are wondering what the effect of this cross listing will be on their investments.

We do know that the cross-listing process will provide more sources of capital for KCB – hopefully even cheaper and will also play a part in improving knowledge of the 2 banks amongst investors.

In my experience, stock brokers in Uganda are reluctant to deal Kenyan stocks because of the associated exchange differences and the need to assure their clients that nothing fishy went. Usually they prefer that Ugandan clients deal with their forex differences and place their orders in Kenya Shillings which of course doesn't appeal to them.

Case in point are the already cross-listed stocks currently on the USE. Jubilee (JHL), East African Breweries Limited(EABL) and Kenya Airways Limited(KQ) are stocks to reckon with which have been delivering value for quite sometime now. (Don’t tell me that KQ has taken a pummelling recently).

See http://www.use.or.ug/inner.php?cat=trdstat&subcat=mktinfo

On the basis of the above, I would not foresee any significant changes in the banks share price at least in the short run. In as far as the key obstacle, which lies in the fact that the USE is not automated (still paper based), it will take sometime to realise any impact of the cross-listing.

There is also the problem of timing difference as the trades take some time to execute resulting in significant price losses/gains during the execution period. And after all the hullabaloo surrounding Safaricom, only the serious few like myself are really into this kind of thing.

Elsewhere, word has it that Uganda Clays shareholders have okayed a split which will reduce the share price from the current Ushs10,160 or whatever it shall be when the split is effected by Ushs100. Now as you may already know, this stock has been my secret gem in Uganda. I believe this is the best split yet.

Main Menu: Diamonds in the rough
Meanwhile, while snooping through Kenya, some gems appear to exist which are free riding into value territory while every one is focusing on Equity Bank and Safaricom Ltd.

BAT Kenya Limited and Total Kenya Ltd just unleashed brilliant results for the half year ended 30 June 2008. You’ll ask me, what’s so good about that?

I particularly love BAT Kenya because it is so in line with my core concept of value investing. Of course this one is not for you ethical investors. Don’t crucify me as at the moment, I do not own any shares in BAT Kenya. This may change any time.

Kenya recently implemented two changes which the naysayers will tell you should really do damage to BAT Kenya’s bottom line and ultimately their ability to deliver value in the long term.
Kenya recently introduced hybrid taxation in his 2008/09 budget, which they said was intended to improve the fairness of the taxation system. On top of this, one would ideally expect the ban on public smoking to also take effect. Additionally, there’s the line about illicit trading and smuggling of cigarettes.

It is generally well known that

i) the government can not do without the Ksh4,000M that BAT pays in taxes (both income and excise)
ii) the public smoking ban has been tried and tested in neighbouring Uganda and even the United Kingdom with interesting results.
iii) The market reacts and adapts to such legislation and other occurrences. After all, smoking is an addictive luxury. (Yes I said luxury). Or should it be utility???
iv) The biggest obstacle, in Africa, will naturally be the will to implement.

I do not intend to reproduce the numbers as these are already available in the public domain but suffice it to say that BAT is a stock that keeps on delivering value year on year and as with the key tenets of value investing, cash-flows and particularly dividends never lie. Honestly speaking, what’s wrong with this cash flow statement especially given that we all know equity markets are taking a beating the world over? PS focus on that cash flow statement.

http://www.nse.co.ke/newsite/pdf/Announcement%202008/BAT%20Half%20Year%202008.pdf

Yes operations generated less cash than we would expect.

We must note with respect to BAT Kenya, that the dividend yield is not necessarily based on special events or payouts. As a result, there is every expectation that the company will keep up on its dividend payments

As I have always believed and blogged. stocks which provide a high dividend yield will almost always provide a lot more value (in the long run of course) in comparison to other stocks and even the entire market.

Various investors in search of value without the same degree of volatility associated with growth stocks. BAT Kenya has consistently provided an income of 8% or more plus capital appreciation.
And the icing on the cake is that the company has positive earnings growth and the volatility/risk associated with certain stocks especially on the NSE is avoided.

I definitely expect BAT Kenya to keep on improving on these dividends in order to maintain the yield as the share price increases.

As for TOTAL Kenya Ltd, I’ll let the numbers do the talking:

Share price: Ksh 30 - Ksh 33 (rounded)
PE Ratio: 10
EPS: 3
DPS: 2.5
Yield: 8%

Again, the naysayers go on and on about inability to pass on the increases in the oil price to consumers. However I say that this applies to the entire oligopolistic market. Someone somewhere in the industry has got to rise above the rest. I believe this will be TOTAL simply because they have demonstrated over the years, that management have what it takes to keep on delivering value over the years through managing inventory, transportation and keeping financing costs to a minimum. Otherwise, the sustainability of these sumptuous dividend payments would not be possible.

Wish list
i) If only Uganda’s parliament would pass the electronic trading bill, relevant parties sign the dotted line and electronic trading is realised in East Africa
ii) Dare Salaam financial markets were liberalised and foreign exchange controls relaxed

New Vision Rights Issue: How to Participate.
Shareholders: To participate in the Rights Issue, you will need to fill out a Provisional Allotment form and together with the payment (to be made to Standard Chartered Bank Uganda– the Receiving Bank) send your form to an authorized broker.

New Investors: Rights are currently trading on the USE at Ush500 ($0.25)
In both cases, do contact a broker of your choice to help you with the whole transaction. (page 80 of the Investors Memorandum has a list of all the authorized brokers).
For more info, please see:http://www.enteruganda.com/brochures/nvrightsissue.html

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

While we were away

2008-07-26T00:27:00.002+01:00

We've been away during the past 1.5 months during which we were reviewing various markets results of which will be posted later this week.

So what has been happening during the last month or so?

Sub Saharan markets have taken a beating over the past 1 month as a result of the infiltration of sophisticated fund managers. As we all know, these tend to lay claim to scrutiny of stocks in search of profitable stocks. Well, the East African triumvirate presented their budgets
Rights issues took centre stage with Housing Finance Company of Kenya and Kenya Commercial Bank (which is currently ongoing).

One more is scheduled by Uganda’s daily The New Vision. This had all inclinations towards being value for money. The New Vision is offering 25.5 million additional shares at a discounted price of sh1,100 to shareholders during the period from July 10 to August 13. The current share price is Ush2,510. Is this a 56% discount???. Apparently the rights are trading at Ushs350 which despite slightly knocking off on the discount, is still commendable value.

National Insurance Corporation (Uganda)’s IPO appears to have resurrected from the dead. Information is still scanty regarding this but my usual reminder is that it is pretty difficult to go wrong with IPOs in Sub-Saharan Africa.

On a sad note, a rumour going round is that the Crane Bank IPO will actually not happen.

At the board meeting of Baroda Uganda, a 10:1 share split was tabled which was approved.
As I write, Uganda Clays share split is scheduled for Monday 28 July 2008. For a share trading at a price of Sh10,150, splitting this between 100 to 1000 times would really enhance the liquidity of this share.

Can you believe the Tanzanians secretly listed the National Investment Company Limited (NICOL) Dar es salaam Stock Exchange (DSE) mid this month. For all the tools of macro-economic management, it is quite sad that the exchange controls were deemed the most appropriate. The trade off between the benefits of foreign direct investment .

Value unearthed in UGANDA

2008-05-29T21:47:00.012+01:00

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.

The search for value continues further south

2008-05-15T23:59:00.007+01:00

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.

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

2008-04-22T21:00:00.007+01:00

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

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

2008-04-17T22:10:00.004+01:00

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.

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

2008-04-16T19:31:00.000+01:00

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

2008-04-16T19:15:00.000+01:00

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.