Blog Archive

Wednesday, December 07, 2005

Abbreviations & Acronyms Used In My Posts

Thanks to an excellents suggestion by a reader...

To ease the strain on my fingers as well as keep track with my thoughts I will continue using acronyms but I hope this helps the uninitiated!

I will often use abbreviations/acronyms for NSE (see below) firms e.g. HFCK is Housing Finance Company of Kenya.

Some of these are unique to my blog!

1H - First Half e.g. 1H 2005 means First Half of 2005
1Q - First Quarter e.g. 1Q 2005 means First Quarter of 2005

BBK - Barclays Bank of Kenya
BSE - Botswana Stock Exchange
BTW - By The Way

CDC - Commonwelath Development Corporation (now Actis)
CFC - CFC Bank (formerly Credit Finance Corporation)
CFCFS - CFC Financial Services
CMA - Capital Markets Authority
CT - City Trust

FD - Francis Drummond & Co

HFCK - Housing Finance Company of Kenya

ICDC - Investment & Commercial Development Company (Govt owned)
ICDCI - ICDC Investment Company (Private & listed - don't confuse with ICDC)
I&M - I&M Bank (previously Investments & Mortgages Ltd)

KCB - Kenya Commercial Bank
KQ - Kenya Airways (KQ is the "call sign" since KA was already taken!)

NBK - National Bank of Kenya
NSE - Nairobi Stock Exchange

OCC - Olympia Capital Corporation (a OCH subsidiary listed on the BSE)
OCH - Olympia Capital Holdings

PAT - Profit After Tax
PBT - Profit Before Tax

Q - Quarter (Q is also one of my favourite Star Trek characters!)

Rea - see RVP
RVP - Rea Vipingo Plantations (aka Rea)

STC - Sasini Tea & Coffee

UTL - Unilever Tea Ltd (formerly Brooke Bond)

ZSE - Zimbabwe Stock Exchange

Friday, November 25, 2005

Development Bank of Kenya Announces Third Quarter 2005 Results

DBK's results were substantially better than 2004 but disappointing when compared against other Kenyan banks.

This is a government controlled bank through ICDC (not ICDCI). It was in the news when a merger with HFCK was contemplated. The then CEO (Peter Lewis Jones) of HFCK was removed from office as CDC's influence waned in the running of HFCK.

Assets increased to KShs 2.50 Billion
PBT was KShs KShs 110 Million
PAT was KShs 77 Million
Shareholders' Equity is KShs 1.017 Billion
Customer deposits are a mere KShs 655 Million

3Q PAT vs. 2Q PAT was + KShs 9 Million only! Therefore a bank with KShs 1 Billion in Equity made a mere 0.3% per month!

So what do I make of it? Well... my thoughts are in BLUE...

The ROE is amongst the lowest in the sector.

Bank --- 2004 Equity -- 3Q Earnings -- ROE
--------------------------------Annualised-- Annualised
DBKL ---- 973,828 ----- 102,976 ---------------- 10.57%
KCB ---- 2,643,842 ------ 284,300 -------------- 10.75%
I&M ---- 1,850,730 ------ 335,256 -------------- 18.11%
Diamond -- 1,437,072 ----- 249,148 ------------ 17.34%
NIC ---- 2,643,842 ------ 284,300 ------------10.75%

Caveat: There are many smaller private banks not included in the list. I tried to match up similar sized banks that have a stronger presence in the business sector. KCB was included as a "former" government controlled bank. National Bank of Kenya has substantial preferred capital thus is not a good comparison.

DBKL should;

  • be sold to another financial institution which wants entry into the Kenyan market e.g. State Bank of India bought a majority stake in Giro bank.
  • buy other stable banks that have weaker balance sheets but growth potential e.g. Consolidated Bank of Kenya
  • merge with other stable banks that have weaker balance sheets but growth potential e.g. HFCK

When 5-year T-bonds are yielding 12.5% for a post-tax 10.625% (after a 15% withholding tax), any bank that can't achieve/match that return needs to rethink their business strategy.

NIC & Diamond are increasing their footprint & lowering costs through automation. KCB is growing in Kenya with a regional focus. I&M has shown strong growth in the SME sector.

What is DBKL doing to (prudently) grow & maintain its presence in the sector?

Tuesday, November 08, 2005

KQ Announces Interim 2005-6 Results

KQ announced better than expected results for the period from Apr 1 - Sep 30 2005. Comparisons are H1 2005-6 vs H1 2004-5.

  • Turnover/Revenue +29% to KShs 25.4 Billion
  • PBT +36% to KShs 3.2 Billion
  • PAT +48% to KShs 2.2 Billion
  • EPS +48% to KShs 4.83

So what do I make of it? Well... my thoughts are in BLUE...

The effective tax rate reduced by 6% thus the higher PAT vs PBT. I think the "depreciation tax shield" accounts for the difference. The depreciation benefit will continue as they have 3 new 777s of which 2 were delivered in H1 2005-6.

KQ has expanded its reach especially to the East with 3 Chinese destinations (Hong Kong, Shanghai & Guangzhou). In view of their current expansion I expect Singapore & Japan will be added to their list of destinations in 2007.

Further expansion to African destinations continues with new routes e.g. Bamako & Dakar as well as expansion of existing sectors e.g. Lagos. Virgin Atlantic has taken a majority stake in Nigerian Arlines & created Virgin Nigeria & they will be a significant threat to KQ.

KQ announced that they will commence direct MBA-LHR flights in Dec 2005 to cater to an important tourist market. KQ is probably trying to counter the various charter operations that fly direct to Mombasa.

KQ plans to fly to Paris (France) & Freetown (Sierra Leone) by March 2006.

  • I see a move to expand the West African market for onward flights east to China.
  • Paris will open up a HUGE market for safari travellers esp from the French, German, Italian & East European markets.
  • The Italian market is primarily served by charter flights but KQ provides an opportunity for scheduled services. Air France & Alitalia can provide seamless domestic feeders to KQ.
  • There will be 4 European hubs for KQ London, Amsterdam, Paris & Instanbul. Istanbul provides a getway for East European travellers e.g. Ukraine.
  • Additional European hubs also provide greater opportunities for N. American travellers to connect thru to Kenya using Northwest, KLM & Air France as feeders. Northwest flies daily from Detroit to Amsterdam. Air France flies from New York to Paris.

Passenger growth for the Mid-East & Asia +15% but turnover was -1%. This doesn't bode well for the Mid-East market since margins are under pressure from Emirates (Dubai), Etihad (Abu Dhabi) & Qatar Airways. The Mid-East airlines are well financed & provide a hub to European & Asian destinations. Emirates has expanded its reach to West Africa thus providing an alternate route to East Asia & India.

Passenger growth for Kenya +34% & turnover was +48%. Collapse of local carriers e.g. Regional Air & EASA decreased competition. KQ plans to introduce 767 flights (NBO-MBA) to increase capacity during peak early morning & evening flights that cater to business travellers.

Passenger growth for Europe +27% & turnover was +34%. New 777s with larger capacities & collapse of EASA led to tremendous growth. Average seat occupancy also increased - in spite of increased seats. London must have done very well with 90%+ levels. Increased European tourism due to a favorable Euro rate vs KShs. Istanbul was an additional destination during H1 2005-6 vs 2004-5.


  1. Huge & wealthier Asian markets esp Hong Kong, China & Japan have not been fully exploited.
  2. Economies in sub-Saharan Africa have started growing as well as stabilized governments.
  3. Regional airlines have been decimated thus little regional competition (see Challenges on SAA & ET).
  4. Kenya's economy shows strong signs of growth fueled by liberalization.


  1. Mid-East carriers who are very well financed & have the implicit backing of their governments e.g. Emirates is owned by the City of Dubai.
  2. Resurgent S.Africa Airways & Ethiopian Airlines will provide competition for KQ in the core regional markets
  3. Fuel prices. Even though (Nov 8 2005) they have dipped below $60/barrel, they could rise. Kenya lacks sufficient refining capacity thus KQ can be held hostage by a shortage.
  4. Terrorism still lurks in the background. Whether directed at KQ or other airlines a 9/11 style attack can cripple the industry.
  5. Avian flu can cripple tourism esp from the new Chinese destinations. In addition, East Africa is at risk from migratory birds thus an outbreak can devastate Kenyan tourism.
  6. Unstable African nations is still a threat to KQ. The incident in Ivory Coast last year shows how KQ's fleet & crew can be stranded.


Financially strong airline with excellent management & partners e.g. KLM. Nevertheless, at best, it will have limited international reach but a strong regional focus on East, Central & South Africa. Definitely needs to be added to the portfolio at today's (Nov 8 2005) price of 76/- for gains over a 3-year period till growth levels off.

Friday, October 07, 2005

CFC Bank to Issue Rights - Announced on Oct 7 2005

CFC Bank Limited is a holding company for various entities including Heritage AII. They recently acquired ALICO's life insurance business in Kenya.

I wonder what they will price the 12,000,000 Rights at since the the price, on Oct 7 2005, of 70/- is not "cheap" by any means. They have traded between 56/- & 70/- thus are at the higher end!

The Q3 2005 results haven't been released but it will be interesting to see what the resultant P/E ratio will be vis-a-vis other banks especially mid-tier banks like NIC Bank & Diamond Trust Bank.

It should be noted that these 3 banks generally have a higher P/E ratio than the most banks on the NSE.

CFC Bank is run by smart folks who have made it into a financial powerhouse & the "local" bank label & powerful connections provides intangible benefits denied Barclays or StanChart.

Nevertheless, their are many prominent shareholders who are associated with the KANU & NARC governments. Names (including proxies) include Charles Njonjo, Jeremiah Kiereini, Mwai Kibaki & P Jani among others.

The insurance industry is difficult to "price" out & details provided by CFC Bank on this business do not meet international (USA, UK & Netherlands) standards of disclosure.

Depends on the price of the Rights but definitely a good buy if priced at 60/- or lower.

Friday, August 26, 2005

KPLC announces 2004/5 Results

2004/5 vs 2003/4 (Year End is June 30)

Revenues + 7%
Profit after Taxes + 177%
Earnings per Share +177% (see comments below)

Under the terms of the Memorandum in 2003 in which Preference shares were issued to KenGen & Treasury, KPLC is required to pay KenGen & Treasury a dividend of 7.85% if KPLC announces a dividend on Ordinary Shares prior to 2009. It seems the government's need for cash has compelled KPLC to announce a dividend.

What the paid announcement on Oct 7 2005 does not reveal is the amount that KPLC has to pay out in preferred dividends. Since preferred dividends are paid AFTER taxes, this means the cost to KPLC is 11.2% on a pre-tax basis!

Considering current interest rates & the premium e.g. ARM is paying 1.75% + TBill so 11.2% isn't a bad deal for the Government & KenGen. KPLC should cheaper borrow funds from the market & redeem these Preferred Shares.

EPS overstated
Since the government will get a dividend of Shs. 962 Million the REAL profits for the Ordinary Shareholders is only Shs. 308 Million that equates to NETT EPS of Shs 3.90.

Caveat: KPLC might have cut a "deal" with KenGen & Treasury to pay less.

Paying a dividend was a poor decision for KPLC. A zero dividend would have allowed KPLC to retain an additional Shs. 962 Million. Shareholders would have been much better off if KPLC "splits" the stock or issues a bonus to reward the shareholders.

The dividend is a mere 1% (after a 5% tax) of the stock's value (140/- on Oct 6 2005 & before the announcement). A bonus or split would be tax-free & if a shareholder needed cash, they could sell 1% of their holdings. The value of the 99% would gain substantially more in value with the retention of the Shs. 962 Million.
Mumias Sugar Announces 2004/5 Results

I was unable to find their website but this is what I found on The Standard

Gross Turnover: KShs 12.5 Billion +3.1%
Net Turnover: KShs Billion +%
Profit Before Tax: KShs 1.8 Billion +64%
Profit After Tax: KShs 1.2 Billion +63%
Earnings Per Share: KShs 2.53 +63%
Dividend Per Share: KShs 1.50 +%

I am still updating info....

It seems that the management feels 2005/6 will be even better given:
  • Higher prevailing world sugar prices
  • Exports to EU under preferential terms
  • Higher efficiencies through better management of operations

East African Breweries Limited (EABL) Announces 2004/5 Results

Gross Turnover: KShs 34.8 Billion +16%
Net Turnover: KShs 19.3 Billion +16%
Profit Before Tax: KShs 8.6 Billion +22%
Profit After Tax: KShs 5.8 Billion +22%
Earnings Per Share: KShs 7.24 +23%
Dividend Per Share: KShs 4.50 +29%

Price Aug 26 2005: KShs 155.00

Management seems determined to expand their range of products BUT they have not indicated regional expansion. EABL {then Kenya Breweries Limited (KBL)} sold off their holdings in Seychelles as part of the restructuring process in the 1990s. In addition, EABL swapped 20% of KBL in exchange for 20% of Tanzania Breweries Ltd (TBL).

Management has decided to expand into non-alcoholic beverages since they:
  1. Have excess bottling capacity
  2. Have a well established distribution network
  3. Own Central Glass Industries who manufature bottles & jars
  4. Have too much cash which they want to redeploy
I believe growth in turnover & profits will continue because they:
  1. Continue to rationalise costs even further
  2. Plan to outsource distribution to retail centers
  3. Continously improve on their plant
  4. Maintain their brand name & quality
  5. Introduce new products e.g. Smirnoff Black Ice

Anyway, me thinks that EABL is overpriced.

Caught the Blog bug...

Thanx to bankelele & tHiNkEr'S rOoM for my interest in blogging. Sure I read many blogs, read about them & thought of them...

Wish me luck!