.,,....................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
Showing posts with label Nairobi Stock Exchange. Show all posts
Showing posts with label Nairobi Stock Exchange. Show all posts
Sunday, 5 October 2008
Thursday, 29 May 2008
Value unearthed in UGANDA
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.
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.
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