Category Archives: NSE investor awareness

Safaricom 2018 Results, Driven by M-Pesa and Data Growth.

This morning Safaricom released their March 2018 results, reporting that they had overcome a challenging year in Kenya to post record results as their shares also touched record highs.

Kenya’s largest company reported revenue of Kshs 224.5 billion (~$2.24 billion), a 10% increase shillings an EBIT of Kshs 79.3 billion, and a net income of Kshs 55 billion ($553 million). They will pay out a Kshs 44 billion ($440 million) as dividend (Kshs 1.1 per share)  to their shareholders.

As was the case the previous year, the results were driven by innovations in data, and mobile money (M-Pesa_. Mobile data revenue was Kshs 38.4 billion (up from Kshs 29.3 billion) and data usage per customer has grown to 56% to 421 MB, with more than 90% of data consumed through bundles which offered customers better value and freedom of usage.

M-pesa revenue was Kshs 62.9 billion as customers had moved from traditional M-Pesa to payments. The company has signed over 100,000 Lipa-Na-M-Pesa merchants and customers did 147 million Lipa na M-pesa transactions, an increase of 63%. Safaricom had reduced merchant fees by 50% and also made customer transactions that were smaller than Kshs  200 ($2) free of charge. In financing, Safaricom now issued 3 (micro) loans every second through partnerships with banks – M-Shwari (CBA) and KCB’s M-Pesa. Overall, M-pesa accounted for 28% of service revenue, and mobile data was 16% reducing Safaricom’s earlier reliance on voice and SMS which together were still a significant 50% of revenue.

These results were achieved in a year that Kenya had a prolonged electioneering period which slowed economic activity while credit growth was also the slowest in 14 years. But in releasing the results, Safaricom director, and former CEO, Michael Joseph cautioned that a draft industry competition study had proposals that seriously concerned Safaricom such as the introduction of price controls and regulated infrastructure sharing. The proposals, he said, would prevent Safaricom from rolling out services that their competitors could not replicate.

The results announcement also saw a surprise reappearance (via video) of Safaricom CEO Bob Collymore who took personal leave late last year to seek medical treatment. Collymore announced that he was completing the final phases of his treatment and expected to be back in Nairobi in a  few weeks once he was cleared to travel by his doctors.

Some ongoing innovations include in food security (Digi Farm and Connected Farmer) and healthcare (M-Tiba which now has 1 million users. They recently created an agri-business department that will to seek to deliver mobile-based solutions to address food security in the country. Also, the Safaricom Foundation is refreshing its strategy to address sustainable development of communities in three areas; education, health, and economic empowerment.

Going forward, Safaricom projects EBIT of Kshs 85 – 89 billion for 2019 as they look to drive shareholder value through growing M-Pesa across borders, and appropriate partnerships and in environments with the right regulations, Also from e-commerce and they recently signed payment partnerships with PayPal and the Google. 

Vivo Energy – London IPO prospectus peek

Last week Vivo Energy had the largest African listing at the London Stock Exchange since 2005 and the largest London IPO so far in 2018. Vivo  raised £548 million by selling 27.7% of the company at 165 pence per share, which valued Vivo at £1.98 billion.

The company which operates fuel businesses in 15 Africa countries, will have a secondary listing in Johannesburg while it will report primarily to the London exchange.

A peek at the 288-page prospectus

Performance: In 2017 revenue increased by 16% to $6.6 billion and earnings before taxes were $210 million, a 21% increase. Revenue was 66% from retail (Shell fuel stations, convenience stores, restaurants) and 29% from commercial business (large customers, LPG), with the rest from lubricants business.

Vivo has Subsidiaries: in Madagascar, Tunisia, Senegal, Burkina Faso, Cote d’Ivoire, Guinea, Uganda, Kenya Ghana, Mali Mauritius, Morocco, Cape Verde) and a 50% investment in Shell & Vitol Lubricants. All these companies are registered in Netherlands or Mauritius. Prices are regulated in 12 of the 15 countries that they operate in, including Kenya.

Engen: The company is in the process of buying Engen for $399 million, and this will comprise a payment of $121 million in cash and 123 million new shares of Vivo, after which it is expected that Engen will own 9.3% of the company. The Engen deal which is expected to be completed later in 2018, adds 300 stations and brings on 9 new countries to the group.

Johannesburg: Another 10% of Vivo is being availed to get the company listed in South Africa. The listing at Johannesburg will cost $16.3 million which includes payments for legal advice $4M (Freshfields Bruckhaus Deringer), $2.6M to the reporting auditors & accountants (PWC), other legal advisor fees of $1.5M and $142,000 to Bowman, JSE fees for listing and document inspection of $180,000, and $7.1 million in other expenses in South Africa.

Taxes: Sale of shares in the UK will attract a stamp tax duty of 0.5% of the offer price, while a tax of 0.25% is payable on every sale in South Africa.

Managers & Employees: There is an extensive listing in the prospectus on Vivo’s key managers and directors, their roles, compensation and other benefits. For directors, it lists current and past directorships e.g. Temitope Lawani, the co-founder and Managing Partner of Helios Investment Partners, has 47 current directorships. A top Kenyan official is David Mureithi, the Executive Vice President for Retail, Marketing, and East & Southern Africa.

Vivo has a long-term incentive plan for executives and senior directors and also an IPO share plan for employees. They have a total of 2,349 employees, with 240 in Kenya, which is third in employ size behind Morocco (579) and Tunisia (270).

In Kenya: they had sales of $1.3 billion in 2017 up from $1 billion in 2016. They have 189 stations in the country (56% of which are in Nairobi) and are the number one in the country (due to the strong Shell brand) with a 27% market share. They also supply jet fuel at four airports and sell lubricants. And while employees of Engen have just filed objections to the deal in Kenya, going by past transactions, Kenya’s Competition Authority will approve a deal as long as there is no severe loss of jobs.

Shareholders: Prior to the listing were Vitol Africa B.V. 41.6%, VIP Africa II B.V. 13.3%, (Helios) HIP Oil B.V. 2.4% and HIP Oil 2 B.V. 41.8%. After the deal, with a full subscription, it is expected that Vitol goes to 28.9%, VIP to 9.2% and HIP 2 to 30%.

Litigation: A government ministry in DRC has tried to put a hold on the sale of the Engen subsidiary in DRC (in which the government owns 40%), but Vivo believe the case has no basis and are contenting this.

7th BAFM – Building African Financial Markets – Day Two

Summary of day one of the BAFM.  

The second day of the 7th BAFM – Building African Financial Markets seminar continued with more explanations on changes in the global scene and how they could affect African exchanges.

Michele Carlsson of Nasdaq said immediate top compliance concerns were the need to fully understanding regulations and how they affect exchanges, and the inability of technology to meet current market requirements. She said it was important for exchanges to have market surveillance systems that could look at several assets classes, do powerful visualizations, have flexible alerting, and enable real-time controls as well as being scalable and resilient.

Anne Clayton of the Johannesburg Stock Exchange spoke on the impact that various new European Union regulations that could have on African capital markets. These include rules on general data protection (GDPR, May 2018), benchmark regulation (BMR – Jan 2018), financial instruments regulations (MiFID II –  Jan 2018) and others on derivatives trading. She explained that data on GDPR, EU citizens had to be notified of data breaches and they also the right to be forgotten if they requested it i.e. to have all their data wiped out from a system  – .but that is in conflict with “know your customer” (KYC) and “anti-money laundering” (AML) laws, which require that financial data, is kept for seven years.  African exchanges have low liquidity and the costs of compliance keep going up, now estimated at 5-10% of turnover, even where there is no uptake of products or use of some of the new rules. Many of them have low liquidity and are heavily dependent on foreign investors to provide liquidity, but such investors are sensitive to any policy or taxes which can make them shift to other markets. But non-compliance could result in heavy penalties for companies.

Dr. Anthony Miller spoke of new opportunities from linking exchanges to the United Nations Sustainable Development Goals (SDGs) through new products. Last week Fiji launched a green bond at the London Stock Exchange while there was a gender bond floated in Asia to support women funded entrepreneurs. This is at a time that companies like Bloomberg are tracking the growth of green funds around the world, while many other investors are eliminating carbon investments, like coal, from their portfolios.

Block chain and bitcoin were top topics of discussion on day two of the BAFM. One talk was an explanation on the different aspects of block chain technology, which could offer African institutions the ability for Africa to leapfrog old hurdles. Sofie Blakstad spoke of using block chain to provide cheaper rural financing that is much cheaper than from commercial banks, and that the technology also enabled an unprecedented level of validation of the impacts of targeted funding programs such as micro-finance institutions  e.g. how ethical or green their funding programs are, by looking at data from the beneficiaries.

(Away from the BAFM, on the same day, Juliani, a popular Kenyan gospel musician launched Juliani “Hela” a loyalty point-based currency earned by customers on every purchase of an official Juliani event ticket, a T-shirt, or album).

David Wagemma spoke about M-Akiba which was the first mobile-traded government bond in the world that cost Kenyan investors just $30 and which took five minutes to sign up and pay for, all via their mobile phones.

Later in a panel on block-chain as a disruptive technology for markets, Abubakar Mayanja said that progressive regulators should have sandbox licensing so that regulation goes on even as new ideas are developed, while Reggie Middleton, said the 1,500 cryptocurrencies in existence could grow on their own without needing each other and they did not need to concern central bankers and regulators in Africa as they had nothing to do with currencies.

In their remarks to close the event, Geoffrey Odundo, CEO of the Nairobi Securities Exchange (NSE), thanked organizers, saying that the BAFM had trended for two days and he saw that even the Deputy President was still following the conversation, while Oscar Onyema, President of African Securities Exchanges Association (ASEA)  said that this had been the best event in the BAFM series, with the next one to be hosted by the BRVM in Ivory Coast in April 2019 – who would be challenged to excel of the Nairobi event

Day two of the 7th Building African Financial Markets seminar was held at the Villa Rosa Kempinski Hotel in Nairobi Kenya on April 20, 2018.

7th BAFM – Building African Financial Markets – Day One

The 7th BAFM – Building African Financial Markets seminar was officially opened by Kenya’s Deputy President William Ruto with a joke that it was important that the organizers, who were the African Securities Exchange Association with the Nairobi Securities Exchange go out and clarify the difference “stock exchanges” and “stock theft” which is a big menace in Kenya. He then mentioned that securities exchanges provided assets protection and wealth creation and that some companies that the government had divested from like Kengen, Safaricom, and KCB were now among the leading institutions in Africa.

He asked the capital markets to help revive the agricultural sector and urged them to work on a commodities exchange and use block chain to create a ledger for collateral, and that he hoped the summit would redirect shareholders attention to the opportunities that reward vigilant, flexible and innovative investors.

One of the highlights of the day was a talk by Terry Adembesa who explained the complex processes and long steps that the Nairobi Securities Exchange has to go through to introduce new products and to persuade companies to list on the exchange. He explained how they had passed regulations to allow derivatives trading and short selling (which they plan to introduce later in 2018 for selected equities_ and to also allow market making by selected firms for stocks and bonds. They had made strides get pension and insurance funds to recognize their new products like Real Estate Investment Trust’s (REIT’s) and lobbied alongside Barclays to get Exchanged Traded Funds as an accepted class of equities that local funds could buy into. They had also lobbied the Kenya Revenue Authority to waive taxes on development REIT’s.

He added that African exchanges like Kenya’s have low volumes compared to Johannesburg and Mauritius; they mainly trade equities, with low participation from local investors (Trading at the Nairobi Exchange is 35% by local investors compared to 100% in many Asian markets) and later this meshed well with a nice presentation on the African Financial Markets Index by George Asante of Barclays Africa. It was a nice illustration of the maturity levels of stock exchanges in 17 countries that constitute 60% of GDP of Africa, with a startling finding that there was a significant cost borne by African countries by them not having effective capital markets.

Sallianne Taylor explained how Bloomberg  collects data and showcases African companies and exchanges to the wider world, facilitating financial leaders and exchanges to meet investors and financial journalists, while Nora Owako traced the evolution of Safaricom’s M-Pesa which has changed over the years to match the needs of consumers and now encompasses international remittances, savings, loans, utility payments, and merchant finance.

Another striking revelation was by David Waithaka of Cellulant during one of the afternoon panels on fintech as an enabler. The company, which was founded in Kenya, had run a platform in Nigeria that had connected 15 million farmers to 6,000 agro-dealers for farmers to get inputs and with commercial banks providing bridging finance to agro-dealers as they awaited reimbursements from the government. The program had a redemption rate of 59% and through it, farmer incomes improved from $700 to $1,800. It was later extended to rice and saw $2.4 million worth of commodity trades in two months. It is being rolled out in Liberia and event participants asked” Why not Kenya?”!

One of the shocks of the first day of the BAFM was from Joseph Tegbe of KPMG Nigeria who gave a talk on cybersecurity and warned that there was a real possibility that countries could use cyber attacks to target and destabilize the stock exchanges of other countries.

NSE Chairman Samuel Kimani thanked the BAFM gold sponsors – Bloomberg and Barclays, silver ones – CMA Kenya, Safaricom, Kengen, EFG Hermes, and others. The day ended with news during a panel on fintech as an enabler, that Barclays launched a green mortgage product, offering cheaper financing for energy-efficient homes

Day one of the 7th BAFM – Building African Financial Markets seminar was held at the Villa Rosa Kempinski Hotel in Nairobi Kenya on April 19, 2018. 

Nairobi hosts the 7th BAFM – Building African Financial Markets seminar

This week sees Nairobi host the 7th Building African Financial Markets (BAFM) seminar with the theme of “adaptive innovation as a lever for growth and sustainable development of financial markets”. 

News of the seminar was unveiled by Nairobi Securities Exchange (NSE) CEO, Geoffrey Odundo in January 2018 when Barclays launched its Africa Financial Markets Index (AFMI) report in Nairobi. The Barclays AFMI measured African stock exchanges by six pillars of market depth, access to foreign exchange, market transparency, macro-opportunity, enforceability of agreements and capacity of local investors, and it ranked South Africa on top, with Kenya in fifth place.

The NSE and the African Securities Exchanges Association are organizers of the BAFM event with  Bloomberg and Barclays as gold sponsors. The ASEA, which was founded in 1993 with the Nairobi Stock Exchange as the first member, now has a membership of 40 African stock exchanges.

The BAFM will be officially opened by William Ruto, the Deputy President of the Republic of Kenya. It will feature leaders and speakers from organizations such as Nasdaq, the Johannesburg Stock Exchange, EFG-Hermes – a Cairo-based investment bank that is new to Nairobi, and Safaricom, while some of the sessions of great interest are likely to include “a blueprint for orderly markets in Africa”, M-Akiba; the $30 mobile-phone government bond as a disruptive technology reshaping African financial markets, “building new markets in frontier economies”, a guide for managing cyber risk, linking African exchanges organically, and “is blockchain the future of finance or a flash in the pan?”.