ANOTHER DISAPPOINTING ALLOCATION

Another dismal allocation for Eveready applicants as investors are forced to settle for less than 20% of share application following the offer oversubscription. It is now becoming a disappointment to eager subscribers who have to brace the never-ending queues to put in their applications, only to have a larger part of their forwarded funds returned. The allocation gets smaller and smaller with each IPO and investors will soon get wary of channeling their funds this way.

It would be so much better if brokers (or is it the registrars or receiving bank or other transaction advisors, or all) would have a way of telling when the subscription hits 100% mark then close the doors on any more applications. That way, there’d be no chance of oversubscription and all subscribers would get the exact amount applied for. That’s just my suggestion. Others are welcome but the bottom line is, we need some intervention.

Its no wonder Mumias has not received as much a following as the other offers. But then there is just no telling with Kenyans. 2 days to go and everyone comes rushing in doing the last minute stunt.

On the secondary market front, prices have settled back to the yoyo dance, down a few shillings then back again. I sincerely expected a significant correction in the month of December (which would then give me a chance to take position on a number of counters at lower prices) but it just aint happening. Just as a price starts a gradual decline, demand sets in and pushes the price back up.

Kenya Power and Nation media, both having information on possible splits tied to them, were yesterday’s highest climber, up Kshs. 9.00 and 8.00 to close at Kshs. 293 and 218 respectively. Jubilee insurance whose share float is so low and a split would go a long way in increasing liquidity on this counter, was also up Kshs. 8.00 to close at Kshs 309. KCB and Car & General both edged Kshs. 5.00 higher to close at Kshs. 55 and 218 in that order while ICDC, currently trading cum split and dividend closed Kshs 3.00 higher at Kshs. 51.

Standard Chartered captured the largest dip, down Kshs. 8.00 to close at Kshs. 202 while BAT shed Kshs. 5.00 to close at Kshs. 189.

INITIAL AND SECONDARY OFFERS

Every company listed on the Stock Exchange had to go through an initial public offer which essentially is the offering of company shares to the public. At the point of incorporation of any company, the owners have to assign a nominal value to their company which states the number of shares and the value of the shares. These are the shares that are then offered to the public at IPO point.

Companies opt for public offers for various reasons including;

* Need for expansion capital
* Divestiture – as in the case of parastatals
* Exit mechanism for shareholders
* Boosting of company profile

SECONDARY OFFER

Companies that have already floated their shares on the Stock Exchange can still release an additional number of shares through a public floatation thus a secondary offer. Mumias sugar secondary offer is one such example where the government is releasing about 92mn of the total shares still held by the government to the public.

In this case, you don’t have to be holding shares in that company in order to qualify as is the case in a rights issue. You just need to make an application as would be done in the case of an Initial Public Offer.

The secondary offer for Mumias starts today, 4th December 2006 and runs for 2 weeks to 18th December 2006. The shares are being offered at Kshs. 49.50 and the minimum number of shares that an individual can purchase is 200, translating to Kshs. 9,900. Corporates have been allocated a higher minimum of 10,000 shares, translating to Kshs. 495,000.

Also currently under offer are Stanbic Bank Uganda shares on the Uganda securities Exchange. The bank, a subsidiary of Stanbic Africa Holdings Ltd, which in turn is owned by Standard Bank Group Ltd opened its doors to an initial public offer on 24th November 2006. The company is offering a total of 1,023,773,394 shares, 20% of its issued shares, to the public at a price of Kshs. 2.80 (Ushs 70) per share and a minimum of 1,000 shares translating to Kshs. 2,800. The offer period will be closing on 22nd December 2006.

Market Review

The market recorded a rather dismal day yesterday as the index shed 62.68 points to settle at 5490.20 while turnover declined to Kshs. 262 mn. Down from the previous day’s Kshs. 314 mn. A larger number of declines than advances were captured, the highest being Jubilee incurance which shed Kshs 20 to close at Kshs. 302. ICDC was down Kshs. 13 to close at Kshs. 352 while Bamburi dropped Kshs. 7.00 to close at shs. 193. On the gaining side, Kenya Power and Standard Chartered both closed Kshs. 3.00 higher at Kshs. 250 and 202 respectively while Equity, Kenya Commercial and Williamson Tea aced up Kshs. 2.00 to close at Kshs 135, 210 and 117 in that order.

EVEREADY DOWN, MUMIAS NEXT

As the dust settles on the Eveready IPO, anticipation for the forthcoming Mumias Sugar shares public offer has gripped the market. The government is releasing a further 18% to the public, translating to 91.8 mn. Shares. With the opening of the offer only a week away, and the price set at slightly below Kshs. S0 Investors are now going back to the drawing board to establish strategies to finance the acquisition of the shares, and preparing themselves to brace the long queues.

The market is on equally high gear as prices continue to soar evidenced by a larger number of and stronger gains as compared to the losing side. Jubilee holdings realized the highest gain, up Kshs. 32 to close at Kshs. 360. Nation Media broke the Kshs. 400 barrier to hit a high of Kshs 430, buoyed by a possible split romour while ICDC Investments Chalked up Kshs 10 to close at Kshs. 392. CMC, Standard Chartered and Kenya Oil all closed Kshs. 4 higher at Kshs 164, 214v and 110 respectively.

Barclays Bank, currently trading cum split and bonus, traded at between Kshs 630 and 580 and averaged Kshs. 591, 8 shillings below Friday’s closing price. Books on both the bonus and split close on Wednesday, 27th November 2006. Sasini Tea shed Kshs 4.00 to close at Kshs. 125 while Kakuzi edged down Kshs. 2.00 to close at Kshs. 40.

POWER CRAZE

The market closed 71.25 points higher riding on strong price leaps on a number of blue chip counters. Kenya Power stole the show as a surge in demand pushed the price to a Kshs. 262. Nation Media aced up Kshs. 16 to close Kshs. 3.00 shy of its Kshs. 258 12 month high. CMC Holdings hit a new 12 month high of Kshs 236, 12 shillings above Friday’s Kshs. 124 close. Sasini Tea, which has captured significant price appreciations with every trading day also hit a new 12 month high of Kshs. 87 while Bamburi edged Kshs 10 higher to hit the Kshs. 200 mark.

Losers were much fewer and lower, the highest being on Barclays Bank counter which shed Kshs 18 to close at Kshs 466 after hitting a new 12 month high of Kshs. 515. TPS shed 7 shillings to close at Kshs. 85 while Cables eased down a further Kshs. 5.50 to close at Kshs. 52.

SPLITS AND GAINS

The last two weeks have been relatively hectic as the bourse received news, releases and information left right and centre despite having hosted two holidays. ICDC unveiled plans for a 10 to 1 shares split barely 2 months after the dust on E.A. cables split settled. The company had just released their year end results reflecting an 86% appreciation in pre tax profits to Kshs. 696mn up from the previous years Kshs. 373 m. Performance was largely buoyed by the bull run on the bourse. The company's share price has since shot to a high of Kshs. 560.

E.A. Cables also released their results for the 9 months ended 30th September 2006 which reflected a 96% appreciation in profits to kshs. 344 mn. up from Kshs. 175 mn. realized over a similar period over the previous year. Directors attributed this growth to a boom in the construction industry and the company’s expansion to regional markets.

Carbacid Investments realized a Kshs. 126mn profit, 11.5% above the previous year’s Khs. 113 mn. This however could not be captured on the company’s share price as the company is still suspended on the bourse following the unresolved BOC accusation negotiations.

Mumias Sugar which currently has a concentration in the western Kenya sugar belt is set on further expansion through the establishment of a factory in Tana River district bound to increase the total sugar output by 210,000 tonnes.

Family Finance Building Society uncovered its plan to sell its shares to the public through a private placement. The directors plan to convert the building society to a fully fledged commercial bank by the end of the year, and have further plans of having the company publicly listed on therr bourse.

MARKET REVIEW

ICDC Investments, currently trading cs/cd, continued its downward spiral, down Kshs. 46 to close at Kshs. 453 while Barclays Bank shot up Kshs 38 to close at Kshs. 427. TPS EA was up Kshs. 5.00 to close at Kshs. 89.50 while Sasini Tea has maintained a gradual appreciation to hit a new 12 month high of Kshs. 67.50, Kshs. 4.00 above Monday’s Kshs. 64.50 close. Nation Media and Equity Bank were also both up Kshs. 4.00 to close at Kshs. 234 and 130 respectively.

Other counters on the loosing side included Kenya Power which shed Kshs. 9.00 to close at Kshs 241, Pan Africa Insurance which was down Kshs. 5 to close at Kshs. 81 and E.A. Cables which slid down Kshs. 3.50 to close at Kshs. 62.

MARKET WRAP – 13/10/06

A generally losing week on the bourse evidenced by the large number of declines. 47% of the active counters adjusted back while 29% appreciated. Kenya Oil captured the largest slide, down Kshs. 13 to close the week at Kshs. 107. Kenya Power shed Kshs. 12 to close at Kshs 259 while ICDC and NMG both closed the week Kshs. 9.00 below the previous week’s close at Kshs. 335 and 230 respectively.

Appreciating counters all yoyoed between price ranges already captured with no new high being hit over the week. Bamburi Cement was up Kshs. 13 to clos eat Kshs. 190 after having shed to a low of Kshs. 177 in the previous week. TPS bounced back to Kshs. 94over the week while a usually quiet Olympia holdings was up Kshs. 7.75 to close the week at Kshs 23.75. EABL also edged higher to close the week at Kshs. 159.

On the news front, Kenya Re continued gearing itself for the much awaited IPO. Financial bids for the Lead Broker to be commissioned with the task of selling shares on behalf of the company are to be opened on Monday. A consortium led by Dyer and Blair Investment Bank had earlier clinched the transaction advisor deal. The bourse is bound to experience further price dips on the run-up to and during the offer period as investors prepare to take positions.

With the year 2008 expiry of the Comesa importation lifeline drawing closer, the government has set aside over Kshs. 1.1 bn. To restructure the sugar industry. The lifeline has shielded the local industry from competition by limiting sugar imports to 200,000 tonnes, and its expiry will expose the local industry to fatal competition considering the high production costs on local producers relative to other competing countries. With the governments Vision 2030: Transforming National Development strategy targeted at an annual growth rate of 10% for the next 25 years, the government can not afford to expose any of the sectors and need to put in every possible effort to ensure sustainable growth and strength in unavoidable competiton.

MARKET WRAP – 06/10/06

Another week over with the bourse having captured strong gainers but more loosers. Liquidity is still quite high in the market as investors wait for slight slips and quickly take positions while those that already have positions are holding on and not letting go with the anticipation of further price appreciations.

Kenya Oil, which had nosedived to a Kshs. 100 low bounced back to close the week at Kshs. 120. ICDC Broke the Kshs. 300 level to hit a Kshs. 344 high while Kenya Power, currently trading cum-dividend, had slid down to a Kshs. 222 low over the week rallied to a Kshs. 271 close. EABL stirred up from its Kshs. 140 slump to close the week at Kshs. 153, while Kenya Airways has settled at the Kaha.130-133 range.

Housing Fiance had the highest slips over the week, down 15% and 11% respectively to wrap the week at Kshs. 47.25 and 16 in that order.

The bourse received one more good release over the week as Sasini unveiled an improved performance over the 9 months to 30th June 2006. The company captured a turnaround to Kshs. 29 mn pre-tax profit and attributed this to an increased productivity and improved prices at the auction. Diamond Trust also unveiled its rights issue plans subject to approval from shareholders and the CMA.

The money market side seems to be putting efforts towards pulling the funds to their end as KCB announced the slicing of their lending rates on a number of their products and this may see other banks cave in to pressure from their clients to follow suit. Treasury bill rates have also maintained an upward trend with this Thursday’s auction having pushed the 91 day bill rate to 6.69% and the 182 day to 8.246%.

ANALYZING COMPANY PERFORMANCE

A number of market players feel that the bourse does not follow company fundamentals and instead is driven largely by speculation. While this may be the case during bull runs, investing in fundamentals always comes through when the bear takes control.

Company fundamentals are reported through ratios calculated from a company’s income statement and balance sheet. The ratios mainly capture the company’s profitability, liquidity, Operating efficiency, risk profile and growth potential. Most of this information can thus be picked out from the company’s financial reports. Other information however will be determined by other socio economic factors that affect the company’s performance.

Profitability

This usually captures the company’s profits, what makes up the profits and how this relates to the income statement. Profits for the reporting period should be compared to profits of the previous reporting period in order to capture the growth for the period. It should also be compared to a series of other similar periods over time in order to capture the trend. Another comparison should be between other similar sized companies in the industry in order to pick out the company’s standing within the industry, and also against the industry average..

Liquidity

This is used to determine the company’s ability meet its short term obligations as they come through. This also should be analyzed as the profitability by comparing the previous period’s performance, performance over a series of periods, and against other similar sized companies in the industry as well as against the industry average.

Operating performance

This helps in determining management’s efficiency and effectiveness in utilizing what the company has ie the assets and capital to generate revenue and profits. Similar comparisons are done as those on profitability and liquidity.

Risk profile

This looks at both Financial Risk exposure which analyses a company’s use of debt against its equity, the firm’s ability to repay its debt obligation and the debt structure, as well as Business Risk exposure which captures the company’s operating income uncertainty resulting from variability of sales and production costs.

Growth Potential

Company growth is a function of a large number of factors both controllable by the company, and some outside the control of the company. The company’s dividend policy, the economic environment, political arena, interest rate environment and even the weather pattern all have an impact on companies’ growth prospects. It thus becomes quite difficult to determine, and analysts usually use the information that can be determined such as the dividend policy, and information projections such as economic growth and interest rate environment to determine the growth potential.

MARKET REVIEW

The bourse is still treading uphill as evidenced by the continued price appreciations across the board. On yesterday’s trading, only 21% of the counters recorded declines as 51% edged higher with the magnitude of appreciation being much higher than the declines.

Nation media was the day’s highest climber, up Kshs. 16 to close at Kshs. 236. ICD Topped up Kshs. 8 to close at an average of Kshs. 315 after having hit a high of Kshs. 320. Bamburi seems to have turned around its loosing trend and was up Kshs. 6 to close at Kshs. 179.

The finance counters on the other hand seem to be succumbing to profit taking. Jubilee had the largest slip down Kshs. 8 to close at Kshs. 182 while KCB shed Kshs. 4 to close at Kshs. 193. Barclays Bank closed Kshs. 2 lower at Kshs. 324.

DETERMINING STOCKS TO INVEST IN

One main question that investors the world over would appreciate a simple straightforward answer to is; “How do I know what to go for and when”. Unfortunately, there is no clear-cut answer to this question. Brokers usually have a list of recommend shares ranked under a time or risk continuum. This is normally quite general. The decision on the shares to invest in should take into consideration a number of factors against which you as the investor should then identify those stocks that fall into this criterion from the recommended list or even explore other unrecommended options.

Cash Outlay

Shares identification will largely depend on whether you are bringing in a lump sum amount or you plan on Drip-feeding you trading account. A lump sum approach enables you as the investor to spread out your funds over a number of counters in different industries thus diversifying your risk. It also gives you a chance to balance out your portfolio down the risk reward and investment horizon gamut.

Drip-feeding implies that you will be putting in a certain amount over certain intervals such as monthly or quarterly or uneven intervals. One of the main things that make investing in the stock Exchange stand out from other investment channels is the relatively low entry requirement. With a 100 minimum shares requirement, you can start out with as low as Kshs. 10,000 and gradually build up your portfolio. There are two strategies you can use to build your portfolio with drip-feeding approach;

1- Buy a few shares in a number of counters, and then keep adding the shares in these counters with every subsequent funds input until the shares in those counters hit your target.
2- Buy a substantial amount of shares in a single counter with each funds input.

In my opinion, option 2 has a better result. Buying a substantial amount makes you appreciate capital gains much better. If you for example buy 100 shares of three different counters and each goes up by Kshs. 10, this translates to a Kshs. 3,000 profit. If on the other hand you decide to go for 1,000 shares of a single counter and the price appreciates by Kshs. 5, you reap a Kshs. 5,000 profit. The strategy also gives you a chance to analyze the market with every outlay as you identify the potential counters at each investment point.

Investment Horizon

Stocks to invest in will also depend on the amount of time you wish to have the funds in the market. As mentioned in one of my earlier articles, please do not take funds that will be required within the year into stocks. For any funds required within the year, the 91-day and 182 day Treasury bond should be considered. Funds that can be invested for anything above a year can then be balanced between stocks and bonds. The balance will depend on the third factor, the risk Threshold.

Risk Threshold.

This is quite personal since only you can tell how strong your heart is to absorb loss shocks, as this is bound to happen, and how much of this loss you can absorb. If you are a risk taker, then you can go for an equity filled portfolio, and even experiment with risky stocks, if you are a risk averse, your portfolio should then capture less risky counters and could also be padded with some Treasury bonds.

Based on your personal analysis of these factors, you can now pick out a portfolio balance that best suits you and your requirements.

MARKET REVIEW

Investors and potential investors on the Kenyan Stock Market seem to be having a lot on their table with regards to where to put there funds and how split it to ensure a piece of everything. What with the Kenya Re IPO expected in the first quarter of Year 2007, Mumias Sugar Public offer of the governments 18% holding also expected over the first quarter, and a number of other companies having expressed their interest in listing their shares. Looks like Kenyans will be quite busy over the coming year as the market rivals the political arena in getting top attention.

Strong results trickling into the bourse are adding to the dilemma as the prices soar higher despite the rising Treasury bill rates currently at 8% on the 182 day Treasury bill and 6.7% on the 91-Day Treasury bill.

Kenya Power reflected a 29.4% appreciation in net profits on the end year results released yesterday, 28th September 2006. and attributed this largely to increased fuel costs recovery. These results came soon after Kengen’s strong results release, which saw the share price hit a Kshs. 36.75 on yesterday’s trading. Unga Group recorded a second consequent year on profits albeit much lower than over the previous year at Kshs. 36 mn. Down from the previous years Kshs. 72.5mn. The decline was attributed to an adverse effect by the avian flu scare on the animal health and nutrition business.

Uchumi also seems to be reaping the fruits of all the efforts its management have been putting into waking the wounded giant. Reports show that the supermarket’s sales now exceed Kshs. 200 mn. Per month, an impressive 87% increase over the same period last year, while earlier closed branches are gradually being re-opened. Even the sleeping Sameer is now stirring to life as it’s price, which had dropped to a low of Kshs. 13 now playing at around Kshs. 18.

With almost everything seeming to shine in the limelight of success, there is just no telling where the market is headed to and how long it will take to reach there.

UNDERSTANDING MARKET TRENDS

Investors usually ask about a possible trend in the market that could assist them identify market low points at which to put in their funds in the market, and market highs where they can then exit with maximum gains. While the market doesn’t always follow expected market trends, identifying the main factors behind significant price movements could give a certain indication of possible market trends.

Result Release

Anticipation of company interim and final releases usually has an impact on company prices. In cases where a company is expected to release strong results, the prices usually commence a gradual appreciation a while before the results are released. Once the results are released into the market, the price movement will depend on the results and any corporate action declared. The price movement may turn around if the released results are weaker than expected, or maintain the upward trend if results are stronger than expected. In some cases however, the price has factored in the expected performance by the time of the release such that the price does not gain significantly after the release regardless of any dividend or bonus declaration.

A majority of listed companies including all banks and most industrial counters close their years in December. Other companies full under March, June or September. Results usually received in the market 2 to 3 months after the interim or final period closure.

Other information Released in the market

Other information received on the bourse and not relating to the company performance may have a significant impact on the price movement. Government decisions that may have an impact on company performance such as the debt equity swap on KPLC or the budget cash boost announcement on NBK both saw the share prices gain by leaps. Last years Government decision to go for concrete roads resulted cement share price boost while the decision on the recent KPLC / Kengen tariff wrangle had a buoying effect on KPLC share price.

Information on market expansion like the one Kenya Airways has rode on over the last 4 years, product diversification, mergers, acquisitions and significant management changes may all have an impact on share price movement. There is no document that could keep an investors equipped with or anticipate such information. Investors just need to keep abreast with general business news.

There are points where the market is completely dry of information in the absence of any releases or news. At such points, prices may remain unmoved unless there is a third factor playing on the market.

Market Liquidity

Investors have a choice of channels through which they can invest their funds the main equity competitors being the bank, government bills and bonds and corporate bonds. At points where the gains on these other channels are just too low, investors opt to take their funds to the stock exchange which promises a better return. This results in increased liquidity in the market, and a heightened demand for shares. With this comes an unbridled share price appreciation as investors continue piling up funds on to the market. This appreciation may continue for as long as the liquidity environment remains, and may only be interrupted by a gains realization improvement on the bills and bonds, the onset of an IPO or a significant political adjustment.

The bourse poses a potential for gains at all times since, there is always either a company releasing their result, or other information being received in the market or just an enabling environment. Investor thus need to analyze the market at every point of entry in order to identify the most potential stocks based on the factors in play at that particular point.

MARKET REVIEW

The bull seems to have reduced its pace over the week to Friday 22nd September. Loosing counters were slightly more than the gaining ones, and the appreciations were much smaller than those captured over the previous weeks. Most of the counters that had enjoyed strong gains succumbed to profit taking and closed the week lower.

National Bank captured the largest decline having lost 17% over the week to close at Kshs. 55.50. E.A Cables hit a low of Kshs 61 over the wekk but then picked up to close the week at Kshs. 67.50, 12.34% below last week’s Kshs. 77 close. Equity shed 10% to close at Kshs. 118 while ICDC edged down 9.5% to close at Kshs. 239. Jubilee maintained its appreciation to a Kshs. 188 week close, 12% above the previous week’s close.

MARKET “DOS”

A large number of potential investors shy away from the market citing that it is just too complicated for their comfort. Many are completely lost as the news anchor gives an update of the day’s market performance using words that sound somewhat complex for the lay man.

The Stock market is however just like any other market but with the commodity on sale as shareholding in listed companies. It has buyers and sellers like in any other market and prices are driven by the supply and demand balance just like any other market.

In order to wipe this "complicated" notion, one should;

Know the Market Lingua

The main words that make the market sound convoluted are those that give a general description of the market, and those that describe the trading status of the counters.

Market performance and movement is generally described by the Day’s turnover, the market capitalization and the Index. Market turnover captures the worth of the shares transacted by computing the number of shares traded on a particular counter at the days trading price. This is then added up to give the total market turnover. Market capitalization captures the market worth by computing the total issued shares at the days trading price per company, a summation of which gives the total market capitalization. The index is a measure of market movement. The market has identified 20 active counters whose percentage price movement is calculated on a daily basis.

Trading status is described by an ex or cum status of company following a corporate action. Shares purchased at cum status implies that the investor qualifies for corporate action while an ex status implies that the investor does no qualify.

Corporate actions include dividends distribution, where the company shares profits with shareholders, Bonus, where the company distributes bonus shares at a certain rate to shareholders, rights, where the company sells additional shares to shareholders at a certain rate and at a discounted price, and Splits, where a companies shares are split at a certain rate like the one recently done on E.A Cables.

Understand the price list

The pricelist is the document that translates the market performance on a daily basis and is the document that the bourse uses to report the day’s happenings. The price List is divided into the different market sectors and captures the following information;

-Each company’s 12 month high and low, that is, the highest and lowest price that the shares have traded over the last 12 months. This is adjusted any time the price hits a new high or low.

-The company’s trading status following the Announcement of a corporate action

-The highest and lowest price that the shares traded at on the day’s trading

-The average trading price for the day which is a weighted average of the different prices captured on the counter.

-The previous day’s average price

-The number of shares that changed hands over the trading period

-The fixed income section

-The day’s general performance including the Index, Market cap and Market Turnover

-Recent announcements, corporate actions and effective dates

The pricelist analyses he market on a daily basis and is thus a very important tool for any market participant.

Learn how to interpret company announcements

Each company releases the half and end-year performance at least two or three months after the end of the reporting period. All banks and some industrial and commercial counters report as frequently as quarterly. The reports usually outline the company’s performance over the period in review, a summary of reasons attributed to this performance, any corporate action declared by directors, management outlook on the coming period.

You thus need to know companies reporting periods and approximate time that companies release their results as this is one major driver of the demand /supply balance on the market. You also need to be able to interpret the released results, and analyze this against the previous comparable period. This way, you get to understand the company better and even compare its performance with other companies in the industry.

Visit the trading floor

If you are within the proximity of the Stock Market, make a point of visiting and spending a few minutes watching the trading taking place. Being there as the action takes place helps you get a feel of what really happens on the market. If you had already paid a visit in the just ended open outcry environment, then make a point of visiting in the new automated environment and watch the prices match.

MARKET “DO NOTS”

Every operational environment develops some unwritten rules that work along side the formally written rules to assist in smoothing out performance.

Over time, market players have also developed some informal ‘dos’ and ‘donts’ to help facilitate the growth of their portfolios.
While these rules may not have similar results in different circumstances, a number of practices should be avoided in whatever circumstance.

Avoid Speculation

Speculation basically means investing on rumors and is a relatively controversial area given that a number of investors have put in funds on certain counters and made some good gains. Investing on rumors is quite unstable and exposes such an investor to high amounts of risk.

Aim instead at investing against well researched company fundamentals, the company’s growth prospects, future outlook among other basic factors that help determine the strength and possible future performance of the company. This way, there are concrete reasons against which you determine the counters to put your money into and much as there is a level of risk in any such investment venture, the level is much lower as compared to speculative investing.

You should only indulge in speculation at the point where you have built a well balanced and large portfolio such that you can curve out a certain percentage for speculation, and leave enough to comfortably land on should speculation lead to losses.


Avoid Short Term Investing

Avoid bringing to the market funds that all be needed as soon as three or six months after investment such that any slight decline on the price puts you in a panic. Short term investing only forces you to speculate since at that point you are looking for a company whose shares will be moving up over that time. As earlier noted, it is practically impossibly to determining with absolute certainty which shares prices will be moving up over a certain period of time and to what levels. A price ,ay be on an upward trend over a week then turn around and commence a decline, and there is nothing as bad as being caught in an exit race of a plummeting counter.

Aim instead to invest funds that are currently surplus and will not be required for at least a year. That way, you will appreciate but be in no pressure for immediate growth, you make sober and informed decisions based on fundamentals and greatly reduce your risk exposure. For any shorter term investment, then go instead for treasury bills.

Avoid leaving your Portfolio to your broker’s discretion

Money is a hard earned commodity and in most cases a lot of sweat, time and a large number of other resources are put into it’s realization. Should you decide to put your money in a bank account, then you are fully aware of the charges and interest rate earned. The same goes for investment in bills and bonds. These are fixed income securities that expose you to very little risk and as such you can afford to sit back and wait for your annual or semi-annual interest.

On the other hand, to invest your funds in stocks, considering the risk exposure and price volatility, and leave it to someone’s discretion is a strong “do not”. Only you know the sweat that has gone into its acquisition, and only you know the magnitude of appreciation with every shilling increase on our portfolio worth. Ask for as much advice as you wish, seek for recommendation on a daily basis, call your broker every so often but do not leave the final decision to someone else.

The situation in the country right now is that we have too few service providers and too many people requiring the services, and the number is increasing with every IPO as awareness increases. Brokerage houses are thus overwhelmed which makes it quite difficult for them to follow up your discretionary account as you would wish for it to be done.



MARKET REVIEW

The bourse maintained a strong price appreciation over the week ended 15th September 2006 Only 10 of the active counters captured declines, the largest being on Equity which slid down to close at Kshs. 77 23% below the week’s opening Kshs. 100. All other declines were quite low relative to the appreciating counters.

ICDC captured the highest appreciation, up 46.7% to close at an all time high of Kshs. 264. National Bank edged up 33.7% to close at Kshs. 66.5 while Standard Group closed 29%higher at Kshs. 55.50. Sasini Tea was the highest climber on the Agricultural sector, up 31% to Ksh.50.50. Commercials saw CMC close 25.6% higher at Kshs. 125 while Kenya Airways gained 9% to close at Kshs. 124.

STRATEGIC POSITIONING FOR MAXIMUM GAINS

Just like in any other venture, especially one that involves money, it is only wise to have a strategy that enhances your chances to see your funds grow. Whenever you invest funds, you are delaying immediate consumption of the funds with the hope that at the point where you will choose to redeem the invested funds, they will be worth much higher than it was at investment point.

In order to position yourself for such hoped for gains, you need to adopt a number of strategies;

Get to understand the market

When getting into the market, make a point of visiting an investment advisor. Get to ask all you would wish to get to know about the market. Get to understand how prices move and what moves them, market trends, understanding the pricelist, get to know the market players and their different roles and appreciating the lingua. You will be putting your hard earned money into the stock and the worst thing would be to get into something you do not understand.

Information seeking is not unique to a new market entrant. Market participants should continue seeking relevant information through out their investment journey in order to ensure that they are making informed investment decisions at every point of their journey.

Wisely identify shares to invest in

Based on the information acquired you can now identify the shares to invest in. this will largely depend on a number of factors including;

§ The amount of funds being invested – are you investing a one off lump – sum or drip feeding your account with small but frequent deposits

§ The investment Horizon – How long are you looking to have the funds in the market

§ The risk threshold – What level of risks are you ready to take

Brokers, investment advisors and agents usually have a list of recommended shares at each point and, depending on your standing on the identified factors, you can then pick out what to go for.

Set Investment Targets

Determine a certain percentage that you would wish to earn on invested funds against which you will follow the growth of your funds. This should not be a fixed target but instead should only guide you on your investment growth. Should you then hit the target and the price is still uphill, then the wise thing to do would be to continue reaping from the appreciation. Remember however that it is completely impossible to tell with absolute certainty the point at which a price turnaround will be captured, and managing to sell at the highest point of a turn around is pure luck.

Do not hold out waiting for the price to continue appreciating only to have the price turnaround and start a quick slide as it usually happens once other shareholders get the panic sale syndrome.

Follow up on your investment

Once you put funds in any of the listed companies on the Stock Exchange you become a part owner of the company and as such, any information on the company being received on the market should concern you. Find out the company’s result announcement date, analyze the company’s performance against the previous period and other companies in the industry and follow up on the price movement.

Keep in constant touch with your broker or investment adviser. This way, you will be able to follow up on market support on your stocks and chances of possible price turnarounds and thus cash in on good entry and exit points.




MARKET REVIEW

The bourse is still grappling with teething problems after the implementation of the Automated Trading System as it witnessed delayed trading commencement and erratic price movements. Investors should now be cautious when putting in orders especially those being place at market rate and should seek proper guidance from their brokers when placing orders.

On the general price movement, Sasini has continued its appreciation having closed at Kshs 45, Kshs. 4 above the previous day’s price. Kenya airways regained its Kshs. 120 trading level as it averaged Kshs. 121. ICDC edged deeper into the Kshs.200 level to close at Kshs. 219 while Equity bank regained its appreciation to close a Kshs. 139. Bamburi maintained its gradual appreciation as it closed Kshs. 8 shy of Kshs 200, while E.A Cables slipped backwards Kshs. 94.50.

PERFORMANCE ANALYSIS

Mumias Sugar released their financial results for the year ended 30th over this week. The results reflected an 18.2% appreciation in net profit performance to a Kshs. 1.53 bn. up from the previous years Kshs. 1.3 bn. while net sales were up 15.6% to Kshs. 11.7 bn.

Directors proposed a final dividend of Kshs. 1.00 per share. This, when added to the earlier distributed interim dividend of Kshs. 0.75 brings the total dividend for the year to Kshs. 1.75, which is covered 1.7 times by the Kshs. 2.99 earnings per share.

The current trading price of Kshs. 58 puts the dividend yield at 3.02%. The company has a relatively high Pe ration of Kshs. 19.4 but well below the market average of 25.642 and the industry average of 25.22.

VOICE OF CAUTION

I have been in the Kenyan shares investment industry for a number of years within which I witnessed some investors gain immensely, others loose and some maintain a stagnant value. Stock markets the world over offer investors a chance to grow their funds, but also expose investors to some level of risk.

The recent roll-out of IPOs on the Exchange and the current bull run have left investors, new to the market, blindly believing that IPOs are a sure rip, and the market is perpetually on a bullish trend. Kengen and Scangroup IPOs were both a whooping success with both of them being grossly oversubscribed, and Kengen’s price more than tripling on its entry into the market. Equity Bank’s introduction into the market saw the price more than double on its initial trading day.

While the Stock market may look like an easy place to make money, this is not necessarily always the case. There is a need for level-headedness and a lot of caution on the Stock Exchange dealings and investors, especially those new to the market need to put the following pointers at hand when going into this investment sea.

Reward and Risk

An investor who purchased a modest 1,000 Kenya Airways shares at the beginning of years 2005 parted with approximately Kshs. 20,000. 1 year down the line, this investor is worth approximately Kshs. 115,000, translate to a 575% capital gain over a single year. An E.A. Cables share-holder would have a much better story to tell, especially if the shares were purchased as recently as last year when the share traded at a low of Kshs. 65. The company has captured an unbridled shares price appreciation since the 10 to 1 shares split announcement. Currently trading at Kshs. 103, translating to Kshs. 1,030 before the split, this shares-holder would thus be boasting of a crazy 1485% profit.

The story is not the same however for any Uchumi Supermarket share holder. The suspension of this formally quite active stock on the NSE resulted in the sinking of millions of investors funds. The market has an investor compensation fund that mitigates against market related risks such as the folding up of a brokerage company. Uchumi’s suspension however falls under Industry risk which is completely bore by the investor.

Investors thus need to appreciate the two side of the investment coin and bear this in mind as they commence this investment journey.

Market Correction

The market always experiences a market correction after a bullish run as investors lock in on capital gains or prices reaches uncomfortable levels.

Market prices are swayed by the supply/demand balance, and a Bull Run results from an overweight on the demand side. A point reaches however where shareholders, especially those who may have bought the shares at a much lower price, want to cash in on the gains, thus increasing supply in the market. The price may also shoot to levels where investors feel is too high to purchase and pull out, thus reducing demand for the share. This usually causes a turnaround on the share price trend to a decline.

Price Turnaround Points

All investors get into the market with the hope of buying share at their lowest point and selling at the highest point of a possible bull cycle. It is however completely impossible to tell at what point a price trend will turn around from decline to appreciation and vice versa. These points are the hardest to hit and no analyst can tell with complete certainty at what point a price will bottom out for perfect purchase, or hit the roof for a perfect sale. Managing to hit these points is pure luck, and waiting to hit these points can be disappointing.

MARKET REVIEW

The bourse captured a general price appreciation across the board as it marked the first day of trading under the Automated Trading System (ATS). 80% of the listed companies captured activity out of which 61% registered appreciation and 39% edged lower.

Agriculturals saw Rea Vipingo and Sasini close slightly higher at Kshs. 24 and 40.75 respectively. All active counters on the commercial and services captured improved prices. CMC Holdings broke the Kshs. 100 barrier to average Kshs. 103 while TPS broke its declining trend to close Kshs. 8 higher at Kshs. 100. Scangroup moved 540,500 shares at an average of Kshs. 26, while Kenya Airways and Nation Media both closed a shilling higher at 115 and 208 respectively.

Financials were all up except KCB and Standard Chartered both of which maintained their Friday’s average price of Kshs. 180 and 158 in that order. Equity Bank and CFC Bank were the sectors highest climbers as Equity shot up Kshs. 11 higher to close at Kshs. 122 while CFC was up Kshs. 8 to average Kshs. 88.

Industrials had mixed performance with a larger number of losers. The cement industry captured the day as Bamburi cement moved 5,000 shares Kshs. 12 higher at Kshs. 190 while E.A. Portland closed 9 higher at Kshs. 139.

Demystifying the stock market intro

I have been toying with the idea of using the blog channel as a forum to share information with fellow Kenyans and other interested parties both within the country and in the diaspora.

While I do not consider myself a guru on the investment arena, I do feel that my market participation in various capacities has exposed me to some value adding market insight.

Information will be largely skewed towards the Kenyan business arena, with a heavy emphasis on the Nairobi Stock Exchange.