Category Archives: East African Cables

NSE Moment: Britak, Transcentury, Kigali Bank, Stima SACC0

This week we were reminded that there’s been no IPO at the Nairobi Stock Exchange (NSE) since 2008 (Co-Op Bank) and the events in the last few days were the fulfillment of initiatives that companies like Britak and Transcentury had initiated earlier in the year.

Britak: The British American Investments Company Kenya kicked off their IPO this week. The group had Kshs 9 billion in income, and pre-tax profit of Kshs 2.8 billion in 2010. With group assets of Kshs 25 billion, it is second only to the ICEA at 27 billion.

They are being sold at Kshs 9 with an allocation criteria of 30% East Africa retail, 30% foreign, 37% institutions, 3% employees, agents, and individual policy holders and can be obtained at British American branches, Equity bank , Standard Chartered (and partner Postbank), NIC, CBA banks and stockbrokers.

The minimum for retail investors is 2,000 shares (Kshs 18,000 while for institutions it’s 10,000 shares (Kshs 90,000 or ~$1,000). The IPO is budgeted to cost Kshs 320m ($3.5M) with estimated payments to transaction advisor 24M, sponsoring broker 6M, legal costs 9M, selling commission 87M, CMA 9M, NSE 1.5M, PR 67M, and advertising 90M.

Of the Kshs 5.9 billion to be raised, 1 billion will be for regional expansion (Tanzania, South Sudan, Rwanda), 1.2 billion will be for Kenyan operations (set up a frontier investment fund, new branches), 2.5 billion for the housing & mortgage sector aimed at affordable housing models, and 750 million will go to pay off a loan at CBA bank that was used to purchase shares in Equity Bank (Britak own 11% of equity and 16% of housing finance banks).

The Britak IPO runs from 12 July to 5 August and they have also reached out to bloggers, with forums and their own blog posts such as this tale of their CEO’s initial investment.

However, there are some concerns that with their 45-year history and strong brand name (-pay Kshs 18 million a year to British American), this is a retail magnet IPO and the sale of 650 million shares (30% of the company) is likely to be over-subscribed, and the dividend paid (Kshs 200m in 2010) is likely to be safaricom-ish (small)

The company has also called for the Government to extend current tax incentive for newly listed operating companies to also include holding companies (like Britak)

Transcentury: The investment group which has had a spectacular climb and string of investments, most notably with East African Cables listed their shares at the NSE on July 14.

Their shares had been trading at an OTC exchange and were listed at the NSE at Kshs 50, which worked out to a P/E ratio of 38

The Group also has a Mauritius convertible bond issued to finance the restructuring of Rift Valley Railways and investment in geothermal and other energy projects, but which also has the potential of diluting investors shareholding by over 1/3. (150 million shares available to bond holders over the next 5 years prices between 40 and 50)

Still, Transcentury has been am inspiration to other investment groups, albeit not as well connected to initiate projects with more risk such as energy real estate, and offshore. The introduction is budgeted at Kshs 20 million (220,000 – CMA 5M, NSE 1M, advisor 8M, stockbroker 4M) and the PDF prospectus is ‘protected’ so you can’t copy sections of it.

Family Bank: Their long dalliance with the NSE is about to be fulfilled as their shareholders will next month approve a listing at the exchange. They will also vote on an ESOP for managers and 1 % transfer of shares of the company to the new CEO. It has since emerged that he is purchasing the shares at a discount as part of his employment package.

Stima SACCO: Away from NSE is Stima SACCO that is in the process of raising funds of about Kshs 500 million ($6 million) . They have advertised in newspapers (even on TV), which may land them in trouble with the CMA, for selling shares to the public without adequate information. At Kshs 100 per share, individuals can buy 200 shares at a minimum (Kshs 20,000).

Kenya Airways: Nothing yet from the airline who were expected to approach shareholders for new funds. The government has allocated funds to invest and defend their 26% stake an the airline which has since signed a deal for new Embraer aircraft to grow their African footprint.

Bank of Kigali: The Bank of Kigali is aiming to raise $62 million from new investors in an IPO that runs from 30 June to 29 July. The Bank control 25-30% of the banking sector in Rwanda; it had profit of 8.6 billion francs ($14 million) in 2010 on assets of 197 billion francs ($324 million) – equivalent to a smaller mid-size Kenyan bank

300 million shares are on offer, and the minimum is 200 shares per person at 125 francs per share ($0.075 or Kshs 18.65). They are open to cross-border investors and the allotment will be to 27% retail East Africans, 2.4% to employees & directors, 15% – East African institutions, 15% to Rwanda institutions and 40% to international investors.

The Rwanda government owns 66% of the bank, and the other 1/3 are owned by the social security fund of Rwanda. 16 billion francs ($27 million) will go to the Government for reduction of its shareholding and 20.8 billion francs ($34 million) will go to the bank to reduce its assets & liabilities maturity gap and grow its loan book and operations (from 33 to 60 branches). This will result in new shareholders owning 45% of the bank, the government 30% and the social security fund with 25%

Other: The IPO prospectus lists
– lawyers acting for the bank, number of cases they have and prospects of loan recoveries
– lawsuits filed against the bank by name (former employees, debtors opposing auction)
– list of subcontractors and related partners such as visa card providers, SMS partners, providers of credit reference and lines of credit etc.
list of properties owned and rented by the bank and rent amounts. Also Rwanda depreciate building over 5 years, after each revaluation

Risks & Exposure – one of the operational risks is scarcity of qualified personnel in Rwanda
– commerce restaurants & hotels account for 46% of the bank portfolio while construction was 29%. Also 11% of loans were to a single group and records of large are available for review to persons who sign non-disclosure agreements
– Kenya is the country’s largest trading partner: Rwanda exports 33% to Kenya and imports 16% back.

Staff: – All staff are entitled to bonus and in 2010 this totaled 8% of profit, which that was shared by 441 staff (out of 454), and the average award was $3,200.
– The bank also runs an in-house dispensary and provides full medical cover to staff and 4 dependents
– The oldest director was born in 1960, the youngest in 1977. At senior management, the managing director is the oldest employee at 54, while the head of finance is the youngest at 31.

NSE Nairobi Investor Briefs

new corporate activities at the Nairobi Stock Exchange include

British American Investments – a.k.a. British American a 46 year old company in the country now planning an IPO at the NSE. They are also embarking on regional diversification as a group, which is best known for its British American insurance (Britak) – but has since added British American asset managers (formed in 2005) and Britam insurance in Uganda.

In 2010 they had gross revenue Kshs. 4.5 billion ($56 million) (up from 3.9 B in 09) largely due to Investment & other income of Kshs 5.1 billion (09 was only 400k) and their profit before tax was Kshs 2.8 billion, compared to a loss of Kshs. 334 million the year before. This also included underwriting income in Kenya of Kshs 152 million (up from 80M year before)

They are aiming for the IPO in 2011 to finance their diversification into micro-insurance and bancassurance as well expansion to Tanzania, Rwanda and south Sudan. They are yet to obtain shareholder and capital markets authority approval. Group Managing Director Benson Wairegi said they have alerted the CMA, but are yet to submit documents until their shareholders approve the process

Kenya’s capital markets rules require 3 to 5 years profitability before a company can list, though @coldtusker disagrees with that saying smart investors should be allowed to decide a company’s prospects regardless of their recent profitability.

Other: – Their balance sheet grew to Kshs 25.2 billion ($315 million) up from 16.3B. Assets under management by British American asset management (BAAM) grew from Kshs 8 to 17 billion
– Expenses were up 8% compared to 16% for revenue
– Paid a dividend of 200M (Kshs 6.67 per share) up from 120M last year (Kshs 4 per share)
– Bank portfolio: they own 11% of Equity bank and 15.9% of Housing finance

TransCentury: Also up for possible listing is TransCentury which was founded by a Group of prominent Kenyan investors who expand into the limelight when they acquired East African cables in 2004. Since then they have taken stakes in Development Bank of Kenya, Kenya Power & Lighting company as well as Rift Valley Railways

Their 2010 highlights and 2009 detailed accounts show;
– High finance costs eating into profits and need to pay down debt
– Strong shillings bad for there profit 170m impact,
– Kshs 1 billion invested in 2009, down to 50 million in 09

Portfolio – Seem to manage regional diversification better than Olympia did and which Centum is now trying to do
– Quoted shares in Metal Fabricators (Zambia) 20%
– Unquoted in Rift Valley railways (34%) and Development Bank of Kenya

– In 2010, added Cableries du Congo (Congo Cables)
– Chai Bora Blended Tea (Tanzania) [Revenue of Kshs 714M, pre tax loss of 29M]
– Kewberg Cables & Braids [Revenue of Kshs 781m, pre tax profit of 44M]
– Tanelec (Tanzania) [Revenue of Kshs 772M, pre tax profit of 133M]
– Avery East Africa (Kenya scale) [Revenue of Kshs 226M, pre tax profit of 21M ]
– Participation in investment in funds include Kshs 200 million in Aureos (East Africa, South Asia, china), Helios (Kshs 350m) and Business Partners International (Kshs 43 million)

In anticipation of a NSE listing, they made moves such as:
– 10:1 share split in October 2008. Now has 263 million ordinary shares up from 20 million after bonus, split, and new issues
– Paid a dividend of Kshs 13 million in 2009 (DPS of Kshs 0.05). For 2008, it was 29 million, which was part paid in ’09
– According to the East African in Feb ’11, Transcentury shares were trade at an OTC market run by Dyer & Blair at Kshs 35 per share compared to Kshs 48 in 2010.
– Seem to manage regional diversification better than Olympia did and which Centum is now trying to do

Kenya Airways: Is likely to seek to raise capital from its shareholders this year on advice from their directors and CFC Stanbic who are their financial advisors.

Regional: In Tanzania, Kenya Airways is ceding a steak in Precision Air, which is seeking to raise almost $30 million, in an IPO, but indications are clear that Kenyans will be locked out as will other non-Tanzanians.

From Rwanda, we have the prospect of more share listings from two companies – Bank of Kigali and MTN Rwanda, and following in the footsteps of Bralirwa who’s IPO was open to all East Africans.

Regional diversification

Taking regional investments a step further – how are various local listed companies doing on the regional front? January 2008 showed that having a focus on Kenya alone could be an Achilles heel despite it being considered one of the strongest economies in the region. Various listed companies are making pushes in East and Central Africa – however many of these countries are all dependent on Kenyan access, hence it’s not really true diversification of political risk. In that sense, Olympia Capital, an NSE laggard may be ahead of its peers with its tangled Botswana and South African corporate moves.

here’s a recap:

  • CMC says regional sales are on target in Uganda and Tanzania (from ½ year results this week)
  • Diamond Trust has set its sights on Burundi (adding to Uganda and Tanzania) while many other banks have targeted Rwanda.
  • East Africa Cables attribute good performance to their subsidiaries in Uganda, Rwanda and Tanzania
  • KCB has subsidiaries in Uganda, Tanzania and S. Sudan (though it wrongly had the flag of Sudan on its’ annual report cover. These countries contribute less than 10% to their income and Ug had a loss of 49 million (setup costs) while Tz barely broke even with a profit of 0.2m in 2007. KCB opened in Kampala in November 07 and will open 6 more Ug branches in 2008, 4 new ones in S. Sudan in 08, and another 20 new branches in Tz over the next two years according to their annual report.
  • Kenol who after acquiring Kobil could be the first 100 billion shilling turnover company, have subsidiaries in Uganda, Tanzania, Rwanda, Zambia and Ethiopia. 80% of their sales are from Kenya, while the other countries contribute about 20%.
  • TPS East Africa acquired 8% of Serena Rwanda which includes Kigali Serena and Lake Kivu Serena. Of Serena’s 2007 sales of Kshs. 3.7 billion (~60 million), Kenya accounted for 64% and Tanzania 36%.
  • Total Oil Kenya has sister companies in Uganda, Tanzania Congo Rwanda so essentially remain a Kenyan company with 97% of their sales being local. They, however, complain in their 2007 report that other countries who should be buying from Kenya are (because of our tax regulations) buying offshore and shipping through Kenya instead.
  • Sameer Africa are looking for transporters to Somalia, DRC, Ethiopia, Rwanda, Sudan, Burundi, Mozambique, Zambia, Malawi Uganda and Tanzania for their products.

Shooting Star

Once again speculation in East African Cables stock has resulted in an unconventional jump from 204 to 213 shillings (9 shillings) per share on a volume of just under 3,000 shares traded yesterday. Compare that to another fast-rising stock – HFCK that gained 2 shillings (24.75 to 26.75 shillings) on a volume of about 300,000 shares traded on the same day.

Earlier this year, EA Cables made another astounding 17 shilling jump on an even smaller volume of just 1,000 shares.

EA Cables AGM

East African Cables Ltd. held their 40th annual general meeting at Holiday Inn, Westlands on the morning of Thursday April 21st. About 70 shareholders showed up, in an 80 capacity room, which is about par with previous years.

The AGM was a no-nonsense affair, as shareholders were genuinely happy with the company whose share price has shot up from 13 shillings to 67 shillings within a year since a change of ownership and management in 2004. The company’s earnings per share increased from 0.46 to 6.11 shillings per share and it also paid a total dividend in the year of 3.5 shillings. Most questions dealt with the company’s main customer (Kenya Power & Lighting Company) and the previous majority owner (Sameer Group). Official matters concluded in about 30 minutes, and were followed by a buffet lunch, poolside at the Holiday Inn (for once, there wasn’t any major food drama)

Interesting note
After attending a few AGM’s, you start to notice some familiar faces i.e. people who own shares in all these companies and have time to attend them. Allegedly there’s one gentleman who owns a few shares in most of the 47 NSE companies and attends these functions for the perks and prestige (always gets to ask a question). Also there are some other men who are reputed to own significant shares in some of these companies – and who are even listed in the company accounts as being among the top 10 shareholders.

Best move
The Board of EA Cables invited the head of the central depository system to talk about the new way of trading shares and shareholders had tons of questions for him. (making it worthy of a separate blog entry – coming soon)