BOOKS & MOVIES
When i was away i caught up on a couple of books and DVDs(that i promised i would recommend).I would recommend them any time.The books can be found at Amazon.co.uk, Book Point and Books First.Check prices at BookPoint and Bookfirst-Nakumatt before you order on AMAZON.But some books can only be found on AMAZON.Nu Metro has a weird book collection thats why it isn't here.

Books
1.Winning Investment Habits of Warren Buffett and George Soros
Can be found at Amazon.These two guys are self-made billionaires-started with nothing and ended up US$1Billion plus.The advice boils down to this; Focus on what you are good at.Whatever you make live below your means.









2.Walking in Kenyatta Struggles
Interesting biography from the first black Governor at the Central Bank of Kenya-Duncan Ndegwa.The Ndegwa Commission of the 1970s that allowed civil servants to engage in private business, also recommended the setting up of the office of the Ombudsman.

The Ombudsman would receive complaints from the public about Civil servants.Civil Servants would also have to declare conflicts of interest.Imagine if these measures were implemented in the 70s, half the scams we've had would never have occurred.

3.TITAN

The biography of John D Rockefeller Sr- the richest man to have ever lived.He was richer than Bill Gates even after factoring in inflation to equate the US$ then and now.
For all his wealth he had all the usual problems we all have ungrateful relatives,disappointing children and malicious rumor mongers.
This is one of the best biographies i have ever read.


DVDs
1.MOBUTU-Le Roi du Zaire

Interesting documentary film capturing Mobutu's rise stay and eventual fall from power.His family ,opponents and friends are all here.
No actors just interviews and newsreels of Mobutu , Zaire and the world leaders of the time.The transformation from an idealistic young man to an old tired dictator is fascinating.





2. 24

Jack Bauer always seems to keep going and coming back just like the Energizer bunny.



3.Hustle-TV series
A group of lovable con artists.They pull DECI-like scams on their victims.Every episode is thrilling the plot leads the viewers down one path as Mickey and his pals lead the 'victim' down another.
Mickey is played in the first 2-3? seasons by that guy who was Joan's boyfriend(Brock) on girlfriends.
I think those guys who ask others to 'plant' a seed and quote some obscure bible verses, use it as a training video.

Couch Potato does great reviews on new and old favorites on TV and the big screen

Adventures of Nyangi
For the first time we have a kenyan video game.An enterprising Kenyan called Wesley and the rest of his team at Gwimgrafx Studios are the developers.I havent played it(My comp doesnt have 512MB RAM) but i saw it at Nu-Metro media store(The Junction).It retails at less than Ksh900.Compared to other PC Games in the Ksh3000-Ksh9000 range.
Buy it online here

He was also featured on Enterprise Kenya on KTN on 22ndMay.

I wish Wesley would do it in PS2(Playstation 2) format.Lots of Kenyans have Playstation consoles.A PS2 disc at sh.300 would have wider distribution.

PlayStationPortable(PSP)
It can now offer VOIP calls via wi-fi.I'm curious , would it work in Nairobi via KDN's butterfly network?
Kenyan Pundit says that the network is free for now(havent tried it)

DO LIST SAFARICOM ABROAD
I am all for Safaricom to have a partial listing abroad;either on the LSE(London Stock Exchange) or NYSE( New York Stock Exchange). The benefits of listing safaricom offshore are numerous, such as:
-A foreign listed stock will bring the Kenyan and East african market to the attention of investors in the Developed world and raise our profile as a country.South Africa,Egypt,Nigeria and even Malawi have their local companies like ABSA,Orascom Telecom,Telecom Egypt and United Bank for Africa-Nigeria are listed abroad.

-Investors will consider Kenya a serious and viable investment destination because by virtue of cross-listing our LOCAL COMPANY shares off-shore it means that we have locally based companies that can operate within World-class corporate Governance and Financial regulations. i.e. to cross-list on NYSE or LSE you have to adhere to UK or US listing standards.

-Cross-listing of Kenyan companies in the UK/US exchanges will provide foregn inestors and Kenyans in the diaspora a more efficient way to purchase Kenyan shares.It will probably be more liquid and efficient for them(Investors outside Kenya).

By the way lack of liquidity in our capital markets is what prevents some Foreign investors from entering them. -Cross listing will also enable local companies have more options for raising capital I am of the opinion that some Kenyan companies are large enough to cross-list abroad.For instance,KCB, First Chartered and Jubilee and Equity in the next couple of years.

How would the Sale of Safaricom shares offshore be done?

There are several methods of listing abroad.Some of the methods are:
Depository Receipts
These are negotiable finacial instruments that represent shares in a company.For instance, Vodafone PLC has Depository receipts(DR) that trade on the NYSE.the Ratio of DR to Ordinary Shares is 1:10 meaning that 1 DR represents 10 ordinary shares of Vodafone PLc.
In Safaricom's situation a block of shares in Safaricom(K) Ltd would be deposited with a local Custodian Bank which would act as an agent for the Depository Bank in London or New York Exchanges.

The Depository Bank would then issue Depository Receipts based on the Block of shares held on its behalf at the local Custodian Bank or Branch. For example, if the shares deposited at the custodian Bank were 100,000,000(One hundred million shares) then Depository Receipts were issued in the DR:Ordinary share ratio of 1:10.
Each Depository receipt listed abroad would represent 10 ordinary shares in Safaricom(K) Ltd. So 10 million DRs would be issued for listing on the NYSE
(Assuming the DRs are listed in the USA). If 1 safaricom share on the NSE traded at sh35, with the US$/Ksh exchange rate at 1US$-Ksh70.One Safaricom DR would cost US$5 (1 DR is equal to 10 ordinary shares i.e. 35*10=350)

Direct Listing
Safaricom(K) Ltd could also have its primary listing on a foreign stock market e.g. LSE and the secondary listing on the NSE.The alternate could also be done- the primary listing can be on the NSE and the secondary one elsewhere.
SABMiller and Old Mutual Plc. have their primary listings on the LSE. The drawback of having a primary listing on the LSE is that Safaricom would have to create a UK based PLc company to do this.
I favour listing on the LSE because the listing and compliance costs in the UK are lower than the USA.

NOTE
I have deliberately over-simplified some explanations and left out some facts/explanations for the sake of clarity and to make the post accessible to people with a non-finacial background.

Rewind

I have blogged on a number of issues over the last 6 months.Some of them are now being debated in public ,other issues have melted into thin air and others are due to come up.
Safaricom

It turned out that the shareholder structure that we(you and i) hypothesised on this blog turned out to be true.The Guardian newspaper investigated Safaricom's shareholding structure and found the offshore parent of Mobitelea.

cellular-news.com has more on the saga here.

Banking Ammendment Act

The Minister for Finance gazetted this ammendment and borrowers are soon to enjoy the benefits.

NEMA's car Pollution ammendment

This is one Act that NEMA(National Environmental Management Authority) had to shelve.Inmplementing it would have been an enforcement nightmare .It would have requitred hundreds of Traffic police and NEMA inspectors to implement.It would also have taken out a lot of vehicles off the road.

Lack of adequate resources for enforcement are part of the problem with the new traffic rules.
I am sure it(NEMA Ammendment) will come back someday.

Monetary Policy Advisory Committee(MPAC)

The report on which the MPAC post was based is now under scrutiny.Specifically the issue of whether we need a strong shillin or weak shilling.With the shilling at Ksh 67, you can be sure some exporters are crying.
I'm a weak Shilling proponent But most people are for a strong shilling.Their argument is that we import Oil , so a strong shilling will keep the cost down.Consequently,domestic inflation will also be lower as a result.

They forget that the largest component of domestic oil price is TAX.

KQ 507

Condolences to all the family members and friends of the crew and passengers of flight KQ507.

BUSINESS NEWS IN KENYA
A post for those who aren't interested in daily accounts of the NARC-Kenya and ODM soap operas.
Business Daily
Great concept, first daily business paper in the region, like the FT it has pink (or is it brown) paper. I have a soft spot for them(was once offered a position on the BD-Africa launch team, BUT was otherwise occupied and couldn’t take the gig)
I’m torn between the print and online version. The online concept-BDafrica.com is one of the best African business news sites. The daily paper is great but I tend to feel that they take one story and slice it into many slices in order to fill the daily content.
An example, is the shortage of Accountants story, they have carried it in various formats in several issues of the paper in the past two months.
No background interviews have been done on the story e.g. talking to Accounting firms and companies. Just sound bites from two, three people and ICPAK.

Business Daily also does lots of WSJ/Reuters wire stories that aren't relevant or you can get on Google news. Then the usual gripe about Nation Media Group newspapers- there are quite a number of spelling and grammatical mistakes in the paper.

The other gripe is that the FTSE London stocks list is never complete. Its always chopped off halfway. How can you look at FTSE stocks and NOT have SabMiller and Vodafone on the list?

Suggestions
They should try and do more business stories from Africa and Asia.Otherwise,you end up with a paper where 10% of the content is local and 90% can be pulled off Google.

Make it cheaper or increase the content. The FT has a heck of a lot of content ,I once had a subscription had to read part of the paper on weekends ,i couldn’t finish it in one morning(and work in the morning).
Take Bankeleles route- Add it as a Supplement in the Daily Nation and increase the price of the Daily Nation marginally.

Change editors
- i see the logic in sharing editorial control with the Daily Nation i.e. So that the stories DONT clash or conflict. Because some breaking news stories make sense to both papers. Someone has to decide which paper will carry what story.
But the Business Daily needs someone with business interest to pick the wire stories. So that they pick stories that can excite reader NOT just stories that can be picked off the net.

Daily Nation
Business news isn't as great as the EA Standard.

EA Standard
Balanced politics and business news, But NMG publications trump them in the quality of business news. The EA Standard has all the ingredients for better business journalism BUT they just cant seem to find the right recipe.
People who can only buy one paper (cant afford Business Daily)and need both business and politics buy this paper.

Kenya Times
The head of business news deserves a medal. In spite of having less resources than NMG and Standard, Kenya Times has good online content on its site. The articles also tend to be more incisive, with appropriate comments. If they got more resources, i think they can beat NMG at this game.

Business in Africa
The stories tend to have a South African slant, with a little bit from elsewhere. I find the articles academic with little value addition

The Times (UK)
Its one of the best papers around. I find it well balanced and an interesting read.You will find it engrossing even if you aren't white and believe you run the country(By country i mean the UK)

Time/Newsweek
Good weeklies but Newsweek has a more international outlook. TIME is more American focused(news with an American perspective).

Economist
Articles that get you thinking,good to read. By the way they have a special subscription offer-valid until June.

Al Jazeera
News from a non-US/UK perspective. Interesting interviews of people like Gen Musharraff, Sheikh Aweys

CNN/ BBC
Good for the programmes like Quest and the documentaries But with Google,RSS and other net news some of their news seems like internet feeds on your telly.

KTN
The better business news on television.

NTV
Business news is sufficient. The only problem is that the same stuff can be read in the next day's paper.

KBC
It has more extensive business news than NTV/KTN; the one of the problems is that we(Kenyan viewers) prefer to watch KTN,NTV and CITIZEN. The other is that they don’t display the market prices(NSE) properly.

NAKUMATT SMART CARD ADVISORY

Did anyone see the NAKUMATT advertisement(Daily Nation May 1,2007) in the paper?The advertisement warned Smart Card holders from disclosing their Bank account details to callers who pretended to be Nakumatt employees.It seems to be a crack in the smart card and receipts system that crooks want to exploit.

The crack

The Nakumatt till receipt indicates the following details at the bottom(if you use your SMART card):

-Name of smart card holder-Smart Points givenIf you pay by credit card/Debit card plus use your smart card, the following details will be on your till receipt

-Name of smart card holder-Smart Points given

-Full Debit/Credit card number BUT not the name on the Debit/Credit cardSo by getting hold of your receipt. Someone knows your name and the full number for your Credit/Debit card, But not your address or the CVW code of your card

What you didn't know

To use a Credit/Debit card online you DONT need to have the card physically present you just need to know the card number and its Card security code.

Card security code refers to the 3 digit numbers at the back of your credit/debit card that are on the signature strip. Take your card flip it over and look at the signature strip. You will see a series of numbers. Look for 3 digits that are together. Those three are the code.

Card companies developed this code to prevent people from using other peoples' cards online using stolen Credit/debit card information.The code forces you to physically have the card when carrying out the online transaction.Most online sites will ask you for this code in addition to the usual details when paying for an online transaction by card.

My theory

I think that someone must have found a way to obtain SMART card details. Then he calls card holders for the bank information/address and Card code.

How to protect yourself

-Destroy the portion of the receipt with your name and credit/debit card details

-Use slightly different details for your SMART card and other loyalty card programmes from your bank details. For example, put a fictitious date of birth on your loyalty programme applications. Use a different address for your Bank account and other applications.

-DONT give out your Bank Account details to anyone over the phone.-Watch your bank statements and report any suspicious transactions.

What Nakumatt should do

The counter till receipts shouldn’t display your full Credit/debit card numbers and your name. Part of the numbers should be obscured.This is what some supermarkets outside Kenya do in the UK do. Local ATMs also obscure part of your Credit card number (Pesa Point and NIC bank do so for Credit cards).

Other than the above.I am happy with the SMART card and will continue to use it.

Here are a few interesting links on the subject:

-FTA -UK warning on card fraud

-A post on identity fraud

Here is a link to the Nakumatt notice on their site.

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.

KNOW THY PENSION

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.

-Defined Contribution

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.

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

Here it is:
TOTAL
BAT
EQUITY BANK

sales in the past4 months
Eveready
Jubilee Holdings
KENOL
TOTAL(my stake is much smaller)
MUMIAS

Comments
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.

GOALS
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

Problem
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.

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.

EVEREADY
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.

SAMEER TYRES
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 plan.it is brilliant.

SAFARICOM DISADVANTAGE

I'm thinking of dropping my Safaricom Advantage postpaid line.When i got in 2 years ago.Safcom Advantage was cheap @sh.10 per min.(before taxes to call another Safaricom line).Approx. Sh.12.60 after taxes.Dont try to call CElTEL or a landline.The bill can hit sh. 40 a minute after taxes.

Today CEltel has an innovative line of postpaid packages that enable you to fix your monthly usage and Calls to other Networks as low as Sh.16( a minute after taxes).

On Saasa tariff, Safaricom to Safaricom calls are charged as low as sh.8 a minute.While am calling a Safcom line at sh.12.60 on the tariff thats euphemistically dubbed 'ADVANTAGE'.
Then, i have to top up KSH20,000 for roaming but some post-paid subscribers on Safaricom roam for free-just a scratchcard and they r chatting,while out of the country.

Safaricom should do something for the Post-paid subcriber.We pay higher rates than post-paid subscribers/I thought it was the other way round.Coz am such a good client(thats why they let me call & pay later), i ought to get better rates than pre-paid.
If nothing happens Tarriff-wise by the end of March ,i'm moving to CELTEL.

PS. i'm on a break till end- of the month.Your weekly dose of my analysis and thoughts will be back at end-month.

BARCLAYS Vs EQUITY

In the Blue corner we have Barclays!! in the Red Corner we have Equity.Lets get ready to ruuuumble........... sorry got carried away, this post is on the banking sector.The best way to do it is to focus on two players everyone talks about:-Barclays Bank(BBK)-Old style bank, majority owned by Barclays Plc+ about to be taken over by ABSA-South Africa -a Barclays Plc group co.

-Equity Bank-Indigenous owned bank that has grown @ sonic the hedhog speed.EPS is up 120% last year.

Brief Stats as at January 2007

Barclays Equity

ATM's 80 105

Branches 60 42

Pre-Tax Profits in 2006 sh6.6Billion Sh1.1 Billion

Barclays Bank

Click here to see the latest Financial results

Pros

-Large Bank+solid reputation
-Large wealthier customer base
-Steady dividend payout
-Large and diversified product base e.g BarclayCard credit cards,Wealth management,Trade Finance....

Cons

-Owned by Barclays Plc. so London will always guide major decisions.Compare that with Equity Bank that bought its IT software from the best vendor(according to mgt.)- INFOSYS of India.If BBK had to make a similar decision it would probably buy whatever software the Plc. uses

-Attempting to copy Equity Bank retail model.However, the clients they are going after may be sub-prime and they may not have the experience of dealing with them.NPA's may rise.By the way they're doing something similar to Equity in Ghana.

-Takeover of Barclays Africa by ABSA. I hope this doesn't distract the management of BBK from the task at hand.

Equity Bank

Click here to see the latest Financial results

Pros
-Great banking model.Everyone is trying to copy it from BBK to Co-operative Bank
-Fast growing.Earnings are up 120% for 2006.A bonus offer has been given signaling further earnings growth
-Largest ATM network.equity has bought 100 ATMs read here for more.This should bring their ATMs to more than 200 at the end of 2007.compare that with 200 that Barclays will have at the end of 3 years.
-Aware of their market position and their competitors.So they have an awareness of where they are going and what copmetitors are upto.
-Low cost base.Equity can give you a loan of Ksh 10,000.I think the lowest Barclays can give is Ksh 50,000.Below that their(barclays) cost structure can't allow it.

Cons

-At some point the 100% growth will slow down.According to the prospectus(for the NSE listing) this will be around 2009.
-All fast growing banks have had to deal with larger NPA's at some point.Will this ever happen to Equity?
-Public perception-The public has always viewed the bank as belonging to one community.The other thing is that middle class/upper Kenyans believe that a white,hopefully) British man has to be at the back of any successful Bank.

My thoughts

I think Barclays should stick to its current clientele and try to make services better for them.E.g. Barclays had a cash/cheque deposit at Queensway that used to work. Not anymore.You have to go into the banking hall to deposit.

Barclays should try making its other services e.g Credit cards better.e.g.if you pay your card bill by cash-it takes upto 3 days to credit your Barclaycard.

I think the shift downmarket may slow Barclays' profit growth.Equity still has room to grow i.e. as they increase branches, the deposits will grow.However, at some point in the next 3 years growth will stabilise to normal levels and the management will have to consolidate the gains.At that stage is when management will be tested.

Equity has avoided the blunders of earlier Local banks i.e. depending on one group of depositors.i.e EURO Bank got most of its deposits from Parastatals.So, when politicians changed and deposits were recalled, there was no way out but down.

The other reasons why i'm confident about Equity's stability are:

-CBK supervison has greatly improved.CBK now monitors Banks much better.Before any results are given to the NSE or Public,CBK goes over them.To make sure all is prudent.

-Equity uses a 30 day period to classify loans as Bad or good.This is more conservative than the 90 days CBK regulation.(read the prospectus)

Where my money is

My money is on Equity,i think they will outperform the market in the medium term(3-5 years).i have bought it for capital gains.
Barclays is too big and if they grow bigger(from 60 branches to 120 branches),they might loose focus.I dont expect them to outperform the market in the next 3-5 years.But the dividends should remain great
Barclays is approaching the statutory limits of lending thats why dividends were low for 2006.(Earnings were retained in order to increase capital)

Conclusion

Barclays for the dividends, Equity for the capital gains.With the downward trend in prices it will pay to wait and add once the retail investors on the exchange panic and sell. But for equity buy at any price below sh.230/- because you get 3 shares for the price of 1(Cum-bonus).

Chill and pick Barclays at sh.60 and below.

For those who want to read more

"Understanding the Re-birth of Equity Building Society in Kenya" An interesting study of how Equity moved from an insolvent Building Society to a successful one and finally to a bank.This study was done in May 2002 but the issues raised are still relevant.

Click here- more studies on Equity Bank done by MICROSAVE can be found here.

An interesting article in THE BANKER about Barclays Plc and its plan for Barclays Kenya(Found the link on Kenya Capital).Click here

http://www.wakilisha.com/peeps/nameless/

WHY KENYAN MUSICIANS R COMMERCIAL FAILURES

Please note that the Headline says 'Commercial failures' NOT Artistic failures.Plenty of our guys and gals have TALENT nobody can doubt. The Mceeing skills of Kantai or Abbas/kubaff are up there with Common and NAS.Nameless,Owiyo,Eric wainaina all have Talent.

Compare that with Jay-Z who continuously copies 1980s tunes and raps over them.e.g. He re-did the 80s classic 'I just died in your arms tonight ' in 2006.It was originally done sometime in the mid-eighties(cant remember when) by Cutting Crew. P-diddy covered tunes from Notorious by Duran duran.However Jay-Z is on the Forbes most Wealthy Celebrities list and no kenyan musician is on it(last time i checked).

My issue is that no kenyan musician seems to have broken into the international platinum/gold selling category like Makeba,angeline Kidjo.Plus, none of our musicians seems to be making huge profits from music.Most of their money seems to be coming from endorsements and side-gigs like being Radio-presenters.

Here's why i think they dont make the money:

1.Poor marketing and Distribution

I heard this line about the music biz that it's '99% show and 1% talent'.Just ask Britney spears.If u can sing thats great, now for the 99 %.

A typical Kenyan musician(lets call him muzik) does a song on fruity loops then sends the CD to Kiss/Capital/Easy and it gets airplay.The song's hook is catchy and its on top 10 at 10.After 2 months of continuous airplay. Muzik decides to release his album.Too bad no-one is going to buy it.We've heard his song everday on radio for two months for FREE.Why pay for it?
The enterprising listeners with TV/FM cards on their comps have recorded it off radio and are selling Bootleg Mp3s of the 'Hit'CD.

2.Pricing

Our man Muzik's CD is priced at sh.800 (Bootlegs are selling for sh.200).Its only available at Nakumatt, that shop at the JUNCTION and some shop on Mama Ngina street.If u live outside Nairiobi- tough luck.
Predictably Muzik's CD only sells 1000 copies and he blames the pirates for killing the Local music industry.

Let me tackle the above issues:

Marketing-Muzik should never have given his tracks airplay without the CD hitting the shelves.As people hear u on radio, they can go out and buy the CD. Thats whay Jay- Z , ne-yo and the other Western musicians do.
Local musicians should set up a country-wide distribution network so that once an Album 'drops' u can buy it anywhere in Kenya.Lack of availability of a musician's Cds is a business opportunity for the 'pirates'.This distribution network is the KEY to the success of Bongo Flava in Tanzania

Pricing- Most TZ/bongo musicians sell their Cds/Casettes for about or less than sh.400.Kenyan musicians dont do Casettes they only produce CDs and retail at more than sh.700 orSh.1000 for that kind of money u can buy an R-Kelly or Beyonce on Amazon.co.uk add sh.200 and ship it to Kenya.There're still Kenyans who listen to Radio Cassettes(in the 21st Century) so as a local musician you must have casettes.

The other factor is;

-Lack of commercial awareness

Local musicians do commercial endorsements but dont live the product.e.g. Most formula 1 drivers endorse the manufactures' car off-track.So u will never catch them driving anything else.e.g. Mc-laren drivers endorse Mercedes cars.A good example of this is when we had a re-launch of a new marketing drive for a soda with a contour shaped bottle.Little was heard of the soda but a lot was heard of the drinking exploits & otherwise of the musicians called to endorse it.They(musicians) shouldnt be surprised if the next re-launch of the soda sidelines them or takes a global star.

Till they shape up their marketing and distribution local music outfits may not achieve commercial success and one-hit wonders will be the norm.

P.S. am not playa-hating nameless.He's just the most recognizable Boomba musician.Since, this is the genre am referring to-had to use his pic on a critical article

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

Inflation & You

I decided to talk about inflation because there are a lot of numbers thrown about on a regular basis about it and people dont seem to be able to understand or interprete them.
Inflation simply refers to a rise in prices.

Why worry about inflation?

The first rule of investment is to protect your principal investment.Inflation silently eats away at this principal.To keep it at bay, your investments should earn more than the overall inflation

For example, in Kenya your investments must earn at least 13% per annum in dividends+interest+capital gains to maintain their monetary value.

If your investments aren't doing this on average(over one year or over 2-3 years) you are done(Wealth creation wise).

There are two main measures of inflation in an ecomomy:
1-Overall inflation-the rise in prices of all goods and services in the economy.

2-Underlying inflation(Core CPI in the USA)- rise in prices excluding food and energy/fuel costs.

Economists measure underlying inflation. the Monetary policies of most Central Banks target underlying inflation.For instance, in Kenya (Central bank of Kenya) CBK's aim is to keep underlying inflation within 5%

The Problem In real life your real cost of living(eating,sleeping and working)includes food and transport but when measuring inflation for their monetary targets economists leave out these items.
For instance,the Overall Annual Inflation is 13.94% and the Underlying Annual inflation is 3.88%.

How it affects you

Over the past couple of years Economists have been issuing statements saying that inflation is under control.However, the average Kenyan has been grappling with rises in food and transport costs.The economists are 'right' in their own way since, they are looking at underlying inflation which has been within the Monetary target for a while.

By the way,UK economists failed to predict the January 2007, rate rise by the Bank of England in a spectacular way.Read more here

Bankelele also talks about inflation in this post

Banking Amendment Act 2006.. aka how greedy banks will have to slow down

An amendment of the Banking Act passed by Parliament and and assented to recently. Some of the measures provided in the legislation include:

-Giving Central Bank of Kenya(CBK) more powers to regulate the Banking sector i.e. some of the powers vested in the Minister of Finance have been moved to the CBK. -CBK to vet new and existing owners and directors of Banks.It can even ask existing owners who dont pass the muster to reduce their holdings to below 5%.

-The charges banks can levy on Savings,fixed deposit and 7 day call accounts to be restricted.

-The in duplum rule, that restricts oustanding amounts on bad loans to not more than double the Principal to be effected.i.e. Interest stops accruing once it is equal to the Principal amount borrowed.

Dont celebrate yet because the rules only come into effect once the Minister of Finance Gazettes them.

Look at this Letter of Intent and Memorandum from the IMF in 2004.Specifically item 22.You realise that we are merely implementing what IMF told us to do in 2004.
Click here for the IMF letter.

PS: I noticed that the IMF letter doesnt display when you go to the IMF site.
Type or Paste the following words " kenya+2004+letter+intent " in the IMF site search box, then click on the first search result item to get to the letter.

Picture of Fistful of Dollars courtesy of blackentrepreneurshalloffame.blogspot.com

TOP NSE INVESTORS IN 2006

I was mucking around on stockskenya when i came across this link.It is a compilation of the top 10 shareholders of various companies listed on the NSE.

The list is compiled by the Financial Post.It was made last year-so there are a couple of changes, if you use current prices to analyse it.

One thing you will note about the list is that wealth on the NSE is concentrated among a few groups.For instance, ICEA ,FCS and NIC bank are listed as separate bodies but they share the same ownership.

Here is the list http://www.financialpost.co.ke/Pdfs/TOP%20NSE%20MILLIONAIRES%202006.pdf.
RIGHT CLICK and SAVE as to save it to your computer.

Regret
I wish i had bought KPLC(plus not sold EABL before the split) when it was Sh6(about 4 years ago), i definitely would be on this list.
Buy and hold good companies and slowly build up your stake over a 5-10 year period. 1,000 shares of a company every year for 5 years = 5,000 shares.Inflation,bonuses and splits will do the rest of the work for you.

By the way other bloggers-Odegle and Kenya capital have covered it in their blogs.

THE SHILING AND MPAC

The shilling has strenghthened over the last year from a sh74 to the US Dollar to Sh69.This has been good news for importers since the cost of imports in Shillings has declined.However,for Exporters income in shillings has decreased.
Here's an example to show how the Shilling affects importers.Assume that X ltd(fictitious company) imports a steel bolt costing US$ 1000(and this price remains constant).The cost of the import when the US$/Ksh exchange rate is sh74 is Ksh74000 i.e.(1000 x 74=74,000)
When the US$/Ksh exchange rate is sh 69. The cost is Ksh 69,000.Thus the change in the exchange rate from US$/Ksh 74 to US$/Ksh 69 leads to a drop in the cost of importing the bolt from Ksh 74000 to Ksh 69000.
The strong shilling has mitigated the high oil prices in the last two months i.e. if the shilling had gone from US$/Ksh exchange rate sh 74 to sh80, a litre of petrol would have been around sh 90.

However, the strong shilling will affect our key foreign exchange earners like agriculture , tourism and even manufacturing.It makes our tourist facilities more expensive.i.e. A hotel room that cost Ksh 20,000 when the US$/Ksh was 74, cost US$270 But when the US$/Ksh rate moves to Ksh 69 the cost is approximately US$289, a rise of US$19.Dont forget Agriculture and Tourism contribute a huge portion of our National Income.A weak shilling would be the best for these sectors.But a weak shilling would lead to an increase in inflation through higher oil/energy prices and the ripple effect to other sectors.
Higher inflation=Higher cost of living BUT a stronger shilling undermines our exports and makes it harder to set up manufacturing facilities for export oriented products and services.
STRONGER SHILLING OR WEAKER SHILLING that is the question.Which is the better one for Kenya?

Monetary Policy Advisory Committee(MPAC)

It is formed under the (Central Bank of Kenya) CBK Act to advise the CBK on Monetary Policy.The committee is composed of distinguished Kenyans who have a record of having accomplished something in their respective fields. i.e. Prof. Terry C. I. Ryan( A former economic Secretary),Mrs Sheila S.M.R. M’Mbijjewe(Former Finance Director at Standard Chartered Bank) and Mr. Wycliffe Mukulu(A banking consultant).Click here to see the MPAC's latest report.
The issue of whether we need a stronger or weaker Shilling is one of the issues that the MPAC is studying.See more in the MPAC report.

The report states that they will hold regular media briefings to inform the public on their work.

Rumours

Heard a nasty one this week to the effect that a certain fast growing Bank wants to release its Accounts for 2006 by January 25th 2007.Utter,utter non-sense,it takes a while for all the issues between an auditee(especially a bank) and the external Auditors to be settled before the final accounts are issued.

For a large bank this would take upto early March(If the year end is 31st December).Unfortunately,this kind of baseless rumors are what are driving some sections the NSE.I pity the novice investors whose decisons are guided by such information.

Here are a couple of stocks i'll watch in 2007 and why.

1. BAT
This company will surprise us with the growth in the export business.Exports have risen to more than 40% of revenue.
The Anti smoking Legislation will make it harder for new competitiors to get into its market.i.e. the cost of doing Tobacco business will rise
I also like its dividend yield at >people tend to forget the other side of investment gains is dividends Not only capital gains.

On the other hand, the market may well ignore it.At sh190- sh200 its too expensive for the average retail investor.

2. Equity
Going by the latest half year and quarterly results Earnings will double.The only darkside is the rising Non Performing assets.The performance is beyond the 40-60% earnings rise predicted by the management during the NSE listing.

It has good management and it still isnt all over the country.

3. KENGEN
I hope all those retail investors who bought start cashing out soon so that i can get in at a nice price i.e. under sh.26.

Its well run.The only problem is that its under the State Corporations Act meaning that a new Government in 2008 will lead to changes in the management

4. TOTAL
I expect earnings to decline but management may retain dividend payout at sh2.50 or Sh2.00.I'll increase the stake coz i love the dividend yield.
I dont know how the energy bill will affect the Oil sector.Will let u know once, i read it.

5. Standard Group
Perennial laggard but has impressive assets i.e. KTN Tv and the Newspaper distribution service.This is a company crying out for a takeover and management turnaround.
I will buy it speculatively,since i'm sure that in the next 18months somebody will make a bid for it.
I hope they set up an investor section on their website like Nation Media group.Otherwise, how will potential investors get financial information on the Group?

I only buy companies that are doing well/well managed in their sector and have room for long term growth(i dont worry too much about the share price as long as the P/E isnt too high).