Category Archives: NSE investor awareness

Genghis Stock Picks for 2019

Nairobi-based investment bank Genghis Capital launched their 2019 “investor playbook” with the theme of embracing value. 2018 was a challenging year for the Kenyan economy and capital markets and that is expected to continue in 2019, but this also presents opportunities for investors.

Kenya has a relatively small number of stocks (65) on the Nairobi Stock Exchange (NSE) – and Genghis chose nine stocks as their 2019 financial (banking & insurance) and non-financial picks for investors, in three categories:

  • Momentum stocks: Equity Bank, East African Breweries, KCB Group, Safaricom.
  • Income stocks: Stanbic, Barclays Kenya, Standard Chartered, KCB. 
  • Value stocks: Kenya Reinsurance, KCB, Bamburi Cement. 

They cited that Safaricom scored positively in every category while KCB and Equity banks had embraced digitization, high asset quality and low cost structures.

Other points from the playbook launch presentation:

  • They do not expect a repeal of interest rate caps this year, even though its impact has been negative on the economy.
  • Funds raised for infrastructure bonds are not all being used for that; some are going to retire other debts and they should be properly used
  • Public-private partnerships are not coming to fruition; paperwork for the Nairobi-Nakuru highway was submitted in April 2018 but there has been no decision.
  • To a question – “what is the regulator doing to increase the confidence of investors amid fraud incidents?” – the CMA can only do so much and the onus is still on the company directors. International markets have graver penalties than Kenya and perhaps it is time the Director of Public Prosecutions started looking at some cases here and following through on enforcement. 
  • While Kenya Re is a pick in the playbook, they generally don’t cover the insurance sector – it has challenges including fraud, price under-cutting, and low penetration levels (3%) and a lot has to happen to unlock value and growth in the insurance mass market. Kenya Re is there because it is under-valued (owing to lack of clear strategy and proper management) but would be desirable to other insurance investors if the government decided to sell its shareholding.
  • They expect one main listing and others on the smaller NSE boards this year. But while a number of planned privatizations have been mentioned  – Consolidated and Development banks, Kenya Pipeline, Kenya Ports they face numerous hurdles while others like sugar companies in Western Kenya have been on the pipeline since 2011. 

M&A Moment: January 2019

The Competition Authority of Kenya recently approved the completion of several corporate merger and acquisition (M&A) deals. They are interesting in that they reveal some revenue and deal value numbers that private companies, acquirers, and equity funds usually don’t make public.  The deals were all approved with exclusions as the transactions between the affected companies  will not affect competition negatively and they met the threshold for exclusion under the “merger threshold guidelines.”

The deals and exclusions include:

Airline/ Oil/Energy/Mining M&A

  • (The Competition Authority of Kenya [CA-K]) .. Excludes the proposed acquisition of 51% of Selenkei Ltd by Frontier Energy as the acquirer assets for the preceding year (2017) was KShs. 225 million while the target’s assets was KShs. 4 million and the combined assets valued at KShs. 222 million meet the threshold for exclusion.
  • Excludes the proposed acquisition of control of Paygo Energy by Novastar Ventures East Africa Fund 1 LP and FPCI Energy Access Venture Fund as the acquirers had no turnover for the preceding year 2017 while the target’s turnover was KShs 2 million
  • Excludes the proposed acquisition of 51% of Cedate by Frontier Energy as the acquirer assets for the preceding year 2017 was KShs. 225 million while the target’s assets was KShs. 355 million and the combined assets valued at KShs. 580 million meet the threshold for exclusion.
  • CA-K approved the proposed acquisition of the entire issued share capital in Iberafrica Power (E. A) by AEP Energy Africa
  • CA-K approved the proposed acquisition of control of Consolidated Infrastructure Group by Fairfax Africa Holdings.

Banking and Finance: Finance, Law, & Insurance M&A

  • Excludes the proposed acquisition of 44% of Cellulant Corporation by The Rise Fund Certify, L.P. as the acquirer had a turnover of KShs. 93 million for the preceding year 2017 while target had a turnover of KShs. 752 million and therefore, the combined turnover of KShs. 844 million meets the threshold for exclusion.
  • Excludes the proposed acquisition of 12% of Pezesha Africa with certain controlling rights by Consonance Kuramo Special Opportunities Fund 1 as the acquirer’s turnover for the preceding year 2017 was KShs. 6.2 million while the target’s turnover was KShs. 3.1 million
  • Excludes the proposed acquisition of 100% of Serian Asset Managers by Cytonn Asset Managers as the acquirer had a turnover of KShs. 0.9 million for the preceding year 2017 while target had a turnover of KShs. 1.1 million for the preceding year 2017 and therefore, the combined turnover of KShs. 1.9 million meets the threshold for exclusion.
  • The Competition Authority approved the acquisition of indirect control of Abraaj Investment Management by Actis International. Abraaj controls Star Foods Holdings, which ultimately controls Java House Ltd in Kenya.
  • CA-K approved the proposed purchase and subscription of up to 25% shareholding in Prime Bank by Africinvest Azure SPV

Agri-Business, Food & Beverage M&A

  • Excludes the proposed acquisition of 99.9% of  Twiga Foods Limited by Twiga Holdings as the acquirer has no operations in Kenya and therefore had no turnover for the preceding year 2017 while the target’s turnover was KShs. 140 million and the transaction meets the threshold for exclusion.
  • Excludes the proposed acquisition of the business and assets of Anchor Flour Millers Company by Archaic Industries Kenya as the acquirer is a natural person with no business activities and had no turnover or assets for the preceding year 2017 while the target’s turnover was KShs. 97.3 million.
  • Excludes the proposed acquisition of class B ordinary shares in Fertiplant East Africa by Oikocredit, Ecumenical Development Cooperative Society U.A as the acquirer is a natural person and had no turnover or assets for the preceding year 2017 while the target’s assets were valued at KShs. 47.5 million.
  • The Competition Authority approved the proposed acquisition of 100% of Art-Caffe Coffee and Bakery Ltd by Artcaffe Group
  • CA-K approved the proposed acquisition of certain assets and part of the business of Kreative Roses limited by Kongoni River Farm on condition that the target retains 43 of its employees while the acquirer employs the remaining 362 employees for at least one year after the completion of the proposed transaction.

Health and Medical, Pharmaceutical M&A

  • Excludes the proposed acquisition of 32.5% of the shares with certain veto rights in King Medical Supplies by LGT Capital Invest Mauritius PCC Cell E/VP as the acquirer is a newly incorporated company and had no turnover for the preceding year 2017 while the target’s turnover was KShs. 20.9 million.
  • Excludes the proposed acquisition of 32.5% of the shares with certain Veto Rights in City Eye Hospital by LGT Capital Invest Mauritius PCC Cell E/VP as the acquirer is a newly incorporated company and had no turnover for the preceding year 2017 while the target’s turnover was KShs. 62.1 million.
  • Excludes the proposed acquisition of sole control of Hain Lifescience East Africa Kenya by Bruker Daltonik GMBH as the acquirer’s turnover for the preceding year 2017 was KShs. 102 million while the target’s turnover was KShs. 106 million and the combined turnover of KShs. 208 million meets the threshold for exclusion.
  • Excludes the proposed acquisition of the manufacturing and distribution business of Pharmaceutical Manufacturing Company (Kenya) by Shalina Healthcare Kenya as the acquirer’s assets for the preceding year 2017 was KShs. 0.4 million while the target’s value of asset was KShs. 43 million and the combined value of asset of KShs. 44 million meets the threshold for exclusion.
  • Excludes the proposed acquisition of certain assets of Maghreb Pharmacy by Goodlife Pharmacy as the target had a turnover of KShs. 15 million for the preceding year 2016 and therefore, the transaction meets the threshold for exclusion.
  • Excludes the proposed acquisition of 60% shareholding in AK Life Sciences by CSSAF Lifeco Holdings as the acquirer had a turnover of KShs. 377 million for the preceding year 2017 while target had a turnover of KShs. 125 million for the preceding year 2017 and therefore, the combined turnover of KShs. 503 million meets the threshold for exclusion.
  • The competition authority approved the proposed acquisition of the entire share capital in Arysta Lifescience Inc by UPL Corporation.
  • The Competition Authority authorized the proposed investment by Tunza Health Investments in Pyramid Healthcare Ltd.
  • The Competition Authority approved, the acquisition of 100% of the business and assets of Desbro (Kenya) by Brenntang (Holding) B.V. on condition that Brenntang retains the 80 employees of Desbro for a period of one year. Desbro distributes over 600 industrial chemicals to various industries in Kenya, Uganda, Rwanda, Burundi and Ethiopia.

Logistics, Engineering, & Manufacturing M&A

  • Excludes the proposed acquisition of 100% of the shares in JGH Marine A/S and JOHS. Gram-Hanssen A/S by Pitzner Gruppen Holding A/S  as the acquirer has no presence in Kenya and, therefore, had no turnover for the preceding year 2017 while target had a turnover of KShs. 392 million for the preceding year 2017 and therefore, the transaction meets the threshold for exclusion.
  • Excludes the proposed acquisition of the assets and business of Socabelec East Africa by Cockerill East Africa as the acquirer had a turnover of KShs. 193, million for the preceding year 2016 while target had a turnover of KShs. 226 million the preceding year 2016 and therefore, the combined turnover of KShs. 419 million meets the threshold for exclusion.
  • Excludes the proposed acquisition of 55% of  Air Sea Logistics (ASL) by Expolanka Freight PZCO as the acquirer had no turnover for the preceding year 2017 while the target’s turnover for the preceding year 2017 was KShs. 8 million and therefore meets the threshold for exclusion.
  • Excludes the proposed acquisition of the assets of Rich Logistics (K) by Bigcold Kenya as the acquirer is newly incorporated and hence, had no turnover for the preceding year 2017 while the target had a turnover of KShs. 48 million for the preceding year 2017 and therefore, the transaction meets the threshold for exclusion.
  • CA-K approved the proposed acquisition of the stationery and shavers manufacturing, sales and distribution of stationery, lighters and shavers business of Haco Industries Kenya  by BIC East Africa.
  • CA-K approved the proposed acquisition of the Kenyan freight forwarding business and assets of Dodwell & Co (East Africa) and those of Inchcape Shipping Services Kenya by ISS Global Forwarding (Kenya) – which is owned by Investment Corporate of Dubai (ICD). 
  • The Competition Authority approved the proposed acquisition of the assets and business of Blue Nile Wire Products by Blue Nile Rolling Mills.
  • The Competition Authority approved the acquisition of the assets and business of Wild Elegance Fashions by Wild Elegance Africa.
  • The Competition Authority approved the proposed acquisition of 73.6% of Sintel Security Print Solutions by Ramco Plexus. Sintel is involved in the printing and supply of scratch cards, highly secured cheques and custom labels.
  • CA-K approved the proposed acquisition of the business and assets of Office Mart by Sai Office Supplies
  • CA-K approved the proposed acquisition of the business and assets of Lino Stationers by Sai Office Supplies on condition that the acquirer employs not less than 57 out of the 74 employees after the completion of the proposed transaction.

Real Estate, Tourism, & Supermarkets M&A

  • Excludes the proposed acquisition of 40% of Dufry Kenya by Ananta as the acquirer had no turnover for the preceding year 2016 while the target had a turnover of KShs. 269 million for the preceding year 2016 and therefore, the transaction meets the threshold for exclusion.
  • Excludes the proposed joint venture between Scan-Thor Group and Otto International GmbH as the acquirer has no market presence in Kenya and, therefore, had no turnover for the preceding year 2017 while target had a turnover of KShs. 11 million for the preceding year 2017 and therefore, the transaction meets the threshold for exclusion.
  • Excludes the proposed transfer of 100% of Norbu Manda Pwani Ltd to Margot Kiser from the provisions of Part IV of the as the acquirer is a natural person and had no turnover or assets for the preceding year 2017 while the target’s assets were valued at KShs. 47.5 million.
  • Excludes the proposed acquisition of the business and assets of Giraffe Ark Game Lodge by Archaic Industries Kenya as the acquirer is a newly incorporated company and had no turnover for the preceding year 2017 while the target’s turnover was KShs. 51.5 million
  • Excludes the proposed acquisition of the business of Ocean Sports (2006) by Ocean Sports Hotel as the acquirer had no turnover for the preceding year 2016 while the target’s turnover was KSh. 44.6 million.
  • Excludes the proposed acquisition of 34.48% of African Forest Lodges by Earth Friends LLP as the acquirer is a newly incorporated company and has no assets or turnover for the preceding year 2016 while the target’s assets was KShs. 197 million.
  • Excludes the proposed acquisition of the (Furniture, fittings, equipment and Prefabricated building) assets of Me To We Ltd by Bogani Training, excludes the proposed acquisition of the (motor vehicle) assets of Me To We Ltd by Minga Ltd and excludes the proposed acquisition of the assets  (vehicles, beads, stocks) of Me To We Ltd by Araveli For Mamas as the acquirers had no turnover for the preceding year 2016 while the target’s turnover for the preceding year 2016 was KShs. 68 million and therefore, meets the threshold for exclusion.
  • CA-K approved the proposed acquisition of control of Tumaini Self Service by Sokoni Retail Kenya. Tumani operates retail stores in Nairobi, Kisumu and Kajiado.
  • CA-K approved the proposed acquisition of Nova Academics Tatu City Property Ltd by Summit Real Estate Pty
  • The Competition Authority of Kenya approved the proposed acquisition of 100% of Hillcrest Investment Holdings by Education Asia Holdings – which is an investment holding company owned by GEMS Global Schools. Hillcrest operates three learning institutions in Nairobi – Hillcrest Early Years, Hillcrest Preparatory School and Hillcrest Secondary School.

Telecommunications, Media & Publishing M&A

  • Excludes the proposed acquisition of 39% of the shareholding in the Star Publication by Avandale Investments and 10% of the shareholding by Adil Arshed Khawaja as the acquirer had no turnover for the financial year ending 30th June 2017 while the target’s turnover was KShs. 679 million.
  • Excludes the proposed acquisition of Mobile Web (trading as Hivisasa) by Novastar Ventures Easy Africa Fund 1 L.P.  as the acquirer had no turnover for the preceding year 2017 while target had a turnover of KShs. 14 million or the preceding year 2017 and therefore, the transaction meets the threshold for exclusion.

Other M&A

  • Excludes the proposed acquisition of Dc Xiang Kenya Company by Lin Bingwei from the provisions of Part IV of the Act as the acquirer is a natural person with no business activities and had no turnover or assets for the preceding year 2017 while the target is a newly incorporated company and had no turnover or assets;
  • Excludes the proposed acquisition of 100% of the shares in Kesar Investments by Dipak Lakshman Halai and Ramesh Kurji Visram as the acquirer are individuals and had no turnover for the preceding year 2016 while the target’s assets was KES 0.07 million
  • CA-K approved the proposed acquisition of Zelepak Africa by PPG  Holdings

CA-K, as a regulator, has not yet reported on two mega deals; the proposed bank merger between CBA and NIC and the buyout of Kenol by Rubis that will lead to a delisting of the company. EDIT: Later in January 2019, the Competition Authority approved the Rubis-Kenol deal along with a few other deals. 

Also, see some other deals approved six years ago.

$1 = Kshs 101

Rubis Kenol Deal Details

The Directors of Kenol Kobil have recommended that their shareholders accept a buyout offer from Rubis Energie as more details have been availed about the deal.

The board faces shareholders at the 2016 KenolKobil AGM

Kenol is second largest in the country of 60 oil marketers. It has 13% market share boosted by 47% share in civil aviation. In retail, they have a 10% share behind Vivo/Shell and Total. Rubis is listed on the Paris Euronext Exchange. It has grown in 15 years by acquiring and managing companies and all its individual businesses are now profitable. SBG Securities have confirmed that Rubis have enough funds for the takeover.

Deal Excerpts

Special Shareholders

  • The offer is a 50% premium price and it is billed as offering shareholders a 100% cash return without broker charges.
  • Rubis owns just under 24% of Kenol that it bought from Wells, on October 2018 at Kshs 15.3 per share. If it takes over the company before October 2019, it will pay Wells an equivalent of the difference that other shareholders are receiving over and above what Wells received.
  • If Kenol announces any dividend now, an amount equivalent of the dividend shall be deducted from the amount due to be paid to any shareholder.
  • Kenol shareholders can only accept the offer in full, not partially. Kenol can vary its offer up to 5 days before the closing date and any shareholder who had accepted will be deemed to have accepted the new terms.
  • Rubis has received irrevocable undertakings from Tasmin Ltd with 4.2% and CEO David Ohana with 5.7% comprising 88 million shares he was granted in an ESOP in January 2017.

Way Forward:  

  • The offer closes Feb 18, 2019, with results announced on March 12.
  • Rubis reserves the right to extend the offer, with the approval of the CMA, but not beyond July 30, 2019. 
  • Shareholders, local and foreign, individual and corporate have been invited to register their interest in accepting the offer electronically on Rubis site  – this takes care of an issue cited in the stalled Victus-Unga buyout in which no response was received from 8% of their shareholder), as either they did not receive their documents through their post office mailboxes in time or did not respond, perhaps because they hoped that a better offer for their Unga shares would materialize.
  • If Rubis attains 90% support, they will force other shareholders to accept, and move on with delisting. If they gain 75% support but fall short of 90%, they may seek shareholder and regulatory approval to delist. Rubis will vote in favour of that and, if 75% approve and not more than 10% oppose it, they will proceed to delist Kenol. If it does not delist, it will remain listed until approvals are obtained or CMA asks the NSE to delist the shares. They caution that if Kenol is not delisted, after the conclusion of this deal, the remaining shareholders will find that the liquidity of their shares will go down, – noting that less than 0.06% shares traded each in a six month period prior to the deal announcement.

CBA and NIC to merge

Jan 31, 2019 The boards of NIC and CBA have agreed to the merger and provided further details of the deal in Nairobi.

 

Dec 6, 2018 The boards of NIC Group and Commercial Bank of Africa have announced preliminary plans to merge. This follows talks that had been reported as far back as January 2015.

The move is driven by a need to consolidate capital and liquidity with new technology opportunities to provide more services to customers and grow returns for shareholders.

The merger of the eight and ninth largest banks in the country will result in a banking institution that will be the second or third largest by assets, behind KCB and Equity.  As of September 2018, NIC and CBA had a combined asset base of Kshs 443 billion ($4.3 billion) and Kshs 9.3 billion in pre-tax profits. 

CBA is already the largest bank by customer numbers thanks to M-Shwari, its partnership with Safaricom’s M-Pesa that had over 21 million customers last year.

More details will come later and NIC is listed on the Nairobi Securities Exchange.

Cytonn Investors Briefing

On Thursday, November 8, the board and management of Cytonn Investment had a session with investors at the end of a weeklong series of meetings. Present at the cocktail were managers and directors of different Cytonn companies, a few hundred of the 3,500 Cytonn investors and a team from principal partner Taaleri Africa. 

Prof. Daniel Mugendi, the Cytonn Chairman, spoke of East Africa’s attractiveness to investments as he thanked the management for the growing the relationship with Talleri, which had just resulted in them investing a further Kshs 2 billion in real estate projects with Cytonn as well an interest to buy 20% of Cytonn in an IPO, which the board supported.

Cytonn has several arms including real estate, education, hospitality, asset management (Seriani and Cytonn Asset Managers are being merged next week), high yield solutions, and a diaspora office run from Washington DC. Edwin Dance, the CEO of Cytonn said that funds raised from investors (minimum Kshs 1 million) are primarily (~70%) put into the different real estate projects such as the Alma, Taraji, The Ridge, Newtown (1,000 acres) and RiverRun which are run as independent special purpose vehicles (SPV)] with their own boards and reporting structures.

Dande said Talleri was the first institutional investor to commit to Cytonn as he also saluted some of the early investors and supporters of Cytonn, including the Chairman, who came on board even as its founders were embroiled in a bitter tangle with their former employers.

Kati Salo, a risk specialist with the Taaleri Africa team said they had exited the Amara project successfully and were now back to do more investments with Cytonn and had signed with The Ridge, taking their investment to Kshs 5 billion. She added that they were impressed with the team who had also given them access to management, clients and advisors and had decided to take a stake in Cytonn in the planned listing of the company. Earlier this year, shareholders of Cytonn had approved a listing of the company, and going by the amended resolution, this may not necessarily be on the Nairobi Securities Exchange,GEMS segment.