Wednesday, April 25, 2007


ACCESSKENYA IPO
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%

Pros
-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.

CONS
-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.

86 comments:

Ryan Shen-Hoover said...

Very helpful! Thanks, PT.

coldtusker said...

KShs 20mn+ benefits = pretty good chunk then add the dividends... that said... they started the company!

Good luck to them!

Ssembonge said...

Does anyone know what their market share is?

If it is substantial then they are well placed to grow their business.

pesa tu said...

@Ryan: Good 4 u 2 pass by

@Coldtusker: Of course they deserve and it is better that they are transparent

@SSembonge: They r a 2 product firm i.e. Leased lines and VOIP.They are r the market leaders in the Corporate ISP sector.

Ken said...

Great post. Seeing that you are in for a pretty short term and hoping it goes up once it starts trading, what do you make, in light of some IPO's coming up (kenya re, telkom etc..)? dont you think investors will want to keep their pockets full for those ones ?

mwasjd said...

Must admit, I'm also in for the short term. Fundamentals aside, seems from the last couple IPOs, we've got an immediate rise due to oversubscription then correction.

As for technology, there's money to be made in a growing economy and especially with the current ICT drive to see all major towns fibre optic connected and the push towards getting more BPO's in the country means more opportunities and markets for internet services.

pesa tu said...

@Ken: Beg borrow or buy,IPOs tend to be the best time to catch good companies(NOT EVEREADY, think KENGEN)

@Mwasjd:The mkt behaviour u mention is why i buy and flip.
Technology can be very hard to predict.10years ago who could have predicted that HP,microsoft and apple would branch out into consumer electronics like the IPOd,ZUne Mp3 player and HP LCD televisions?

pesa tu said...
This comment has been removed by the author.
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