QUITE A LOT ON OUR PLATES

Kengen

So the government has pulled a fast one on us and decided to pause the kengen secondary offer, citing the non-reflectiveness of the current price on the real share value, and resulting in a maximum share appreciation over today’s trading to Kshs. 25.50. Demand was crazy against almost zero supply. If the government was looking to placing a higher price on the additional 400 mn. shares, it most definitely will get that, with the price looking like it will shoot up to settle above the Kshs. 30s level.

Access

Access looks to be slowly picking with the trickle of clients increasing gradually with each day at brokerage houses. Of Course no queues have been seen as yet, and none my be seen as this offer may not pull large crowds with the high cut-off and many questions in investors heads regarding the future prospects and the possible risks.

Kenya Re

Kenya re looks hard on Access hills with the planned IPO. Though dates have not yet been communicated, we have already started seeing a number of advertisements on all media modes as though to soften investors heart, quite characteristic of an up-coming IPO.

Safaricom

Now only a date and a price separate us from one of the largest IPO in Kenya over. The decision on the markets has been made, and the only fear now is the possible price and the shares that will be availed to Kenyans considering that we are looking at one very small NSE and a very large LSE.

I guess Kenyans have quite some chewing to do, but that will do well to keep them off the political arena after Mag gen Hussein Ali took a stand to rid us off all the fun and intrigues characteristic of an election year.

Fixed income securities

Ok, away from the depressing world of stocks, and on to the fixed income side. Odegle has given us quite some insight on the bonds world and I would love to join him in this discussion.

Fixed income securities can best be appreciated under three different concepts;

The duration (term)- long or short term,

The issuer – government or corporate.

The coupon disbursement – fixed or floating rate

Duration;

Fixed income securities are channels used by companies to borrow both short term funds – for recurring costs, and long term funds – for capital use. The securities duration implies the time it will take for the issuer to give back the principle to the lender. Short term falls below 1 year while long term goes above a year. This however differs in different countries.

Issuer

Fixed income securities can either be offered by the government in which case they are called Treasury bonds (Long-term) or treasury bills (short term). Bonds not offered by the government fall under corporate bonds, while short term non-government bonds are commercial papers. Names also differ in different regions. The treasury bill for example is called a gilt in the UK, and while treasury bills in Kenya are either 91 day long or 182 day long, in the UK, a gilt can have a term as long as two years.

Coupon Disbursement.

Coupon is the interest rate earned on bonds, and this can either be a fixed rate, where the interest rate quoted at offer point holds to maturity, or floating, where the interest rate changes with the changing environment. The floating rate is usually pegged to certain indicative rate. In Kenya, floating rate bonds are pegged to the 91 day treasury bill.

Interest is usually paid at different intervals, with most of the Kenyan bond coupons being under a semi-annual schedule, while other options such as quarterly or annual coupon payment being found in other countries around the world.

Treasury bills do not attract an interest parse but instead are discounted at offer, implying, the investor pays less but redeems the whole offered amount at maturity. This then translates as the interest to the investor. Most 1 year bonds offered by the government are zero coupon bonds and are also discounted like the Treasury bill.

Treasury bonds in Kenya are offered monthly while treasury bills are offered weekly. An auction is done every Thursday evening and the results announced on Friday.

While the treasury bonds market is not as developed as in other markets, they provide a good investment channel for risk averse guys, and also an escape haven for bad times on the equities market. The oversubscription that has been cited on the bills and bonds market over the last three months might be an indicator of the equity to fixed income funds flight.

Wow!! Quite a mouth full!

Blog Silence!!!

Ok whats happening to the bizz blog world??? Guys have gone silent! Cold tusker last talked on Tuesday last week, and so did Pesa tu. At least Bankelele and Riba Capital have been more recent.

Please don’t let the depressed market keep you that quiet. Whatever you are going through, so are we and many others. It’s a depressing state, but don’t worsen it by going off.

I feel your pain, but we are meant to keep online and keep each other strong on this blog side of life!!

Speaking of depression, out of 36 active counters, only Standard Chartered, Scan group, Eveready and Kengen recorded price appreciations. All other active counters shed, with KCB, despite currently trading cum div and split, capturing the largest drop, down Kshs. 18 to close Kshs. 2 below the Kshs. 200 level. Jubilee also slid below the Kshs. 200 level to hit a low of Kshs. 193.

I am tempted to ask whether we can get a prophet(ess) who can forecast how low the market will go and when we will reach this point. If they can prophesy about earthquakes and Tsunamis, then why not on the market?

What shall stir the bull back to action??

With the bourse struggling from the damaging publicity wrought by the FT exposure and consequent - not so good - tales of brokers and market loophole, nothing the listed companies do seems to be touching a sensitive nerve on the investor. Not the share splits, generous dividends, bonus, nor strong profit growth appear to be pushing any correct buttons.

The market seems to have completely succumbed to a myriad of issues unearthed by the FT saga, added onto the political environment, and just when we think the decline is over, another price goes lower.

Despite the prices having shed to mwananchi levels thanks to the recent spate of splits and drastic market correction, the question is whether mwananchi still has enough trust in the bourse to take up the opportunity of owning shares at such attractive lows.

Eveready practically traded below its offers price on Wednesday having hit a low of Kshs. 9.00, and I was sure we were looking at another “KQ like” post offer drop to Kshs. 6.00 after having been offered at Kshs. 11.00. At least it recovered to Kshs. 10 on Friday, but I don’t know whether we should be holding our breath on this one.

Kengen also seems to be dipping gradually and getting uncomfortable close to its offer price after hitting a low of Kshs. 17 on Friday while Kenya Airways last traded at the current Kshs. 80 levels in January last year.

Kenya Commercial slipped down to the current Kshs. 219-220 trading price despite having declared a Kshs. 6.00 dividend per shares and promising its share holders a 10:1 share split. Jubilee has nose-dived from February’s Kshs. 330 levels to Fridays Kshs. 210 low while Nation Media has left many an investor counting their losses.

Despite all this, I still maintain, its BUY time!

The good, the bad and the ugly results

Results have started trickling into the bourse and impacting on price movements. Mumias for instance saw its price slump to Kshs. 36 after the half-year results reflected a declined performance to a profit of Kshs. 184 mn, 53% below the Kshs. 391 mn. realized over a similar period over the previous year. This was attributed to a myriad of problems raging from “acts of God”, to sugar prices, and to factory breakdowns. It was such a disappointment to Kenyans who had braced the heat and queues to pick the shares at Kshs. 49.50 in the secondary offer in support of company (and of course with the hope of making a quick buck).

Bamburi’s was a happy story with performance having improved, turnover up by 10% and profits higher by 30%, and shareholders looking forward to Kshs. 3.50 dividend per share, Kshs. 1.50 being the final dividend for year 2006 and 2.00 being an interim dividend for year 2007. Its industry counterpart E.A. Portland also shared the result joys as the company captured a 23% increase in profits to Kshs. 728 mn. over the six months to December 31st 2006. Investors will also benefit from a Kshs. 1.30 Interim dividend.

Equity Bank however was the show stopper with pre-tax profits hitting an all time high of Kshs. 1.1 bn., 120% above the previous year’s Kshs. 501 mn. Disappointment still set in as hopes of a rumored split were dashed and instead a consolation 2 for 1 bonus issue was declared much to investors chagrin.

E.A. Cables embraced another celebrating year as turnover hit a Kshs. 2 bn all time high, having hit the 1 bn. mark over the previous year. Profits went up by 34%, and a Kshs. 0.50 dividend declared.

There were no smiles at Sameer Africa as the company unveiled its dismal performance for the year ended 31st December 2007. Profits moved from a Kshs. 205 mn profit in year 2005 to a Kshs. 22.3 mn. Loss. The company has so much to contend with, it’s a wonder they still survive. Cut throat competition, cheap imports, high raw material prices, and the list goes on and on and on.

Now we await the upcoming results, among them being Barclays Bank which is expected to release the group results tomorrow, and whose profits my forecast places at a possible Kshs. 5.2 bn.

OF MARKET ORDERS AND SLEEPLESS NIGHTS

Some investor placed a purchase order at a ‘best market’ price. The order went to the market, and was executed at a price of Kshs. 900, for a share that, at the close of the previous day, was at Kshs. 168. The share-price closed at Kshs. 368 on that day, remained dormant for a few days, and has edged downwards since then.

In this era of ATS (Automated Trading System), a market order can be catastrophic. Brokers carry their orders on a flash disk which they then feed to the system at the trading floor. The system just searches for any marching orders and passes any such order as executed.

After material information is received on the market, the 10% boundary is off, and the initial price after release of the information is determined through an auction till a match is found. The price can thus escalate or plummet to whatever price that finds the match.

In the “open Outcry” system, such an outrageous match would not have been captured since the dealers would have covered the buyer. A machine however goes by rules and has no way of telling whether a match is extreem.

Of course this particular transactions was nullified, but the one for City Trust was not. The buyer got stuck with City Trust at Kshs. 500, and they are currently doing Kshs. 80 levels.

With the set up being somewhat devoid of human touch, it becomes much safer to put a cap on any order placed. It doesn’t take receipt of material information to have your orders executed at a disadvantaged price. Even on a normal day, with prices oscillating at 10% boundaries, you could still get your purchase orders executed at price way above the day’s average or sold at prices way below the average sale price.

Kenya Airways or example, having closed at Kshs. 120 on the previous day can trade at between Kshs. 100 and 132 on the next day’s trading. Should you then place a sale order at “best market”;

- Our market does not cater for the “best” part of a “best market” order (in fact I wonder whether we have any that does.
- Your share will probably go at the lowest price of the day since it is almost guaranteed that there will be a buyer placing their order at Kshs. 100.
- The same goes for the buy side.

Of course the downside of placing cap would be, should the price go slightly beyond the cup (for a buy order) or below the cap (for a sale order), then your order would not be executable. The idea is to place the cap at slightly above the previous day’s closing price.