Nairobi and Accra: Week ended September 10, 2010

Global and local market conditions

U.S. stocks advanced as higher-than-forecast wholesale inventories and surging imports of oil in China boosted optimism about the global economic recovery. A decrease in jobless claims and improving demand at European bond auctions tempered speculation that the global economy will slip back into a recession (Bloomberg).

Other key stock markets also rose in the week: The Nikkie(Japan), FTSE 100(UK), Sensex (India), Bovespa (Brazil) indexes advanced by between .19% and 3.17%. In Frontier Africa, Nairobi’s NSE 20 share index rose by 1.09%, the Ghana All Share index by 1.49% while the Nigerian all share index fell by 1.78%. Nigeria’s stock market has fallen for a third consecutive week.

NSE Movers

Top gainers

Unga Group +10.89%, KPLC +9.22%, Rea Vipingo +8.53%, Olympia +6.38%

Top losers

Pan Africa -9.38%, -NIC Bank 6.38%, Access Kenya -5.48%, Barclays -4.62%

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%, Accra Brewery +9.09%

Top losers

Aluworks -14.71%, HFC Bank -5.77%

Unilever

Unilever Ghana first quarter results in 2010 rose by 275% compared to the same quarter in 2009. These good figures were largely a bounce back after an 85% fall in full year’s profits for 2009 compared to 2008. In the five year period to 2008, Unilever Ghana consistently grew revenues and profits. The profit after tax rose from 8.4 Million Cedis in 2004 to 29.8 Million Cedis in 2008 then fell steeply in 2009 to 4.1 Million Cedis. The share trades at a PE of 18 which makes it relatively expensive compared to other stocks on the Ghana Stock Exchange most of which trade at a PE of between 7 and 12. The 4.26% dividend yield mitigates the higher valuation.

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