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Wednesday, August 30, 2006

ScanGroup off to an explosive start in initial Trading!

Well, after all the second-guessing, discussions & criticisms of ScanGroup's IPO, the most galling being the idiotic remarks & questions made by some MPs, apparently Kenyans voted with their wallets!

Over 3.5 Million shares were traded in 2 days!
Aug 29 2006 - 3,056,000 (avg price 15.00)
Aug 30 2006 - 450,000 (avg price 16.35)

And that also make Bharat Thakrar a bonafide Billionaire between the cash proceeds & shares he owns in ScanGroup! SG's market cap is approx 2.8 Billion.

Well... now its time for the next IPO coz there is KSh 3.8 Billion in refunds! In perspective, the refund (KShs 3.8 Billion) exceeds the market cap (KShs 2.8 Billion) of ScanGroup!

My gut feeling is that the number of shareholders will drop rapidly from the 96,000 level to less than 75,000 in time for the first AGM to be held mid-year 2007! I expect many current shareholders will sell their meager allocations (300-500) & the buyers are either High Net Worth individuals, Unit Trusts & Retirement Funds.

It is difficult to judge the direction of the price but early indications point to an initial steady increase in the price as supply gradually reduces. Of course, I expect supplies to increase during the Xmas season with a subsequent drop in price.

21 comments:

bankelele said...

I'll buy more, before and after refund. I too see this as one that pension and asset funds will go for.

Jakarumba said...

Sure banks, more of this is need in any long term stable. I have this buddy whom I persuaded to start investing in stocks,he tok a Sacco loan to invest in Scangroup, he was disappointed by the low allocation. But his worst moment came when trading started and it was only 15 bob. His expectations were very high Ksh. 40 upwards. Now he has decided to bale out. I wish alot of guys do that so that the likes of you and I can snap up more for the long term.
How I wish the price coul hit a low of 12/=

coldtusker said...

Jakarumba - 40/-??? Did he read the prospectus? I think not!

I think the "Get Rich Quick" syndrome needs to be replaced by "Investor" mentality!

Buy if undervalued but sell if overvalued... but look at fundamentals!

Kudrinketh said...

I only got 3200 shares during the ipo, how i wish SG could tank to like 12 or below ipo prize so i could buy some more. maybe a new ipo like Kenya-Re could be the catalyst.

Anonymous said...

coldtusker:

How can you tell if something is "undervalued" or overvalued?

coldtusker said...

Excellent question. Is a share price undervalued or overvalued? That is SUBJECTIVE i.e. each investor needs to use his/her own criteria to make that assessment.

Even my idol, Warren Buffett gets it wrong, some of the time!

I highly recommend all to read his musings & letters on www.berkshirehathaway.com

The good news is that not everyone thinks the same thus it creates opportunities for investment & speculation.

40/- for SG (IMHO) is too high based on current P/E, forecasted P/E for 2006 & MY forecast (a guess?) for 2007.

I thought 200/- was too much for EA Cables! Now it's 600/-!

For better or worse, LOGIC doesn't always apply to pricing rather in the short-term it's PSYCHOLOGY.

I would say, pay a reasonable price AFTER you do your homework. You will never be 100% right BUT 60% puts you way ahead of the rest!

mwasjd said...

You can get an interesting discussion on Scangroup here:

http://www.stock-detective.co.ke/public-discussion-forum/public-discussion-forum/post200608313386729007

mwasjd said...

I've just bought more Scangroup after getting a refund. Apparently I signed up for EFT refund as opposed to cheques, was apprehensive but apparently was the best option coz got it early last week without problems & negligible if any charges existed. Enough people still at brokerage firms asking for cheques (Suntra, FD)

But I'm also for short term, likely to follow Cold Tusker's take of profit taking just before Christmas Holidays.

Anonymous said...

Jakarumba:

You've just highlighted a major problem for kenyans trying to make money in this ipo craze. They are borrowing from banks at high interest rates and not making their money back!

& if they listen to people like coldtusker who believe that they can predict the future based on unseen "fundamentals", they will continue to lose even more money over the long run.

coldtusker said...

KE: I will stand W.E.Buffet's record of sound investing using fundamentals & common sense against any of your short-lived starts aka the lesser known J.Henry!

Soma the post before payukaring!

Jakarumba's buddy expected SG to hit 40/- based on your line of thinking! Bila fundamentals! Did he read the prospectus?

Like my mentor (W.E. Buffett) says... Buy when others are fearful, be very fearful when others are buying!

Hey, I called SG to open at 15/-... did you?

Anonymous said...

You have totally misunderstood my line of thinking. You don't "call" anything or try to make predictions.

If jakarumba's friend had a following my line of thinking, he would NOT have made any predictions about anything. He would have followed the charts.

These "fundamentals" you are talking about is really just guesswork. The price you "predicted" could down to ksh 1, it could go up to ksh20 and come back down to ksh2 - there's really no way of knowing. One prediction does not turn you into a warren buffett type 'investor'

I don't call anything. I'm not nostradamus.

coldtusker said...

Predictions are a guess! Mine are EDUCATED GUESSES.

After reading SG's prospectus, economic reports & my anlysis, I felt that 15/- was a justifiable price that Institutional Investors would pay. Buying at 10.45 was a good move.

Jaka's friend was crazy to expect 40/-! Even at 15/- he made 45% in less than 1 month! Not bad, eh?

Furthermore, those who borrow to buy shares are taking substantial risks. If used judiciously, margining is a great idea! Many people use margin without realising it esp when they take mortgages.

In the US (not sure about the UK), there are certain rules/conditions before you can borrow on margin.

Kenya does NOT have a pure margin system but I think some fools wiil be burnt by borrowing & speculating.

As is, the rates in Kenya are horrendous! Imagine borrowing at 15% or more! Unless, there are hits like EA Cables, I would NOT borrow.

BTW, EA Cables is expected to make about 1.35 per (post-split) share in 2006 thus paying 70/- is insane!

I wish I could short (not allowed in Kenya)!

kenyanentrepreneur said...

coldtusker:

We finally agree on something! borrowing @15% then hoping to make that money back by trading on the NSE is a dangerous move.

However, where else will the majority of kenyans get money from??

Why can't you short in kenya?

coldtusker said...

KE - You look at investing on the NSE with a "USA" view.

Trend investing on the NSE is difficult coz there are few counters that are sufficiently liquid.

Most shares are held on certificates thus delivery is problematic. Immobilised shares are in the shareholders names thus can't be used for delivery by brokers.

Anonymous said...

coldtusker:

Yes - you are right about that.

I will continue to be an 'outside' observer of the NSE.

btw - the economist has an interesting article on penny stocks and spammers. you might want to check it out.

coldtusker said...

KE - Even intra-day trading is virtually impossible for wananchi on the NSE. Even with the CDS, there is a 5-day settlement period. It makes no sense but...

I understand there is a way around it but only brokers can do so since they "control" the flow of info!

Further, the charts on Kenyan stocks are not very useful since there are no real market makers. The liquidity & float are very low even among the most liquid of shares.

Trust me... when I say do your research well & invest using fundamentals for the long-term!

EA Cables - 75% owned by one group
EAPCC - Float is 6%!
KQ - Liquid but float is 51% (though this includes some folks who are unlikely to sell for a small gain e.g. Paul Wanderi Ndungu with 3%)

MMK said...

this is a great blog.

kenyanentrepreneur said...

CT:
You were beginning to get quite 'abusive', but you seem to have calmed down.

How many times have I said that the only people who are going to make a killing on the NSE are brokerage companies? you know why? because those guys get their 5% commissions regardless of whether or not YOU make money.

You can't use technical analysis without chart. When john henry first started out, he created his own charts since computers were not widely available then. It sounds like that's what you might have to do with the NSE - create your own system using the numbers. Remember, it's always about the numbers.

coldtusker said...

KE - I reacted as I did coz you were not reading the earlier posts or comments thus I felt your comments missed the view of the forest for the trres.

Anyway, you are right that we have to be innovative in the NSE.

The commission rates are HORRENDOUSLY high. There have been many complaints on price & service but the CMA & NSE will stymie efforts to create another Stock Exchange ala NASDAQ.

If you want a monopoly/oligopoly, its the NSE not Bamburi!

The MAJOR problem on the NSE remains illiquidity thus a few players can affect the market considerably.

EA Cables' price (IMHO) is way out of whack! 75% is held by a group that is unlikely to sell at the moment lest it is accused of manipulation. Therefore demand is great... Nevertheless, the MARKET sets the price. I only wish I could short (not allowed/possible!) but not much of a choice there!

kenyanentrepreneur said...

The illiquity of the NSE reflects the huge inequality gaps of the kenyan economy.

Too few people have money. and until this changes, you will continue to have this problem of illiquidity.

coldtusker said...

I disagree that the illiquidity is due to the inequality BUT rather the mechanisms (certificate vs electronic) & the relatively small floats.

The CDS has increased liquidity but many shares are in certificates thus non-tradeable on short notice. It takes 4 weeks to have a certificate dematerialised & shares immobilised! The problem will self-correct in a few years.

The float issue will remain a thorn BUT new tax legislation that favours 40% free float will benefit new listings e.g. Equity, ScanGroup, etc.