Kenya: Crown Berger Kenya Limited, year ended December 31, 2011
Financial
Performance review
Crown Berger, Kenya’s
leading paint-maker having a 65 per cent stake in the market, reported a 26%
increase in Revenue from 3.1 billion in 2010.
The pre-tax profit rose by
18% from KES 169.48 Million to KES 200.54 Million. The rise in profits was
attributed to comprehensive campaigns in selling and distribution that had
promoted the growth in sales.
Operating
environment and outlook
Rapid growth of the Kenyan
construction industry saw the sector emerge as the country’s top performing
sector in the first quarter of 2011, according to data from the Kenya National
Bureau of Statistics. The sector grew by 10.7% in comparison to the bleak
performance of 0.3% in the same period of 2010. This remarkable growth is set
to continue as a result of increasing population and major infrastructure
projects. Consequently, the paint consumption in this industry is expected to
mount in 2012.
Opening of a regional
market through COMESA and East African Community will be an additional plus to
do business across the borders more freely hence generate more revenue.
Investment
analysis/Recommendation
The company’s share price closed (on June 11, 2012) at
KES 34.75; 3.5% below its 52 week high of KES 36.00.
The share is priced
fairly, trading at a PE of 6.39. The price to book value is 0.8. This is still
among the lowest price to book values in its industry. Thus, Crown Berger presents
a favourable investment for value investors.
The dividend per share for
the year is KES 1.25 which gives a yield of 4.6%. Although the company does not
offer the highest returns in the construction and allied segment, Crown Berger is
still competitive and offers good return to its shareholders.
Recommendation:
The share is a good long
term buy. Generally, the share price has had an upward trend over the last six
months despite the small margin drop. Crown Berger is a stable share. As stated
earlier, due to the continued construction boom, avenues for development of new
markets are set to increase profits for the company.
Nevertheless, investors
should have a keen eye on certain risks such as inflation rates risks that may alter
the prices of raw materials and the prices of their products and in turn the
profitability of the company.
Quote:
Kenya: Rea Vipingo, 6 Months Ended March 31, 2012.
Rea Vipingo is the largest sisal fiber producer
in Africa.
Performance
6 Months ended
|
6 Months ended
|
||||
March 31, 2011
|
March 31, 2012
|
||||
KES'000
|
KES'000
|
% Change
|
|||
Revenues
|
974,725
|
1,250,034
|
28%
|
||
Profit after tax
|
153,402
|
208,402
|
36%
|
||
EPS
|
2.56
|
3.47
|
36%
|
||
12 Months
|
|||||
Trailing EPS
|
9
|
||||
Closing share price
|
|||||
as at June 6, 2012
|
16.60
|
||||
Trailing PE
|
1.91
|
||||
Revenues increased by 28%, profits and earnings per share by 36%.
This was a superb performance considering that in the year ended September 2011
earnings had risen by over 500% compared to the performance for the year ended
September 2010.
Operating Environment/Outloook
The Kenya Shilling has been depreciating over the last few months
and is likely to drop further in the course of the year because of the country’s
yawning current account deficit.
The weakening shilling should translate into a favorable performance
for Rea Vipingo since exports most of its produce and its earnings are
therefore mostly denominated in US Dollars.
Investment Analysis
Rea Vipingo (like most other agricultural stocks listed on the
NSE) is greatly undervalued. The current PE of less than 2 means that it will
take less than two years for holders of the stock to earn the full value of the
share. If the earnings momentum from the first half is maintained for the full
year the valuation will fall even lower.
In the most recent financial year Rea Vipingo declared a dividend
of KES 1.10. At current prices this translates to a yield of 6.63%.
Recommendation
The share is trading at a huge discount; it is a good long-term
buy. As demand for agricultural products increases and as the level of sophistication
of investors at the Nairobi Securities Exchange develops, agricultural stocks will
become more fairly valued; patient investors will be rewarded accordingly.
The relatively low liquidity of the counter (very few shares trade
per day) will however make it difficult for a high net-worth/institutional
investor to accumulate a meaningful stake in a reasonable period of time.
Quote:
“One way to end up with $1 million is to start with $2 million and
use technical analysis.” ~Ralph Seger
Crown Berger Kenya Limited, Year ended 31st December 2010
Financial
Performance review
Crown
Berger, Kenya’s leading paint-maker having a 65 per cent stake in the market,
reported a 21% increase in Revenue from 2.5 billion in 2009.
The
pre-tax profit rose by 21%. Operating profit rose by 5.59% from KES 86.308
Million to KES 91.417 Million. Most of the rise was due to rigorous campaigns
in selling and distribution that had promoted sales and cut back on cost of
sales.
Operating
environment and outlook
Crown
Berger’s performance was favourable despite the building and construction
industry drop to 4.5% from 12.9% in 2009. This was countered by the significant
increase in the transport industry and increased advertisements and sales.
The
Kenyan construction industry is expected to see tremendous growth as a result
of increased population and government spending on major infrastructure
projects. This will support paint consumption in the year 2012. Due to high
inflation rates, the 1st quarter of 2011 endured increases of up to 30% on raw
materials. Lower inflation and stable raw material prices will keep the raw
material price increase under control, hence offering competitive prices to the
consumers. Opening of a regional market through COMESA will be an added advantage
to do business across the borders more freely hence increases in sales.
Investment
analysis/Recommendation
The
company’s share price closed (on May 9, 2012) at KES 26.50; 33% below its 52
week high of KES 35.25.
The
share is priced fairly, trading at a PE of 7.00. The price to book value is 0.7.
This is the lowest in its industry which means that Crown Berger is undervalued. Thus this is a favourable investment for value investors.
The
dividend per share for the year is KES 1.25 which gives a yield of 4.72%. In
the construction and allied segment, Crown Berger offers the best return to its
shareholders.
Given
its performance, Crown Berger is therefore a viable investment for growth
investors, value investors as well as hybrid investors.
Recommendation:
The
share is both a good long term and short term buy. The fall in the share price was by a small
margin should not cause alarm as the share price is generally stable. Due to
the expected boom in the building and construction industry in Kenya as well as
the East African region, avenues for development of new markets are set to
increase profits for the company.
However
there are major risk in the inflation rates that may alter the prices of raw
materials and the prices of their products. An increase in inflation rates will
adversely affect the profits of the Crown Berger.
Quote:
An
investment in knowledge pays the best interest.
Benjamin
Franklin
Kenya: Kakuzi Limited, Year ended December 31, 2011
Financial Performance review
Kakuzi Limited, East Africa’s largest listed (in both Nairobi and London Stock Exchange) producer of avocado, reported a 12.4% rise in sales to KES 2.377 Billion from KES 2.114 Billion.
Profit after tax rose by 68.25% from KES 385.4 Million to KES 648.4 Million. This was due to the favourable exchange rate together with reasonable prices attained on both tea and avocado production. The operating profits rose by 40.4% to KES 763.4 from KES 539.8Million reported in 2010.
Operating environment and outlook
The Kenya Shilling seems to have stabilized (exchanging at an average of KES 83 for every $1) which will make forecasting both on income and expenditure a little easier. World recessionary forces however continue and are likely to take a long time to resolve. These have, to-date, had no significant impact on the export production but we must always be aware of the fact that there could be an adverse impact in the future. Local inflationary trends are of real concern; they hit 17.32% in September 2011. Kakuzi however moves forward with a satisfactory cash balance of KES 897.3 Million which places them in a strong position to proceed with both present and on-going investments. Their main liability is deferred income tax which stands at KES 652.6 Million (Kakuzi Limited, 2011).
Investment Analysis/Recommendation
The Company’s share price closed (on May 11, 2012) at KES 82.00 just about the same value of its 52 week high.
The share is not expensive, trading at a PE of 2.92 compared to that of Sasini, 7.55. The price to book value is 0.64 which is cheap and also underprized.
The dividends proposed in the year amounting to KES 3.75 translate to a yield of 4.57% of the price.
Recommendation:
The share is a long term buy and expected to grow in value bearing in mind that it is underprized. Demand for their products (pineapples, livestock, avocados, forestry and tea) is generally expected to rise with the anticipated growth in income and population locally and in the export markets.
Major risks include changes in climatic conditions and exchange rate fluctuations. A major drought or steep appreciation in the Kenyan shilling will impact negatively on Kakuzi’s performance.
Kakuzi Limited, (2011). Annual report and financial statements for the year ended 31st December 2011, Nairobi: Kakuzi Ltd.
Kenya: Bamburi Cement Company; year ended December 31, 2011
Bamburi
Cement, East Africa’s largest cement producing company, is a subsidiary of Lafarge
Group.
Financial
Performance
Bamburi
announced audited group earnings results for the year ended December 31, 2011.
The company’s turnover increased by 28% to KES 35.884 billion compared to KES
28.075 billion for the same period in 2010. Operating profit was KES 7.954
billion compared to KES 7.282 billion for the same period in 2010, representing
a growth of 9%. Profit before tax grew by 0.902 billion from KES 7.564 billion
to KES 8.466 billion representing a growth of 12%. Profit for the period was
KES 5.859 billion or KES 14.44 per basic and diluted share compared to KES
5.299 billion or KES 14.02 per basic and diluted share for the same period in
2010. Net cash generated from operating activities was KES 5.680 billion
compared to KES 8.735 billion for the same period in 2010.
Operating
Environment
In
2011 there was a sharp increase in global fuel prices, depreciation of the
Kenyan currency and increased competition from other manufacturers. Both
existing players and new entrants increased capacity. There was a reduction in
sales which was attributed to cheap imports from china, India, Egypt and
Thailand. In spite of this, the Group posted strong financial results mainly
due to significant contribution from its new production facility in Uganda
which was commissioned last year and cost reduction measures adopted across the
Group. The group was also able to get better export prices due to the
appreciation of the US dollar in the second half of 2011.
Investment
Analysis
EPS
grew 3% to 14.44 and with dividend payout ratio at 69%; dividend increased 18%
to KES 10.00, bringing the dividend yield to 6.7%. When you do a comparison
with the industry the average dividend yield for the industry is 1.49%. Its
closest peers Athi River mining (ARM) and East African Portland cement (EAPC)
have a dividend yield of 1.08% and 0.83% respectively; this puts Bamburi way
ahead of its peers in terms of dividend payouts. ARM has an EPS of 11.61 while
that for EAPC is 6.24. The liquidity of Bamburi is also high with average daily
volumes of 33,900 while its closest peer, ARM has 21,600. Bamburi has a P/E
ratio of 9.88 while for ARM is 15.95 and EAPC is 12.68.This clearly shows that
Bamburi is the cheapest.
Recommendation
BUY
The
growth of the regional economies is anticipated to slow down due to rising
global fuel prices and inflation. However, the regional cement market is
expected to remain vibrant. Revenue growth would be driven by demand and
improved efficiencies from Uganda. Exports to neighboring countries are
expected to play an important role, allowing the company to expand its market
leadership position across the East African region.
Quote:
"You
are neither right nor wrong because the crowd disagrees with you. You are right
because your data and reasoning are right." Benjamin Graham.
Kenya: Trans-Century Limited, Period to December 31, 2011.
Performance
Trans-Century
Limited (TCL) was listed on the NSE in July 2011 to become the largest
investment group by assets on the Nairobi bourse.
The
group reported a 37.85% increase in pre-tax profit.
A
convertible bond of USD 54,270,000 (roughly KES 4.73 billion) was issued
through a Mauritian subsidiary to finance what we witness to be a rapid
acquisition of other subsidiaries and unquoted investments. This has led to
TCL’s asset base nearly doubling within the year to stand at KES 21.74 billion,
with major increases being traced to goodwill on acquisition (intangible assets
up by 453.50%), assets acquired on acquisition of subsidiaries (PPE by 55.84%)
and unquoted investments (up by 99.52%). Cash flow from operating activities
has tripled to KES 1.85 billion, a movement probably attributed to healthy
subsidiaries’ cash flows.
Corresponding
growth in revenue and profits is, however, not as euphoric. TCL has achieved
57% growth in revenues to KES 10.7 Billion, tied in with 32% growth in profit
after tax. Net profit margin is only 5.76%.
Debt
finances 47% of the assets, almost equivalent to shareholder’s wealth.
Bondholders of USD 3,435,000 (about KES 276.5 million) had exercised their
option to convert to equity within the year. However, in the event that the
other convertible loan holders do not convert (and it is likely they will not,
since the exercise price of conversion is KES 40.00 per share, almost double
the current share price) debt tips over to 68% of assets, which is a bit on the
dangerous side.
Operating
Environment
The
global economy has been grappling with uncertainty. This is especially so in
the Eurozone, which is one of East Africa’s major trade partner. The East
African region also experienced fluctuating exchange rates and interest rates,
accompanied by soaring levels of inflation.
On
the flipside, the region has received positive news concerning natural
resources, such as the prospects of oil and industrial minerals in Kenya and
Uganda, and gas in Tanzania and Mozambique. TCL Group could seize these
opportunities and strengthen their pillars of infrastructure: Power, Transport
and Engineering.
Investment
Analysis
Net
asset value per share without the convertible bond is KES 26.06 (and KES 42.59
with the bond) which is good news from two perspectives: it has risen from KES
19.82 in 2010, and the figure is above its current trading price of KES 22.75
(25th April). This is only marginally above its 52 week low of KES
20.00.
Dividend
of 25.0 cents up from 20.0 cents gives an increasing real share of profit to
investors (unlike its peer, Centum, which has not issued dividends since 2008).
However,
EPS increases by only 2%. Dilutive potential has been introduced by the convertible
bond. It is an expensive stock with a P/E ratio of 18.5. The share price is
near its highest point this last month.
Recommendation
The
share is trading at a discount; therefore as market fundamentals take shape, it
is a good long-term buy. It could be argued that it has a high potential
for growth since it has only recently began trading.
The
main problem is that trade volumes on this counter are very low. Even a single
significant trade has the potential to affect its price.
Quote:
"Never
take life too seriously. Nobody gets out alive anyway."
Kenya: Centum Investment Company Limited, half year to September 30, 2011.
Performance
Centum, the second
largest investment group in Kenya by assets, reported a worrying 1.11% decrease
in pre-tax profits. TransCentury Group has the largest asset base in Kenya,
having overtaken Centum in 2011.
The half year
interim results show expenses increasing by 42.72% to about KES 200 million.
Income tax of KES 34.75 million was charged, compared to KES 8.37 million
credited in the half year to September 2010. With only 3.26% increase in
incomes and 10.09% on profits of associate companies, this explains the 6.20%
drop in profits after tax to KES 793 million. Cost to profit ratio* has
increased by 44.33% from 17 cents to 24 cents.
Quoted investments
had a fair value loss of KES 339 million compared to a gain of 406
million in the similar previous period, leading to contraction in total
comprehensive income by a staggering 60.12% to KES 386 million.
Real estate and
private equity are the most profitable segments of the company with total
returns of 15.5% and 11.1% respectively, against a -7.1% return in quoted
equity.
Operating
Environment
Rising interest and
inflation rates in Kenya have seen the equity market experience downward pressure,
hence Centum has sought alternative defensive securities, like fixed-income
securities. It has also led them to seeking profit from investments in equity
markets in the rest of Africa through subsidiaries. Its holding of quoted
investments has since been lightened by KES 3.5 Billion, as a significant
way to reduce investment in its least profitable segment.
The
Minister of Finance (Kenya) in his 2011 budget speech announced a raft of
important tax incentives for Real Estate Investment Trusts (REITS), creating
immense opportunity for Centum’s real estate sector. It has
since completed the acquisition of 100 acres of prime real estate along
Limuru Road and 300 acres of prime real estate in Entebbe Uganda.
Investment
Analysis
Centum is a
non-dividend-paying scrip but is expected to generate capital gains.
Share prices have
been increasing from a recent low of KES 13.00 to close (on 23rd April 2012) at
KES 15.80; 44% above its 52-week low. Centum's stock is
relatively inexpensive, with a P/E ratio of 6 compared to its closest peer
at the NSE, TransCentury, which has a P/E ratio of about 15. On comparing
Centum's net asset value per share (September 2011 half year financials) of
16.44 versus the current share price, the company is trading at a discount. The
price to book value of 0.96 is within acceptable limits.
Centum ranks first
as the most liquid security in the Investment category of the NSE. Volumes of
at least 50,000 shares were witnessed every trading day for the past week ended
27th April.
EPS has dropped
from KES 1.40 to KES 1.31. A bonus share was issued (1 for every 10 held) in
2011. 60 million more shares will be introduced, so one can anticipate a
further dip. Diluted EPS is also down 8 cents to KES 1.19.
Recommendation
It is a good BUY on
a long time horizon. The security is undervalued. Investors with a time
horizon of at least two years should accumulate this stock. In the short term
(2012) there is likely to be a lot of volatility on this and other counters, as
Kenya faces an uncertain election year.
*Cost to Profit
ratio = Expenses
Pre-tax Profit
Quote:
"A man who
carries a cat by the tail learns something he can learn in no other way."
Mark Twain
Mark Twain
Subscribe to:
Posts (Atom)