EASSY: The Masai – Zulu battle of 2006

Had nice week which started with an unplanned tour of snow-capped crater on Mt. Kilimanjaro courtesy of a South African Airways pilot to a Yvonne Chaka Chaka concert, among other fun activities in South Africa.

My comfort is that if the Highway Africa / Digital Indaba conferences’ were held in Kenya, the delegates would be drawn from Ministers, MD’s, and other senior corporate and government officials, and not ordinary journalists or mere mortals like myself.

Kenya vs. SA
One of the sessions covered this week was the controversial EASSy project which appears to have been now reduced to a Kenyan vs. South African affair.

South Africa traces its history, not to 1994, but to 1957 when Ghana become the first African country to gain independence. South Africa identifies with that milestone and thus immerses itself as a being proudly African and wanting to take the continent forward together though NEPAD and the African Union (AU) as a way to better all African lives and be more competitive with other continents. EASSy is NEPAD’s flagship project which is intended to bring down the cost of communication for the whole of Southern, Central and Eastern Africa.

SA’s leaders are largely drawn from the freedom-struggle movement are proudly African and strive to combat Afro-pessimism in all at forms. In economic terms, they are disciples of Joseph Stiglitz, who are wary of foreign aid and other donor-championed programs such as privatization, having seen how devastating they have been to many other African countries over the last 50 years.

South Africa proudly champions African solutions to African problems e.g. through NEPAD. It also proudly champions media coverage of Africa by Africans, not western media agencies. The South African Broadcast Corporation (equivalent of KBC) has spent 8 million rand and sent a staff crew of 60 to cover the recent elections in the DRC and already has foreign bureaus in Africa, Middle East, US and Europe and soon to open new ones in the Caribbean and China. Such coverage of the continent is something Kenyans may find unsettling.

Kenyans, on the other hand, have seen the OAU, East African Community (EAC), Preferential Trade Area (PTA), COMESA and other regional groups come and go with little impact. They are used to having neighbouring countries who are basket cases mired in wars, famines, or other problems and are happy to offer assistance militarily, hosting peace talks, foodwise, or hosting refugees. They are used to having to do things alone and the EASSy is just the latest example of this.

They view South Africa as new to the party, but eager to assume a superpower role and both economically and strategically dominate the continent. Thus they revel in small victories like when Kenya Breweries defeated Castle Breweries (SA) in the beer wars of the early 2000’s, denying MTN a cell phone license, or frustrating any South African company that tries to take over Uchumi.

Likewise, ordinary South Africans see Kenyans as having a problem with them. When I told an MTN employee that South Africa’s Telkom had been shortlisted to bid for the second national operator license in Kenya, she said Kenyans would never let a South African company win.

Also on Monday, the City Press a prominent black newspaper had two business headlines on Kenya titled Stock trading noise to end (referring to electronic trading on the NSE)and “Kenya credit rating hit by risk and corruption scandals” – an unfortunate spin on an otherwise positive assessment of Kenya by global markets.

SaaSa

As promised, SaaSa is a new offering (tariff) from Safaricom that allows cheaper (by about 50%) phone calls and SMS’s between 5 PM and 8 PM. No idea yet what the company’s new product, promised by year end, that will change our lives.

Riding the Bull

No more share hype
I keep getting asked for stock picks and I must admit that I don’t understand the NSE. For the rest of the year, I will make a few tweaks, but otherwise maintain my portfolio, with only participation in new IPO’s like Kenya Re and Sarova, but otherwise leave the rest, of what I believe is a quality porfolio, to ride away intact till 2007 and discuss less on shares here.

I have no intention of selling some shares which have done very well. This comes after having sold some shares when they doubled (Kenya Airways at 24/=), tripled (Mumias at 36), or better EA Cables (at 150/=) only to be left with egg on my face when those shares continued to appreciate.

It is a dangerous, frenzied stockmarket we are in – one in which newspapers, and every man-on-the-street is celebrating making a killing at the NSE. It reminds me of financial news media in the US in the mid-90’s who turned shares into an activity we couldn’t live without with online trading and TV’s in the gym and airports showing CNBC and everyone wanted to get the next hot web stock and even put their retirement money (pensions) into stocks.

There’s are three myths about the NSE that are driving some of this hype (i) that only good companies make it to the stock exchange i.e. any stock that clears the CMA hurdles and is listed on the NSE is certified as fail safe (ii) that all share prices go up (iii) that i’ll buy a cheap share and sell when, not if, it goes up.

Death of a stockbroker Part II
Nothing has changed since Part I and everyone in town knows something is wrong but no one will say why things have gone wrong there and no one (CMA) will take action. Maybe no one has formally complained, but Kenyans are not people who complain to authorities (not much action expected) and so they vote with their feet and wallets. Everyone is fleeing the stockbroker from staff to clients and those remaining are plagued by missing funds, shares not bought, wrong shares bought, incorrect balances, 30-day wait for cheques while other brokers give next day cheques for shares sold, among other unanswered queries.

Untaxed lawyers
Once, the electronic tax register (ETR) furore passes, the next target in the Kenya Revenue Authority’s war on tax avoiders will be lawyers. It is estimated that only 30% of lawyers pay their full taxes while the rest use various shields like declaring clients money and reporting losses to understate their income and tax bills.

Where’s the bonus?
Newly split EA Cables share have continued to ignite the stock market. But where are the Express bonus shares which we were promised a month ago? Nothing in CDS accounts yet.

Uchumi update
There was a story on the business news on TV this week that Uchumi had fallen short in its quest to raise 300 million shillings from shareholders. As such, the debenture loan programme will now be opened to other (non-Uchumi shareholders) investors.

Meanwhile, in more fallout, Trade Minister Mukhisa Kituyi has given the corporate boot to two of his nemesis in the Uchumi debacle – businessman Chris Kirubi and former ICDC boss Joe Munene.

Alternate route to USA
American airline, Delta, will use their new long-range Boeing 777 to fly a new African route from Atlanta to Johannesburg. This is sure to revive the debate on if Kenya Airways, which has a similar 777, will attempt the same (Nairobi-Atlanta or Nairobi-Miami) though MD Naikuni has said an American route does not have enough business.

Housekeeping

– Experimenting with the new beta blogger upgrade which now has some features like tags (e.g. categorize posts as bank rankings, Safaricom, politics) and comment feeds. One cool new feature is the ability to control who reads your blog and which I wish people like Au Lait and Kenyan Musings could activate and resume blogging in semi-privacy.
– Also sponsor has upgraded the stock roundup and is now specific to the Nairobi Stock Exchange. (see right)
– No disrespect to anyone but I will do away with anonymous comments in future.

Bank Rankings: June 2006

Tier 1 (Assets over 25 billion shillings)

1 Barclays 112.4 billion shillings ($1.56 billion) in total assets
Kenya is still Barclays country with the bank remaining a solid #1. After having a slow 1st quarter, at the half year ending in June 2006, its assets are up 9% from a year ago, profit is up 43%, deposits up 11%, loans up 12% and total non-performing assets (NPA’s) are down 20%.

2. Kenya Commercial Bank (KCB) 82.3 billion
Assets up 16%, deposits up 15%, however loans are flat, but still income was up leading to half year profits up 66% from a year ago.

3. Standard Chartered (Stanchart) 82 billion in assets
Much closer to, and may overhaul KCB by year end, with assets up 19%, profits up 17%, deposits up 13%, loans up 27% but with NPA up 53% from a year ago.

4. Cooperative (Co-op Bank) 56.8 billion
Assets up 11%, deposits up 15%, but loans down 6% and NPA’s doubled, as government securities are up 90% and overall profit up 45%.

5. National Bank of Kenya (NBK) 33.8 billion
Loans and deposits up 7%, while govt securities up 75%, so overall assets and profits up 6% from a year ago

6. Citibank 33.6 billion
Likely to overtake National Bank by year end with assets and loans up 19%, deposits 9%, income up 43%, and profits up 59%.

7. Commercial Bank of Africa (CBA) 33 billion
Also likely to overtake NBK and Citibank is CBA with assets up 39% profit up 79%, deposits up 46%, loans up 123%, income up 54%, but with NPA up 83% and insider loans up 43%.

Tier 2 (Assets of 6 – 24.9 billion)

8. National Industrial Credit (NIC Bank) 22.7 billion ($315 million)
Assets up 20%, profit up 83%, deposits up 23%, loans up 14%, income up 37%, but NPA 88%

9. Credit Finance Corporation (CFC Bank) 22.4 billion
CFC is likely to overhaul NIC with assets up 27%, deposits and loans both up 19%, income up 47%, profit up 43% but insider loans up 74% and NPA up 27%.

10. Investment & Mortgages (I&M Bank) 20.5 billion
Assets up 28%, deposits, loans, and income all up 31%, and profits up 72% from a year ago

11. Diamond Trust 17.9 billion
Assets up 33%, profits up 84%, deposits up 40%, loans up 28%, but insider lending up 54%, and NPA up 141%.

12 Standard Bank (Stanbic) 17 billion
Assets up 36%, deposits up 18%, loans up 32%, income up 47%, and profits up 149% but insider borrowing up 478% from a year ago.

13. Equity 13.9 billion
Newly listed on the NSE. Assets up 55%, profits up 115%, deposits up 67%, and loans up 130%, but insider lending up 160%, and NPA up 69% from a year ago.

14. Bank of Baroda 10.7 billion
Assets, deposits, and loans but also NPA all up 21%, while profits up 9% from a year ago.

15. Housing Finance Corporation of Kenya (HFCK) 9.9 billion
Was passed by Baroda and Equity since a year ago despite rocket high share price. Its assets, deposit, and loans all unchanged (up less than 1%) from a year ago, with NPA’s up 45% but still profits were up 82% from last June.

16. EABS Bank 8.6 billion
Was a known as pre-merger Akiba Bank a year ago. Deposits up 130%, loans up 53%, but profits down 94% from last June.

17. Prime 8.6 billion
Assets up 42%, deposits up 50%, loans up 31%, and profits up 75% and they have overtaken BOI and Imperial banks’.

18. Imperial 8.5 billion
Assets up 13% profits up 37%, deposits up 31%, loans up 20%, but insider borrowing also up 40% from a year ago.

19. Bank of India 7.9 billion
assets up 25%, profit up 69%, deposits up 21%, loans up 48%, income up 37% while NPA’s up 40%.

20. Fina 6.0 billion
Deposits up 64%, loans up 32%, income up 42%, and profits up 9% bank as Fina pushes into Rwanda and the SME sector.

Tier 3 (assets below 6 billion shillings)

21. Bank of Africa 5.8 billion ($80.74 million)
Assets up 16%, deposits up 31%, income up 37%, as the Bank has turned round from a loss of 10 million last June to profit of 4m.

22. Habib Bank AG Zurich 5.2 billion
Assets and profits both up 14% in the half year.

23. Giro 5.1 billion
Assets up 13%, deposits up 16%, but profits down 61% at Bank whose acquisition by SB of India Bank has not been completed

24. Guardian 4.9 billion
Assets up 6%, income up 40%,and profit up 18% from last June.

25. ABC Bank 4.8 billion
Assets and deposits up 13%, loans up 9%, income and NPA’s up 21%, as profits remained flat.

26. K-Rep 4.4 billion
Assets up 47%, deposits up 64%, loans up 32%, income up 42%, profits up 9%, but insider borrowing up 47% from a year ago.

27. Southern Credit 4.2 billion
Assets up 8%, deposits and loans up 7%, income up 13%, but profit down 44% from last June.

28. Victoria 4 billion
Assets up 4% but profits down 10% from a year ago.

29. Charterhouse 3.9 billion
Not bad performance for a bank which was placed under statutory management in June following money laundering allegations. Loans and assets up 28%, deposits up 32%, income up 37%, as profits remained unchanged at 76 million shillings.

30. Equatorial 3.6 billion
Assets up 19%, deposits up 27%, loans up 24%, but NPA’s up 94%, with profits down 18%.

31. Middle East 3.6 billion
Assets, profits, deposits, and loans all down 11%, while income was up 9%.

32. Habib Bank 3.2 billion
Assets, deposits, and income down 3%, and operating expenses up 16% leaving profits down 63% from a year ago.

33. Consolidated 3.1 billion
Like NBK and Oriental has a high percentage of non-performing assets. Assets up 18%, deposits up 16%, loans up 39%, income up 92%, but with NPA’s up 88%, the bank went from a profit of 14m last June to a loss of 10 million.

34. Development Bank of Kenya (DBK) 2.9 billion
Assets up 19%, deposits up 54%, loans up 60%, income up 30%, but profits down 61%.

35. Credit Bank 2.8 billion
Profits up 5% and deposits up 7% from last June.

36. Chase 2.8 billion
Assets up 22%, profit up 26%, deposits up 53%, loans up 36%, and income up 42% but with NPA’s up 22%.

37. Transnational 2.2 billion
Profits up 20%, loans up 26% but deposits remained flat while NPA’s were up 69%.

38. Fidelity 1.9 billion
Assets up 24%, deposits and loans both up 30%, but profits down 31% with insider borrowing up 50% and NPA up 28%.

39. Paramount Universal1.8 billion
Assets up 31%, deposits up 23%, and loans up 12%, while the bank has gone from a half year loss of 2 million in June ’05 to a profit of 9 million this year.

40. Oriental 1.4 billion
Deposits up 16%, income up 42% and NPA reduced by 35% but even as assets reduced by 15% the bank was able to improve by reducing its half-year loss by 19%.

41. Dubai 1.1 billion
Assets were up 4%, deposits up 18%, loans up 40%, but NPA’s were up 168% and profits down 68% from a year ago.

42. City Finance

New Banks

Family Finance 3.9 billion assets, (and would be the 30th largest bank in Kenya at June 2006) is awaiting CBK approval to convert from a building society to a commercial bank this year. Assets are up 39% deposits up 29%, loans up 60%, income up 60%, but profits unchanged at 97 million as NPA’s were up 105% from last June

Gulf African Bank will be Kenya’s first fully Shariah compliant bank. Deloitte Consulting are hiring top managers for the CEO and all top management positions (Deadline is September 15).

Also expected to join the Kenyan banking sector are ICICI and 2 other banks.

Jobs

Business relationship managers at Equity Bank. Apply to jobs@ebsafrica.co.ke by 13 September

Kencall: 100+ inbound customer service agents and 50+ outbound customer service agents who have lived, worked or studied in the US or UK . Details at www.kencall.com.

Graduate trainees at the Kenya Revenue Authority. Deadline is 15 September.

Financial investment analyst at Standard Investment Bank. apply to research@standardstocks.com September 8

Various at Toyota. see www.toyotaea.com for details

For airline staff – Go to India: IAG blog reports that India will order over 800 new aircraft over the next 20 years requiring some 12,000 pilots to crew these planes and likely 3,500 flight attendants.

Idea Exchange (Barter Trade)

I have received two requests to mention here and I have done so because I have some requests of my own as well.

Tujuane
‘Tujuane’ (defn: a Swahili word meaning ‘let us know each other’) is an exclusive free online social network, which is open to 25 – 50 year old professionals and allows its members to connect, network and interact more effectively with like-minded individuals who share same professional, economic and social interests. Members get a free networking-oriented profile page and can send messages to other members. They can also use our browse function to find members related to their industry, interests, favourite NSE listed stocks, affiliations or professional certifications. Join here.

Africa Investor Awards
The 2006 Africa Investor Awards which recognise and reward excellence by business, government and multilateral organisations operating in Africa across a wide range of disciplines will be held at the Safari Park Hotel in Nairobi on November 9 and Kenyan companies are encouraged to enter one of the sixteen categories. (Entries close September 15)

My requests
Things am looking for;
– A stall/ exhibition area, well-lit, and preferably on the ground floor of nice building in the CBD that is available at a reasonable rent
– A boarding school for girls that is affordable (about Kshs. 20,000) for a year, preferably close to Nairobi.

Diversification

Business Post is a very nice bi-monthly magazine on investment and business in Kenya. I was not aware of if until their editor approached me to do an article in the June issue, and a second bankelele article appears in the August/September issue which should be published at the end of the month. (Unfortunately the magazine has no website,but their e-mail is info@businesspost.co.ke)

NSE vs. Real Estate
After learning about Business Post, I located several of their past magazines and one of my favourite articles was from their February 2006 issue which compared gains made on the stock exchange versus those from real estate. It answers an oft-asked/commented question on if one can get rich off the stock exchange and which I maintain is possible by playing for the long term and continuously re-investing.

The NSE provides a passive way to earn some money from savings and gives comfort to those of us not in a position to invest in real estate now, which is said to be the best investment vehicles.

Business Post compared investing 100,000 in certain shares in 1995, versus some real estate transactions at the same time and their value/return if shares or houses/land were sold in February 2006:

Shares
Company share price (1995)| Amount invested |Dividend income |Share sale income | Return
KQ 9.5 | 95,000 | 55,575 | 169,000 | 136.4%
Nation 24.5 | 245,000 | 819,969 | 7,650,000 | 3,357.1%
Barclays 81 | 810,000 | 1,257,557 | 3,839,616 | 529.3%
EABL 42.5 | 425,000 | 830,490 | 6,408,000 | 1,703.2%
KCB 29 | 290,000 | 164,663 | 793,313.5 | 230.3%

Real Estate
– Buru 4br house on 1/4 acre, Bought for 1.85m, earned rental income of 1.6 to 1.6m, sold for 3.0 – 5.0m yielding a return of 138% – 256%
– Runda 4br house on 1/4 acre bought for 8.5 to 10m, earned rental income of 5.3 to 5.9m, sold for 12 – 16m, yielding a return of 103% – 119%
– 1/2 acre vacant Runda plot bought for 1.5 to 2.5m and sold for 2.6 – 4m, yielding 60% – 73%
– 1,000 acres in Rift Valley bought for 63m earned an income of 54m and sold for 100m yielding 144%.

Insider Trading
A nice NY Times article on (merger related) insider trading of shares which point out that
– Many investors are troubled by what they now see as rampant insider trading, saying it fosters the perception that insiders can profit in the markets at the expense of outsiders.
– It is undeniable that brokerage firms, with their varied businesses all under one roof, remain particularly well positioned to capitalize on inside information. Not only do these firms advise buyers and sellers in mergers, giving them immense access, they also have proprietary trading desks that invest the firm’s money in stocks and other securities, money management units that invest for clients and trading desks that profit mightily by executing trades for hedge funds.
– Spotting abnormal trading is far simpler than bringing a successful insider-trading prosecution.

Several NSE companies have enjoyed surges without or before any material information being released.