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 (25^th 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."