Wednesday, April 25, 2007

AccessKenya has two main offerings:
-Leased Line internet services-BROADBAND maX
-ISP VOIP telephone service called YELLO.

The other group company BLUE holds a Public data Network licence similar to KDN(Kenya Data Networks) and a LLO(Local loop operator) licence that allows it to offer CDMA services like Telkom Kenya's Wireless and Flashcom and POPOTE wireless offerings.

Who gets what
45 million new shares are being sold by the Group company.The existing shareholders(vendors) are offering 35 million existing shares for sale.The group will get Ksh 426 million from the sale while the vendors will get Ksh334 million.The directors interest in the Group before the offer is 84.6%.after the offer(assuming its fully subscribed) it will be about 44%

Adjusted Profit & other numbers
'Adjusted Profit' keeps popping up in the prospectus document.Prior to and including 2006.Accesskenya was run as a family business(Somen family).As such the remuneration structure and payments were higher than similar independently run firms.The adjusted profit is a recalculation of the payments to owners as if it were happening in a commercial 'arms length transaction'.The new figures are then used to adjust the historical profit and arrive at the adjusted profit.
No need to worry, since the directors and the other related parties have signed proper arm's length Service Agreements with the group.Details can be found on these pages 45-47 of the prospectus

The historical EPS for 31 Dec,2006 Sh.0.32,the 'adjusted EPS' for the same period is Sh.0.64.The forecast EPS for the year ended 31 Dec,2007 is sh 1.02.The historical PE for 31 Dec,2006 is 31.3 BUT the adjusted PE(after adjusting profit) for the same period is 15.6.The forecast PE based on the 2007 profit forecast is 9.8 and the Dividend yield is 3%

-The company bills in US$ or local quivalent But satellite and equipment costs are in US $ so it has limited its exposure to currency fluctuations.

-The top10 customers contribute less than 5% of revenues.The company is NOT overly dependant on one customer or group of customers.

-The Profit forecast for 2007 is conservative.i.e. it only considers the Corporate leased line business and the VOIP telephone service.It hasn't looked at new business lines such as;IT services and the move to small home office and Hi-residential markets that could have a big pay-off.

-The company hasnt made huge capital investments.IT equipment gets obsolete by the second.The higher the cost/value of your equipment the more likely it is to be obsolete and also render you incapable of switching to new technology platforms.for instance 5 years ago you had to run web applications on SUN,Oracle or Windows servers that cost millions of dollars.NOw you can run the same sapplications on New servers that run on Open source software that are cheaper(cost hudreds of thousands of Dollars) and are easily scaleable(the size of applications can be increased).

-Its Yello VOIP service has lower rates than the main competitor UUNET.

-It has a CDMA licence,so it can easily take over a competitor or merge with one e.g. Telkom Kenya ltd and offer cheaper/better wireless data services.

-It has kept its options open.i.e. they havent over invested in one type of infrastructure or model.So they can easily catch the next IT wave.

-There are too many competitors in its market.

-Technology is changing everday.Its NOT hard to see new competitors like Safaricom,CELTEL having faster data technologies for internet connection and entering the market.Think along the lines of GPRS but faster.

-Regulation-CCK has been talking about issuing Universal licences at some point in the future.This means players Telkom can start an ISP, once they have the Universal licence
Interesting Fact from the Prospectus
The cost of data transmission by fibre optic between Mombasa and Nairobi is still higher than equivalent Satellite connection.This is inspite of having the KDN and Telkom fibre optic networks connectiong the two cities.
My decision
I'lll buy, the dividend yield isn't bad and Post IPO prices will hit at least Sh 15.Profits can be made.

NOTE: Dont follow me blindly,seek advice from your Stockbroker or other relevant proffessional.

Friday, April 20, 2007

The other day i noticed quite a number of female aquitances i know are pregnant or have just given birth.It got me thinking about life and specifically old age and retirement.You may NOT believe this but as surely as you are breathing now one day you will be old and living on your pension,income or alms(depending on your state of affairs then).

About Pensions
There are two main pension scheme types:
-Defined Benefit: The employer shoulders any risk in the plan i.e. if at retirement the pension scheme assets havent made sufficient returns, the employer has to fork out the difference.
Forking out the diffefrence leads to a drop in profits.These are the legacy costs that companies like FORD and GM in the states suffer from.

The plus side of these schemes is that the benefits can be enormous(to the workers).Its also hard to value transfers in cases of shifting from one scheme to another.Government of Kenya has such a scheme But it is closed to new workers from July 2006.All new Government workers join a defined Contribution scheme.
Most private employers have shut down such schemes or converted them to defined contribution because of the risk it exposes the employer to.

In this scheme both the employer and employee contribute.But the employer has no further liability other than his contribution.Most new schemes are of this kind and the older schemes are being converted to this.Its easy to value transfers between funds in case of job changes

Why should you care?
Defined benefit schemes with some inflation protection tend to be the best.If you live 20+ years after retirement you can find yourself in a situation where what you earnn as pension is higher than your salary before retirement.The sufferer is your former employer because he has to ensure you get the actuarially set monthly payments whether or NOt the scheme returns are sufficient.

Defined Contribution- You are paid what the scheme assets make.If you have a crappy manager tough luck.Thats why scheme beneficiaries and members have yearly meetings with their managers.You are suppossed to throw out the manager if he isn't performing.

This post covers employed people.I'll do one for the unemployed and self-employed.

Tuesday, April 10, 2007


I bet you were wondering what i have on my CDS Account.

Here it is:


sales in the past4 months


Jubilee Holdings


TOTAL(my stake is much smaller)


Made a kill on Jubilee.I got in at sh.180 and sold at sh.300.Sold EVEREADY @SH.16. Sold TOTAL at a loss i.e. bought it @ sh.35-37 18 months ago.Sold at Sh34-32 .
Mumias made a loss of sh4 per share on the sale.


I'm still engaged in flipping i.e. i buy and sell shares as long as i can make 15-20% per trade after covering the transaction costs approx 4.2% when u buy and sell.These shares make up my sales.The shares in my Portfolio are LONG TERM i will hold them for at least 3 years.I'm adding more international holdings to the Portfolio(but i wont flip international shares-commissions and currency costs are too high).

NOTE: To flip, you need a good broker, coz you can trade upto 3-5 times a week.Sometimes you buy and sell the same shares in 10 days.
I can get a JSE(south africa) account.But one thing about JSE is that commissions r too high u have to deal at least Sh100,000 per transaction to make it worthwhile.JSE is more of an institutional market unlike the way NSE goes out of its way to make retail investors welcome.JSE assumes that retail guys should buy mutual funds and leave the market to the 'experts'.

US trading Accounts have better trading terms and conditions.You only need to sign a
W8-BEN(IRS form indicating you ain't a tax resident in the USA) and a few requirements and you are in business


I want to move to LSE (London Stock Exchange) but no one(online) seems to be able to accept an Account from Non-UK residents.They think you must be Pablo escobar or Osama bin Laden's Treasurer.How can a Third World resident have a share trading Account they ask? OR the money to trade?(they dont ask this question explicitly he..heh..).

Locally,Francis Drummond can introduce you to a broker registered on the LSE but you need a minimum of Ksh1,000,000.

Help wanted

Anybody knows how Kenyan residents can trade cheaply(preferrably online) on the LSE holller,email or add a comment how.Because the only solution left is for me to get fingerprinted and go to London to physically open an Account.

Tuesday, April 03, 2007

I'M BACK.....
Hi bloggers, its great to be back after a couple of weeks of doing nothing but traveling and reading a few books that i wanted to read(will do a review some time).Also watched some great DVDs.
Now on to what i do best(or love).

The market
The NSE has really gyrated around and from reading the papers all manner of experts had all kinds of answers for the Yo-Yo's.I noticed that Globalisation is here with us.i.e. We as a country can no longer afford to MANUFACTURE some products in Kenya.We don't have a low-cost base as a country.My recommendation is that the following companies should cease Manufacturing in the country coz it ain't helping their shareholders.

Given the high cost of ZInc and other raw materials, no matter how good the manufacturing plant at Nakuru is.It will never produce cheaply either on a volume or cost base to counter overseas imports. The best thing the company can do is to import all the required batteries from low cost sources and sell them over their current marketing and Distribution Network.

Otherwise, with the current strategy all i see are losses and low profits in the medium term.Since, the market for batteries is on price and quality(quality refers to lithium-ion(which aren't manufactured in Kenya)batteries NOT zinc chloride.
The other consumers who have never heard of Lithium ion are more interested in price i.e. if a battery is half EVEREADY's price then its a good battery.

We don't have the volume of tyre sales to justify a manufacturing plant.We are better off importing from elsewhere in the COMESA read EGYPT) and selling the tyres here.Apparently, this is what BRIDGESTONE had in mind before pulling out of Firestone Tyres.But local shareholders wanted to keep manufacturing here to safeguard jobs.Too bad those 'jobs' had to be axed in a recent restructuring of the tyre firm.

I also think that the YANA brand should be axed unless, its going to be positioned as an ultra cheap tyre.Imagine buying your Range Rover sport and having YANA on your sidewalls.Highly unlikely eh? you most probably will have Pirelli ZEROs or BRIDEGSTONE something on your sidewalls.
Inspite, of all the marketing i dont think YANA will ever have the Brand catchet of PIRELLI or BRIDGESTONE.
But if its cheap matatus and the rest of us can buy the YANA's and fix them on our cars.

The only thing i like is the Real Estate/Business Park is brilliant.