Monthly Archives: July 2006

Equity or Uchumi?

Uchumi
Bad timing for Uchumi whose private placement to raise 300 million shillings from shareholders draws to a close on August 15, which is when we are making investment decisions about Equity Bank shares.

The minimum investment of 10,000 shillings, approximately equals my loss, and I have to say no thanks this time – I am not going to put another 10,000 into Uchumi. It’s too soon to come back begging, the company’s status is unclear, and there are too many investment options out there.

Shareholders who take part will be on par with the government’s rescue loan but rank behind after banks and suppliers. And we know how poor parastatals are at repaying government loans. Also, there are many investigations pending, and no one has yet come out and clearly reported why the 1.2 billion shillings raised 9 months ago was not enough or where it was spent.

Yes, I will shop at Uchumi as much as I can, but that’s the extent of my support this time.

Equity
With the August 7 listing of Equity Bank shares just a week away, one of the company’s prominent directors has resigned from the Board.

We have to take note of what directors do in a company and it remains to be seen why a director at Equity made this decision so late in the game. We all remember how ICDCI duped the public they were not taking part in the Uchumi rights issue, as a way to reduce their stake in the company when all along they planned, and did sell out of the company completely soon after.

Got Milk
It’s a good time for milk drinkers as prices have dropped and all the major dairies have positioned salespeople at supermarkets to hawk their milk. Many of them are selling 500ml packs at 20/= (down from 25/= a few months ago) and also give away a free 200ml pack as well. The oversupply of milk is likely to reduce prices paid to farmers – a situation that no one wants, and so milk companies are giving away their surplus for free.

Bio-diesel
Nice feature on KTN/Standard over the weekend about efforts to produce bio-diesel in Kenya. Kenyatta University is pioneering a scheme in which 200 farmers in Kitui, Bondo, and Rachuonyo are cultivating jatropha curcas which takes 2 months to grow and can be used to produce diesel, which should reduce the country’s fuel bill.

July 28 Jobs

Advertised in the daily papers in the week ending on July 28

Research executives at AC Nielsen. Apply to hr@acnielsen.co.ke by 2 August.

AG Chambers
– Special litigation counsel (10 posts) department of civil litigation
– Special prosecuting counsel (16 posts) department of public prosecutions
Apply to the secretary public service commission 30095-00100 Nairobi by August 9.

Celtel
– Business analyst
– Corporate sales leader
Apply to hr@ke.celtel.com by August 4.

Bus stewards/ stewardesses at Citi Hoppa. Deadline is August 11.

Finance manager at Dyer & Blair. Apply to hcapjobs@wananchi.com by 10 August.

Travel consultants at Emirates Airlines. Check emiratesgroupcareers.com for details.

Family Health International
– Country manager S. Sudan
– Project officer S Sudan program support program
Apply to hr@fhi.or.ke by 11 August.

Senior sales manager at Iwayafrica. Apply to vacancy@iwayafrica.com.

Kenya National Commission on Human Rights
– Senior human rights officer/legal counsel
– Human rights officer/assistant legal counsel
– Principal finance officer/financial controller
Apply by 11 August to haki@knchr.org.

Internal auditor at Kenya Petroleum Refineries. Apply by 11 August to the HRM 90401 Mombasa.

Information technology manager at Kenya Railways. Apply by 14 August to the MD 30121-00100 Nairobi.

Narc Kenya
– Executive director
– Media communications, events officer
– Membership development & strategy officer
– Resource mobilization, finance & admin officer
– Accountant
Deadline is August 14.

Online sales manager at Nation Media Group. Apply to hrrecruit@nation.co.ke by July 28.

Managers at the Tamarind group. Apply to Tamarind@tamarind.co.ke.

International rule of law officer (s) at UNDP Sudan. Apply to jobs.juba@undp.org by 8 August.

Transaction processing officer at the World Bank Sudan in Juba. Deadline is August 11.

Country director at World Relief. Apply to wrkenya@wr.org 10 August.

Internal auditor at World Vision Somalia. Apply to recruitsom@wvi.org by August 2.

Equity Bank Listing: A to Z

About Equity Bank, will have a secondary listing on the Nairobi Stock Exchange next month at a price of Kshs. 70 per share. I located an information memorandum (prospectus) at a thanksgiving celebration /prayer /dinner the company threw for 3,000 Nairobi customers at KICC last night – and went through it to decide on whether to buy the shares next month.

Commissions: Banking at Equity is not cheap, and this is the situation in the entire the micro-finance sector – and Equity will probably have to lower some of their bank charges. Their account opening minimums are very low, but some of their charges e.g. cheque clearing are rather high compared to other banks who are now targeting Equity’s customers.

However lowering charges may not be an easy option since these form a greater portion of the Bank’s income (52i%) than at its peers (CFC 33%) NIC (24%) and D-Trust (30%).

Employment: Despite the staff high turnover, the bank is a good, fast growing, employer that has gone from 354 employees in 2003, to 884 in 2005. It has 35 branches, (14 in Central province, 8 in Nairobi) and over half of them have opened in the last two years.

One issue I disagree with in the memorandum is that Africap agreed to sell 50% of their shareholding in the Bank to staff. But the truth is that staff were forced into buying these shares. The staff trust (unregistered staff ESOP) now owns 5.52% of the Bank’s shares, same as Africap.

Listing costs: Floatation was much cheaper than a new IPO. Equity’s listing is budgeted at 28 million compared to the Kengen IPO at 401 million and KCB rights issue at 104 million. The CMA and NSE get their fees (8.1m and 1.5m here respectively) as they did from Kengen (24m, 1.5m) and KCB (6.1m, 0.5m) and most of the savings come from not having to pay stockbrokerage and advertising costs. Equity has budgeted 11m for the financial advisers and sponsoring brokers; compare this to Kengen who paid 101m for advertising & 118m to brokers and KCB who paid 13m for advertising, 6m to brokers, 37m as agent commissions, 9m for postage, and 11.5m for printing etc.

Loans: Equity has been keen to grow their loan book ever since they became a bank to keep up with their ever-growing deposits. They have five times as many depositors as they do borrowers and while this was acceptable at a micro-finance level, it is important they grow their interest income.

They doubled their loan portfolio in 2005 from 2.9 to 5.5 billion, but NPA’s likewise doubled from 246m to 519m. Their loan to deposit ratio is now 72% (June 2006) which is comparable to CFC (76%), NIC (85% and D-Trust (785) at the beginning of the year

Management: The MD, current Chairman, and former Chairman, are among the largest shareholder in the Bank – and along with employees (in the ESOP) are barred from selling their shares for the next two years.

Marketing: Equity is now a Bank and should focus on marketing as a bank, not a micro-finance institution. The more, the MD shouts about how the Bank is not about one community, being very liquid, excellent global capital rating, not depending on government deposits etc, the more it makes one think about those very issues. Imagine if Adan Mohamed said the same thing about Barclays every time he was on TV. The focus should shift to marketing the bank’s customers, products, and convenience.

Nakumatt like: I’d compare Equity to Nakumatt in terms of their fast growth and they also own very little property (branches).

Ownership: Confusing to say the least, and it would be good to know why the management took such a convoluted route – from building society converting to a bank, converting deposits into shares, private placement to finance the bank’s share capital, and finally the issue of 4 bonus shares for each 1 held that created the 90m shares, that will be on offer in August.

Pesa Point: Equity has signed an agreement with Pesa Point to link their ATMs.

Verdict: In 2005 the Bank returned a pre-tax profit of 501 million, which translated to an EPS of 3.77, up, from 2.51 the year before. (Dividend was Kshs. 2 per share, same as in 2004). The Bank is on track for another year of record profits of 800 million before tax and could pass the billion shilling milestone next year.

The memorandum contains joint statements by Dyer & Blair and Suntra Stocks that values Equity shares (par value 5/=) using the DDM method at Kshs. 91.4 shillings per share, PBV at 64/=, and PE method 63.4 shillings per share. The advisers reckon that this compares well to CFC, Diamond Trust and NIC banks, who they consider to be Equity’s’ peers listed on the NSE

Yes, Buy Equity: But not immediately. It will take a few months for the share to settle since the current 2,800 shareholders of the bank will have to open CDS accounts and immobilize their shares before they can be traded. In 2006, 2.5 m shares have been sold in the OTC market. A share split is likely but it is also prudent to ask if the Bank is growing too fast.

Mid-week Business

International takeover
The Linde Group, (Germany) has applied to takeover the BOC Group (UK) which owns 65% of BOC Kenya – and who are in the process of acquiring Carbacid Kenya. Both local company shares remain suspended on the NSE and BOC Kenya managers’ don’t expect this new deal to affect the Carbacid takeover which is yet to be approved by the CMA.

Nosy bankers
– The Judge at the corruption trial of former Central Bank Governor, Andrew Mullei has refused to allow Charterhouse Bank lawyers to cross-examine witnesses.

Kenya Commercial Bank has thwarted efforts by the City Council to set up a public toilet on Aga Khan walk, opposite Kencom House.

Sometimes, Government is a good shareholder
Kenya has blocked Ethiopian Airlines from operating daily flights on the Entebbe-Nairobi route. The move could however trigger a backlash since it’s only a matter of time before other African counties, envious of KQ, and desiring to revive/support their airlines, retaliate with their own trade blockades.

Madaraka
The high court has indefinitely extended the period for Madaraka residents to obtain financing to purchase their houses.

Equity No. 1
Equity, is the first bank to report quarterly results as at 30 June 2006 and they have come out just in time for their shares to list on the NSE on August 7. On Monday, the Bank announced some amazing numbers. From a year ago (June 2005) assets are up 55%, pre tax profit is up 115%, deposits are up 67% while loans are up 130%. Good Buy, on August 7? Maybe!

All VoIP
All the three major phone companies in Kenya are now offering VoIP for international calls.
A comparison of call costs to the USA;
Telkom 888 15/= per minute ($0.2)
Celtel 123 29/= ($0.39)
Safaricom 888 30/= ($0.4)

Restricted News
The Daily Nation has joined the East African Standard and now restricted the magazine section articles on their website to premium subscribers only (One month costs $10 while annual cost is $ 60)

Kuku Cars
Cool true story on converting a Volkswagen Jetta to run on cooking oil and achieve 600 miles a gallon! Wouldn’t it be cool if someone started converting our local Toyota’s so that a taxi driver could buy chips, from Kenchic and then squeeze out the oil to put in his fuel tank?

Oil & Gold
Gold: encouraging results from Migori
Oil: High potential deposits in Lamu.

How to Change your Stockbroker

Republished from January 2006.

Change your stockbroker – a.k.a. central depository agent (CDA) – by taking these steps to transfer a shares (CDS) account to a new broker.

1. Complete and sign CDS 4A and 4B and submit both to current and new CDA (all stockbrokers have these forms).
2. Sign account opening forms with new CDA.
3. Keep signed copy of security transfer forms for own records.

It can take one day for the new arrangement to be effective – if processed before 12 PM. Shareholders can also contact the NSE’s business development department (info@nse.co.ke) or send complaints (compliance@nse.co.ke).

Also this week
– The Scangroup IPO will close on Friday, July 28.
– The Weekly Citizen reports that Charterhouse Bank will re-open on July 28.
– For the recently unemployed, here are Steve Pavlina’s 10 reasons NOT to get a job!