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 Safaricom. Show all posts
Showing posts with label Safaricom. Show all posts
Sunday, 1 March 2009
Sunday, 5 October 2008
Value in Malawi - Get over Safaricom Kenya
.,,....................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
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
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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