NSE... ......

NSE has been moving lower for most of January.The'spectators and comentators' have been calling it the January effect.I call it a lesson and an opportunity.The unbroken two year rally had engendered a group of 'Investors' who believed that share prices only move in one DIRECTION-UP, UP and further UP.

Here are some counters whose high valuation baffles me.Remember, there are only TWO ways to make money on stocks:

1. CAPITAL GAINS-Buy low sell high or short a stock( buy high sell low and pocket the difference) Or Buy a share at Sh 50 and Sell at sh 100.

2. DIVIDENDS-Get paid a portion of the profits at the year end.

HFCK

It has no competitive advantage in its field i.e Any new product or innovation that it launches can be easily copied by its rivals with deeper pockets like S&L(a KCB subsidiary),Stanbic,Barclays.They must find capital for long-term lending.their best bet is to fold into a bigger bank(merger).Otherwise dont expect a dividend cheque any time soon.

Dont forget its competitor in the mortgage sector EABS folded into Akiba Bank.So if you bought it at sh.60 hope it goes to Sh.100, you may have to wait for a while.

I think the banking sector in Kenya will morph into two groups through mergers/acquisitions:-

(1)Large full- house finacial groups encompassing everthing from insurance to Fund management/stock-broking.Potential candidates of this model are: Barclays,Equity,KCB, JHL/Diamond Trust/Habib

(2) Specialist Banks with an edge in certain complex or key fields.Potential candidates are: STANCHART,CITIBANK

EmergingAfrica has a nice post on the Banking industry consolidation here.

MjengaKenya talks about Barclays+Equity here

MUMIAS

Latest results show why Agricultural firms are so volatile.The Long term factors affecting its Sugar production are unlikely to turn positive soon.These Factors are like:-

-Land-As the farmers sub-divide farming land amongst their progeny, planting/harvesting costs will rise.

-Labour costs-Unless they mechanise harvesting of cane, these costs will only go one way-UP

-Plant/factory maintenace-Ever heard BAT or Bamburi complain that they had costs in their factories' that are unexplained? EXACTLY, So how come they cant explain where all the ineficiencies are coming from?

BAT/Bamburi always specify the exact cause of the inefficiency

-Weather-Bad weather i.e drought affects cane production

The only bright spot is the Distribution Network which is good and extensive.Sold my shares at a loss, waiting to pick them up at a lower price in the future.
They also dont have a website(in this age of blogs)

P.S. the employees and farmers only took 40% of their Allocation in the secondary IPO.The Allocation is here on Riba's blog

SCANGROUP

It's in an industry where any of the current and former employees can start a similar outfit and in 12 months take all their business.For instance, the Value of REDSKY(recent Scangroup acquisition) isnt in its physical Assets but the Creative minds and contracts that REDSKY has.

Thats why Warren Buffet and other Long-term investors rarely have large stakes in such companies in their portfolios.

Ask yourself if there are any barriers to entry to the Scangroup business sector?. In a firm with physical/tangible assets e.g. EABL new talent can be found to run it.But a firm with soft/intellectual resources/assets e.g. ADvertising the Human Resource is the Asset , it leaves thats it.

SAMEER

Too much compe' from imported tyres.I think they should relocate their production to EGYPT(under COMESA), after all Colgate-Palmolive,Cadbury and others cant be wrong on this.

News to use

By the way the NSE has upgraded its site.Good Job! Mr. Mwebesa and everyone else at the bourse.

OVERHEAD at a Brokers' Office

When your client's stock portfolio is underwater. You tell him it is a Long-Term Portfolio