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.
Showing posts with label Kenya Airways. Show all posts
Showing posts with label Kenya Airways. Show all posts
Sunday, 1 March 2009
Tuesday, 29 July 2008
Diamonds in the rough
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
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
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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