Global and local market conditions
U.S. stocks on Friday surged to their fourth straight weekly gain, with the Dow Jones Industrial Average and the S&P 500 Index both on track for their best September in more than half a century after data showing a rebound in demand for U.S. capital equipment (MarketWatch). Most global markets performed strongly in the week. India’s sensex index passed the 20,000 mark, and is now trading at a 32 month high. There has been a heavy inflow of funds into India’s equities markets from international investors who have bought into the country’s growth story. Brazil’s Bovespa Index was up 1.65%. A record share sale by Petrobas has catapulted the Bovespa into the second most capitalized financial exchange in the world after the Hong Kong Exchange (Wall Street Journal).
The situation has not been so upbeat in Sub-Saharan Africa. The Ghana, Nigeria and South African All share indexes dropped by 1.84%, 1.33% and 1.08% respectively. Kenya’s NSE – 20 share index eked a 0.70% gain in the week.
Accra, Ghana
GSE Movers
Top gainers
Golden Star Resources +18.42%, AngloGold Ashanti +9.52%
Top losers
Produce Buying Company -11.76%, Ecobank Transnational -6.67%, Mechanical Lloyd -5.80%
Golden Star Resources
The rally in the two gold miners continued from the previous week. Gold is trading at an all time high breaking the $1,300 an ounce barrier. The gold rally this week was driven by a weak US dollar and momentum buying. Gold prices are likely to stay at an elevated level in the long term due to rising demand from increasingly affluent buyers from the Middle East, India and China who treasure the metal for jewelry.
Dar es Salaam, Tanzania & Kampala, Uganda
DSE & USE Movers
Top gainers
Swissport +3.17%, National Microfinance Bank +2.86%
Loser
Stanbic Bank Uganda -2.08%
Swissport
Liberalisation of the airport services business is likely to have a long term negative impact on the company. In the next several years the company should benefit from the general trend in air traffic growth across Africa and in Tanzania. The low valuation of the company, a PE of 5.7 and the high dividend yield, 7.17% (based on June 2010 half year results) mitigate the flat growth and potential risks from liberalization on the industry.
Lagos, Nigeria
NGSE (Top 100 by Market Capitalization)
Top gainers
AIICO Insurance +24.24%, Dangote Flour +22.28%, Unity Bank +21.05%
Top losers
Starcomms -10.05%, Bagco -9.95%, Skye Bank -8.82%
AIICO Insurance Plc
AIICO is one leading multiline line insurance companies in Nigeria. The company reported a 66 percent increase in profit for the year through December. Net income advanced to 1.04 billion naira ($6.9 million) from 624.8 million naira a year earlier. Even after this week’s huge jump in share price down 31.25% in the year to date.
Starcomms
Starcommons is Nigeria’s 4th largest telecommunications operator. Despite rapid subscriber and earning growth the company made losses in 2008,2009 and in the first half of 2010. The performance of this company has been bogged down by huge interest payments and foreign exchanges losses which have far exceeded the operating profit.
Nairobi, Kenya
NSE Movers
Top gainers
KenolKobil +16.09%, Rea Vipingo +7.27%
Top losers
Unga -6.36%, Safaricom -4.30%
KenolKobil
KenolKobil was listed among three conviction picks in our report for the week ended September 3, 2010. The share price leaped on an announcement that the company and the Kenyan energy sector regulators have come to an agreement on the long standing refinery dispute. Although the full details of the agreement are not yet clear, a major cloud on this counter has been lifted. Barring unforeseen events the share should continue to rally strongly in the coming week.
Quote of the week
“The minute you get away from the fundamentals – whether it’s proper technique, work ethic, or mental preparation – the bottom can fall out of your game, your schoolwork, your job, whatever you’re doing.” -Michael Jordan
Nairobi and Accra: Week ended September 17, 2010
Global and local market conditions
Most markets around the world, with the exception of the Chinese stock market continued rallying from the previous week. The S&P 500 was up 1.45%, rising for a third consecutive week. The Nikkei rose by 2.93% ; the Sensex of India jumped by a huge 4.23%.
In frontier Africa, the
NSE Movers
Top gainers
Carbacid +11.18%, Barclays Bank +9.68%, East African Breweries 8.38%
Top losers
Olympia Capital Holdings -7.33%, Rea Vipingo Plantations -6.78%, Sameer Africa Limited -4.57%
Carbacid
Carbacid reported a 41% rise in profits for the six months ended January 31, 2010. Carbacid has a 95% share in the Kenyan Carbon Dioxide market and a growing presence in the East African region. This strong position was behind BOC Gases failed attempt to acquire the company. The share rally in the recent days could be as a result of demand building up in the counter in expectation of strong full year results: a highly probable outcome given the good half year results and the benign trading environment in the year to date. Even after the good run in the year (the share is up 33.33% since June 1 2010), the current PE is just 14.60, which is not too challenging. Going forward the company will face stiffer competition from BOC Gases who are now planning to install Carbon Dioxide generation facilities.
Barclays Bank
The share price run this week has culminated in a market capitalization for BBK this week of Kshs 92 Billion, just 1 Billion shy of the market cap king Equity Bank‘s Kshs 93 Billion. BBK is still the most profitable bank in
GSE Movers
Top gainers
AngloGold
Top losers
Mechanical Lloyd -11.76%,
AngloGold
The rise in the share price is in tandem with the jump in global gold prices this week. The spot price for gold hit an all time high this week as investors continue loading up on the metal on expectation of a jump in inflation due to the quantitative easing policies pursued by Central Banks around the world. The prices of gold miners rose across most markets: the share price for
Quote of the Week:
"Value investing is at its core the marriage of a contrarian streak and a calculator." - Seth Klarman
Nairobi and Accra: Week ended September 10, 2010
Global and local market conditions
Other key stock markets also rose in the week: The Nikkie(
NSE Movers
Top gainers
Unga Group +10.89%, KPLC +9.22%, Rea Vipingo +8.53%,
Top losers
Pan Africa -9.38%, -NIC Bank 6.38%, Access
Unga Group Limited
Unga Group reported a huge jump in profits in the half year to December 2009 compared to the same period in the previous year. Earnings per share rose from 1.32 to 0.35: a gain of 278%. The recent rally in this counter could be as a result of investors taking position in expectation of an announcement of strong full year results. Going forward the reinstatement of duty on maize by the government will have a positive impact on product prices. The recent global jump in wheat prices will also have a positive impact if Unga Group can pass the cost increases to its consumers in the regional export markets and is able keep a lid on the prices paid on inputs.
Unga has a very low PE ratio, 4.68 (on annualizing the December 2009 half year results) and an attractive price to book value of only 0.42. Factors which reduce the attractiveness of this counter include the company’s very low return on equity (8.9%), huge minority investor position (31% of total equity) and the volatility of agricultural commodities prices. Value investors should consider accumulating this share if the price dips.
Pan Africa
The sharp fall in the share price is a reflection of the little float available on this counter which increases the probability of wild price swings. The liquidity in Pan Africa is low hence it difficult to accumulate a meaningful position of the stock. Exiting could also be a challenge. The low valuation of the company is however hard to ignore; the Friday closing price of Kshs 72.50 translates into a PE of only 8.24 which is cheap for a company that has consistently grown revenues and assets over the past 10 years.
GSE Movers
Gainers
Unilever +13.64%,
Top losers
Aluworks -14.71%, HFC Bank -5.77%
Unilever
Unilever
Quote of the Week:
“There is no passion to be found playing small - in settling for a life that is less than the one you are capable of living”. Nelson Mandela
Nairobi: September 3, 2010: Conviction buys
Kenya Commercial Bank
September 3, 2010 closing price: 18.95
52 Week High: 23.00
52 Week Low: 17.65
P/E Ratio: 9.75 (June 30, 2010 Q2 Results)
P/B Value: 1.57
ROE 16.07%
Dividend yield: 5%
Investment case
Strong capital position (most capitalised bank in
Cheapest NSE listed bank on a P/E valuation basis. The current price is close to its historical bottom: there is minimal downside and significant upside potential.
The high dividend yield is a cushion against unexpected price drops.
Biggest regional branch network. Well placed to leverage from the ongoing East African economic integration. Wide branch network facilitates mopping up of cheap deposits.
Risks
High cost structure: KCB has one of the highest cost to income ratios in the industry.
Regional execution risk: regional reach has not always led to great performance. KCB’s
Stiff competition in the industry. Equity bank has captured a big share of the low income market and looks to gain even more share in this market through its innovative ‘Mkesho” partnership with Safaricom. Smaller banks such as NIC, CBA, I&M and DTB are providing a more personalised service to upper middle and middle class income segments of the population.
Jubilee Holdings
September 3, 2010 closing price: 194
52 Week High: 210.00
52 Week Low: 113.00
P/E Ratio: 12.10 (June 30, 2010 Q2 Results)
P/B Value: 2.43
ROE 20.11%
Dividend yield: 2%
Investment case
Regional reach: Jubilee has insurance businesses in
The current rally at the Nairobi Stock Exchange should lead to a huge gain in the company’s substantial investment portfolio.
Low insurance penetration in
Risks
Entry of banks into the insurance/insurance agency business. Banks have a natural outlet through their existing branch networks.
Insurance business is dependent on too many variables any of which could have a devastating effect on the bottom line. A fall in stock prices will hit investment income/gains. A rise in interest rates and the attendant fall in bond prices will similarly have a huge negative impact on investment portfolio valuations. Any of unexpected catastrophes, fraudulent claims, and mispricing of insurance risks could easily cause a substantial underwriting loss.
KenolKobil
September 3, 2010 closing price: 9.30
52 Week High: 11.00
52 Week Low: 9.00
P/E Ratio: 5.80 (June 30, 2010 Q2 Results)
P/B Value: 1.14
ROE 19.57%
Dividend yield: 3.5%
KenolKobil is the riskiest of the conviction buys but is likely to yield the highest medium term returns.
Investment case
KenolKobil has the second largest petroleum products distribution market share in
The share price has fallen to such an extent that the company is now valued close to the break-up value of its assets. KenolKobil’s market capitalisation is now Kshs 13.6 Billion compared to Kshs 12 Billion book value of its assets.
Stable world oil prices should ensure decent gross margins for the rest of the year. Crude oil prices have traded in the 71-78 range for most of 2010.
KenolKobil has spread its operations to several countries in East and
Oil majors such as BP, Chevron, and Mobil are exiting retail business to deploy their capital on the more lucrative oil prospecting and drilling business. It is this exit across Africa that has enabled KenolKobil to expand market share in
Risks
As per the most recent half year results KenolKobil has a huge short term debt (Kshs 11 Billion) which it is using to finance its working capital. Should any of its huge debtors delay payment, KenolKobil could easily face liquidity issues.
Global crude oil prices can easily fluctuate to the detriment of gross margins. If the crude oil prices drop steeply KenolKobil will be forced to offload stocks that had been acquired expensively at lower prices triggering an operating loss.
The ongoing dispute with the Kenya Petroleum Refinery and the Energy Commission is likely to impact the Kenyan operation negatively. A revocation of KenolKobil’s Kenyan retail licence (a real possibility) will have a huge impact on overall profitability as the bulk of the company’s profit still comes from
Disclosure: I hold Kenya Commercial Bank shares
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