Author Archives: bankelele

About bankelele

Writing on banking, finance and investments in East Africa. Email bankelele_at_hotmail.com, Instagram: Bankelele, Twitter: @Bankelele.

African Investor? Think Global

Huge potential financial returns from global markets:

The financial markets have started like a rocket this year. The main global indices have incredible resilience through the current pandemic and political turmoil. The German Stock index (DAX30) started this year up 80% from its March 2020 low. The US NASDAQ closed off last year with a gain of 43.64% and since the opening of 2021 all the main US indices (Dow Jones, S&P500, NASDAQ) keep relentlessly printing new all-time highs.

Some of the strongest performing global stocks continue to be those that are servicing the needs of a planet in lockdown. For example, ZOOM (ZM), a video communications company that has kept the world connected and has benefitted from a 2020 share price increase of 396%. Peloton (PTON) brought health and fitness into the planet’s living rooms and was rewarded with a 434% increase.

While these stocks are striving to improve lives during the pandemic and beyond, Tesla (TSLA) continues to fight against the global climate crisis. Traders from across the world have bought into the Tesla story, and those that have held the stock since 2019 are smiling with a return of well over 1,000% (none more so than the newly crowned richest man on Earth – Tesla CEO, Elon Musk). On Friday 8th January an incredible $62 billion of Tesla shares were traded, one of the largest daily stock trading volumes in history.

These volumes and returns are not just concentrated on equities. Bitcoin, considered by some as ‘digital gold’, has had an incredible run over the past few months, recently smashing through $40,000. The ‘digital gold’ has returned over 40% to investors in the first trading week of this year alone. Actual gold also performed well, giving a 19% return over the past year. So, equities, indices, commodities, cryptocurrencies- most global asset classes can reward those with access.

Don’t miss out on the global bull-run:

African investors are wise to compare these potential returns to local markets. Many of the African stock exchanges were negative over the past 12 months, with some of the larger ones finishing 2020 down 7 – 15%. The issue here is that most investors in these regions are still predominantly trading local shares/ equities and bonds. Fixed income products are showing extremely poor returns across the world, so the net result for these people is that they are missing the huge global bull-run and it just isn’t fair. It is the mission of my company EGM Securities/ fxPesa to help resolve this issue. The era of holding solely long positions in local stocks and bonds has gone. Africans need and want so much more- and we are determined to give global access and education to anyone that seeks it. We see it as our responsibility to help improve financial literacy across the continent by relentlessly educating the population.

Expect more volatility this year:

On the topic of financial literacy, it is important that we note that we are certainly in a bubble fed by several factors, not least the incredible amount of stimulus from global central banks – more than $9 trillion has been pumped into various markets. There is certainly a disconnect between the global economy symbolised as ‘Main Street’ and the Stock Markets, or ‘Wall Street’. Last week there was a poor jobless claim print (Non-Farm Payroll or NFP) showing unemployment increasing, but in parallel main indices were at record highs. Commentators are calling this a ‘Rational Bubble’, as prices are inflated but with there not being an expected end to the money printing, the bubble looks set to continue.

However, a correction (10% stock market drop) or bear market (over 20% drop) is inevitable. A correction occurs, on average, yearly. A bear market occurs every 3-5 years. We must remember Warren Buffett’s most well-known advice- “Be fearful when others are greedy and greedy when others are fearful”, and for sure the world is being incredibly greedy with the returns they are getting. This is the reason why Tesla and Bitcoin volumes are through the roof. So, if a downturn is inevitable, Africans need the ability to trade and profit from falling markets (going short) – something unknown to many traders in the region.

If you’re an African investor you must think global:

Taking this all in, my point is this – if you are an African investor you must think global. By doing this, the investor can tap into heavily traded markets moving with potentially larger returns. You should find a brokerage that you trust and that, like mine, allows access to global indices, foreign exchange (fx), commodities and shares, so that you can diversify your portfolio away from just local equities and bonds. It’s important that you educate yourself in financial products that will allow you to benefit from falling markets. By doing this and constantly learning, you will be on a great path towards financial freedom.

Follow me @bjmyersUK

A guest post by Brian Myers, the CEO at Equiti Capital UK.

Homeboyz Entertainment at the NSE

A peek at the prospectus of Homeboyz Entertainment that was released after their listing at the NSE

Monday, December 21 saw a brave move by Homeboyz Entertainment to list on the Nairobi Securities Exchange (NSE) by introduction. The Homeboyz board approved the listing on the growth enterprise markets segment (GEMS) of the NSE back in February 2020, just before Covid hit the entertainment industry and the company now projects a 68% decline in their business this year due to Covid.

With the listing of 63.2 million shares at Kshs 4.66 per share, the twenty-five-year-old company becomes the first pure entertainment company on the NSE. Homeboyz was one of the companies in the NSE’s Ibuka program which it joined in May 2019 and has now graduated from. The event comes a few days after the NSE and CMA approved the listing.

  • Ownership and management: Homeboyz share capital is Kshs 31.6 million divided into 63.2 million shares. Owners are Myke Rabar, the co-founder and CEO with 35.6 million shares (56.4%), Rose Maina, the finance and administration director, with 27.5 million shares (43.6%), and John Rabar 20,000 (0.03%). A debt owed to the directors of Kshs 11.6 million was converted to equity in a share split ahead of the listing in November 2020. The three are directors along with Humphrey Wattanga (Chairman), Joe Otin and Stephen Gugu and the firm has 55 employees.
  • Turnover in 2019 was Kshs 311 million and in 2018 it was Kshs 346 million.  Interestingly, a majority of their revenue comes from their soundtracks business (earn Kshs 120 – 130 million every year from Soundtraxx), while events management and equipment leasing have fluctuated as they are more competitive. The company had a pre-tax profit of Kshs 38.9 million in 2019 and in 2018 was a loss of 9.7 million.
  • Have recent contracts with the Kenya Revenue Authority, State House, Kenya Open Golf  Kenya Rugby League, Football Kenya Federation, Sports Loto, and E-Sport Kenya Federation. In the past, they have partnered with UK’s Tiger Aspect Production on Tinga Tinga Tales TV series and now have another deal with Warner Bros for a video game called Pamoja Mtaani. 
  • Their brands include Swype (a payment gateway), Homeboyz Aktivate (experiential marketing), Music Technology Academy (a school for DJs), Y-HUB (online learning) and Fixxit. They also partnered with Publicis Africa Group in 2016, one of the world’s largest communications agencies.
  • Directors have a similar shareholding in Homeboyz Holdings Ltd while at Homeboyz Radio 2017 Ltd, Radio Africa owns 51% of the radio business.
  • They bought a bottled water company for Kshs 100 million in 2009 and divested from it in 2011.
  • Bank at Habib Zurich, NCBA and Bank of Africa. Their main financing is now with Bank of Africa who Homeboyz have asset finance and overdraft facilities that are enjoying a Covid moratorium up to March 2021.
  • Listing fees are Kshs 9.1 million and include payments to the nominated advisor of Kshs 2.1 million (AIB-AXYS), transaction advisor 2.1M (Horizon Africa Capital), and legal advisor 2.8M (MMC Asafo). The auditor is Matengo & Associates.

FT best business books 2020

The Financial Times staged their best business book awards for 2020 today, and in the 16th year of the series, the event was held virtually. The nominated books were about a diverse rangeof subjects including capitalism, Instagram, Netflix, Oil & Saudi Arabia, decision-making, inequality, futurism, empowering women, automation, data-mining, and market crashes.

For 2020, the award went to “No Filter: The inside story of how Instagram transformed business, celebrity and our culture” by Sarah Frier.

Interviewed after the award decision, Frier said after years of reporting about social media companies, she realized that their products were becoming the infrastructure of society so it was important not to look at them as just business stories. She wins $30,000 and the runner-ups will get $10,000.

No Filter finished ahead of Death of Despair by Anne Case & Angus Deaton, Reimagining Capitalism by Rebecca Henderson, If Then (How the Simulmatics Corp. Invented the Future), by Jill Lepore, A World Without Work by Daniel Susskind and No Rules Rules (Netflix) by Reed Hastings & Erin Meyer.

Other shortlisted books were Samsung Rising by Geoffrey Cain, Winning Now, Winning Later by David Cote, Uncharted by Margaret Heffernan, Blood and Oil by Bradley Hope & Justin Scheck, Radical Uncertainty by Mervyn King & John Kay, Trade Wars are Class Wars by Matthew Klein & Michael Pettis, Money for Nothing by Thomas Levenson, The Double X Economy by Linda Scott and Flash Crash by Liam Vaughan.

Also awarded was the Bracken Bower Prize for next generation of authors, with the $15,000 prize going to a book proposal called New Money by Stephen Boyle.

The Creative Sector in 2020

The Africa Digital Media Foundation (ADMF) has published a comprehensive report on the state of the creative sector in Kenya and the needs, challenges, and ambitions of its participants. ADMF started the study with a questionnaire that was widely circulated and completed the research in July 2020 using online forums and tools.

Summary of their findings:

  • There is a willingness in the Kenya creative entrepreneurs to make things better for everyone.
  • Success breeds success and the creative population is divided between those that have made it (and keep grabbing jobs and clients) and those that have not (less- established creative entrepreneurs who may have few years of experience, little commercial and financial success)
  • All want opportunities to learn more; they accept that technology evolves and new products require new skills.
  • Banks don’t understand; formal credit and financing options aren’t considered viable options by creatives; their financing is limited to sourcing from friends and family.
  • Almost everyone had a story about doing work and not receiving payment as agreed from the client.

Other interesting findings in the report:

  • Top engagements are in TV/video production, writing/journalism, graphic design, animation and finally photography (all have more than 10%). Some small categories with 1% are gaming, event planning and jewellery.
  • There is 50/50 split between those that have formally registered their business and those that haven’t. Of the non-registered ones, some can’t afford to lose some of their income in taxes while others do not see the benefit in registering a business, paying taxes, and accessing the supposed benefits that taxpayers enjoy, such as NHIF and NSSF.
  • 23% work in the sector part-time. Their other sources of income are teaching (7) and 4% each for farming and events equipment rental.

Check it out the full report here.

Also, read more about ADMF, and its sister institution, the Africa Digital Media Institute (ADMI). Some of the courses open for enrollment in 2021 including certificates in video game development, music production, video production, digital marketing, and Rubika 2D animation as well as diplomas in Rubika video game design, sound engineering, animation & motion graphics and film & television production.

Absa Kenya on Wills, Trusts and Succession Planning

Absa Kenya has been holding thought leadership seminars since their rebrand in February 2020.

This week they had an investor education connect session on wealth management, with a focus on wills, trusts and succession planning which featured Madabhushi Soundarajan (Managing Director, MTC Trust), Peter Waiyaki (Partner at Mboya, Wangong’u & Waiyaki Advocates) and Anthony Mwithiga (CEO, Absa Asset Management).

Some excerpts 

Wills:

  • People don’t do wills because they think they have nothing – but anyone over 18 who has been working has something to give. 
  • Another excuse of some educated Kenyans is they think they are courting death or will be marked for death by their families
  • Can do a will in an hour or five years. It does not have to be expensive or complex.  
  • A will should have two things to help a will (i)  a residual clause. assets grow after the will make sure any other assets be distributed the way the old “any other assets  (you don’t have o make a new will (ii) creation of a testamentary trust. 
  • Let your family know where your will is kept. If two wills emerge, the latter one will be used. If a will is destroyed, it is not valid.
  • If someone remarries, it invalidates a will because they are considered to have new dependents. 
  • Do not include matrimonial property should not be in a will. Or joint owner – when someone dies the spouse inherits the full property. They should not be in the will. 
  • Also don’t put investment or trust property in a will.
  • Proof of dependence: wives and children do not need to prove they are dependents. This also includes conceived but not yet born and adopted kids. But parents or siblings of a deceased must prove they are dependent. Also in Kenya, a husband/man will have to prove  he was being supported by a woman.
  • Covid situation: Oral wills are only valid for 3 months and must be mentioned in the presence of two witnesses who are not beneficiaries. And for a written will, someone in a hospital, surrounded by relatives is not considered to have the freedom to write a will. 
  • Without a will, only the family of a deceased person can inherit from the estate. No gifts to charities, churches etc. are recognized. 
  • Do not put assets in a will that already have nominated beneficiaries elsewhere e.g. life insurance, pension funds. 

Trusts:

  • Have the philosophy of giving things up as you will nor carry your wealth to the grave – so start thinking about preservation.
  • Banks are getting worried about lending to trusts. 
  • A trust is not a legal entity, a foundation is a better legal entity that can be created to run a school or a hospital.
  • Most common are discretionary trusts and others are ones that founders can create to run businesses for their families
  • A trust is a lengthy document. In a trust, you can exclude rogue children. 
  • To set up a trust; define the objectives, the trust structure, the beneficiaries, the trustees (ideally a corporate) and seek professional advice. 

Investments:

  • Use professionals e.g. in a unit trust to administer investments if you are too busy. 
  • If you have a vision, take a lead and invest in it so that others will follow.  
  • the realty over the last five year is the property prices can go down, unbelievable to many investors of 15 years ago. Covid has hit offices and malls, but there are still investments in residential, logistic and warehousing ventures.
  • Attributes of an ideal asset; gives returns, it should grow, it should be liquid, be understandable and It should also be secure (legal ownership & from damage). Individuals and families have investment portfolios, as it is not possible to get one asset to full all these attributes. 
  • The investment universe encompasses money markets, treasury bills, bank deposits, and listed shares which now includes a New Gold ETF.  Also unlisted shares (shares in a business stems/OTC), real estate, and alternatives such as derivatives, commodities, currencies and infrastructure projects which is a new asset class open to pension funds.

Suggestions:

  • Everyone should discover what type of investor they are and what stage they are on the life journey to understand what to invest in. 
  • Think investments beyond Covid-19.
  • Write a will today; there is no way of running from your dependents –  except through trusts, which allow one to better organize estates.
  • The best non-taxable investment in Kenya is infrastructure bonds.