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Monday, September 25, 2006

NSE dahlings are down... or are they?

Finally some share prices are finally falling considering the speculative rise seen for over 2 weeks... The NSE index tumbled 50 points (1.1%) today...

Some folks have pooped on the party but the drop in prices is uneven. Some counters e.g. NBK & KQ have fallen further (see earlier blog entry) but their underlying fundamentals are very different. Logic has little to with it but market psychology drives the market. Any other thoughts?

I believe share prices on the NSE (no market makers, generally illiquid & no shorting allowed) to be sticky i.e. share prices tend to rise faster than they fall since the Sellers are holding out for a better price while prices rise while they are unwilling to sell immediately prices drop.
Therefore, impatient Buyers who can't wait support the price while it gradually drops. The patient/disciplined Buyers will wait until either the Sellers get desperate or the price hits their target Buy price.

IMHO, in Kenya, the retail investors chases shares when prices are rising but the market bottoms are anchored by the institutions moving in...

I think the current mood is moderately bearish & unless spectacular results are announced soon, there will be little to spur the NSE. The current political situation does not help. The market will wander aimlessly but it is INDIVIDUAL shares that need watching!

Do your own research! My opinions are just that, my opinions! I believe successful investing means that one has to be ready to hold for the long-term (at least 3 years) but take advantage of short-term pricing mismatches! Further, monitor your investments i.e. make sure the reasons why you purchased the stock still exist. Don't expect eye-popping prices unless you find a firm that others have missed! Inspired by Ryan S-H...
  • KPLC - The 2005-6 Final results are due anytime now since their year-end is June 30 2006. I expect good results BUT the issue of KenGen's "reprieve" will remain as a cloud over KPLC's results. Tough call but certainly buy on price weakness.
  • KQ - 1H 2006-7 results expected Oct/Nov 2006. One of the lowest P/Es (12x 2005-6 results) thus rated a BUY by NSE standards. Only 164,000 shares traded thus the current price (124/-) will have to give i.e. it will drop to the 120/- level or rise above the 130/- level by 27 September 2006.
  • Sasini - Year ends 30 Sep 2006. I expect the current price (41/-) to fall slowly since Coffee's 2nd marketing window's benefits will not accrue till 2006-7. The "Sasini" branding move will negatively affect Sasini's profits in 2005-6 but expect growth in the next few years from this line of products. The earnings are extremely volatile earnings. Wait for the share price to drop. Then check the following; the rain forecast for 2006-7, Kenyan tea prices, India & Sri Lanka's estimated production & finally the trade/political situation with Pakistan & Egypt. If all looks good, go through the process again!
  • BAT - 7% dividend. Steady growth. The downside is limited even with the "tobacco regulations" since smoking remains a growing habit BUT haphazard implementation of these regulations (as Ngilu demonstrated) can affect BAT in the short-term. BUY for steady not explosive growth.
  • NBK - Unless the government "bails" out NBK by issuing a bond to "absorb" the bad debts, there is no justifiable reason for the current price! SELL.

The NSE is inefficient even with the ATS system since clients can't see current prices thus it prevents "quick" decisions. The major beneficiaries are the brokers who trade in their own accounts since they can sense the market's direction while the rest of the shmucks are generally late to the party!


Ryan Shen-Hoover said...

Another great post, CT.

Rather surprised to see that KQ was down today in spite of the drop in oil prices. I think you're right about market psychology. There may have been a sense that the NSE was getting ahead of itself, and people sold off overvalued and undervalued alike.

kenyanentrepreneur said...

The entire African continent is inefficient!

Question is: Do you think the NSE will become more efficient? and if so, how fast will that happen?

coldtusker said...

A key driver on the NSE is price (not value)... often the liquid "cheap" shares are the favourites of many speculators.

The IPOs tend to be in the KES10-20 range, which is the sweet spot for the traders.

United Airlines had used $58 as their "estimate" for 2006. I figure most airlines budgeted sub-$60 for 2006. KQ attempts to hedge a substantial portion of their needs but the 1H 06 results will be an eye-opener to their strategy!

KQ disappointed many speculators by not splitting their shares (they see no value to the firm) & it is unlikely splitting will be considered before the 2006-7 results are announced.

coldtusker said...

KE - The CDS was delayed by 3 years. The ATS by 1 year.

A broker told me at the pace the NSE is going, I will not see real-time trading in my lifetime - another 30 years?

A new exchange (NASDAQ-like) can spur change BUT not until the current CMA management is removed! The NSE & CMA are in bed...

Only when CCK & Telkom were divorced did telephony reforms commence in Kenya! We have seen more progress in 3 years than in the past 10 years!

Ryan Shen-Hoover said...

The fact that the market is inefficient is why I find it so appealing. Inefficient markets often present the opportunity to buy into heavily undervalued firms. The trick is to spot them and be willing to hold onto them until other investors see things the same way.

Interesting about potential KQ share split and airlines' oil estimates.

coldtusker said...

Ryan - Rumours always abound about "share splits" around the time Final results are released.

Any stock (not just KQ) faces the "split" question as it price edges towards 200/-. The splits are the new bonuses!

I think KE meant inefficiencies among brokers (lost share certs, misplaced orders, poor execution, limited research) rather than "imperfect markets".

Ryan Shen-Hoover said...

ah! apologies for the misunderstanding, KE.

odeglenyanginv said...

I think people are taking the NSE too far. i dont think we have reached level where the market is sensitive enough to react immediately to news regarding such things as oil price drop and so on. i think what we are seeing at the NSE is typicaly kenyan way of doing things; Kenyans 'crowd' whatever new investment scheme they hear about. they then run over themselves and burn their fingers till a new one comes up. do you not remember the cyber cafe boom, the simu ya jamii boom, the 'exhibition halls' boom , swissgarde, GNLD , gold watch, you name it. the NSE 'boom' will wilt soon and those of us who are addicted to it and have been in it for long will stay on and our life will be back to normal!

hisagal said...

Inefficiencies on the market are here to stay. Be it market inefficiencies or operational inefficiencies. Our market is still too shallow to react to information as in developed markets where any economic data release elicits an immediate effect on equity prices, while any interest rate adjustment send ripple effects on the bonds side. On our side however, too few listed counters, too much liquidity (money wise), terrible interconnection between regulators and the regulated and a dismally performing bonds board.

Regarding operational efficiency, too few service providers, too many requiring services and as such, all providers are beyond overwhelmed and thus the poor services.

Anonymous said...

hi guys
coldtsk - any ideas abt unga results?
coldtsk - do u still hv the olympia hold reports if u dont mind
odengle - what happened to ur blog, i cant see any updates!!!!

coldtusker said...

Anon - Unga's results tend to be volatile. They issued a profit warning after Uchumi shut down. Unga will have to provide for part of their credit extended to Uchumi.

OCHL - I will let you know asap.

Odengle - I agree but this recent boom has opened (some) Kenyan's eyes to an investing culture.

kenyanentrepreneur said...

I've often wondered why American firms and the american system is so efficient. I can boil it down to two main things:

if you do not perform, you will be fired in a nano second. It's not like europe, where workers have all these rights. employee's in the states, work hard because they are scared of being fired.

There is so much competition, that if you do not perform, you will literally be blown out of the water by your competitors.

These two things are lacking in Kenya and until they happen, companies like the nse, et al, will continue on their present paths.

odeglenyanginv said...

Anon ... i have regained the vigour and the blog is now upto date.

coldtusker ... i agree with you and its a good thing

kenyanenreprenuer... I dont know why pple assume that western firms succeed due to hard work, moral uptrightness and what have you. i think they succeed more because the western politics favors them against africa. we are forced to buy from them! while our products face all sorts of barriers there. remember they even price our coffee and tea! can you imagine us telling US the price of their computers when they are selling to us. again right now many firms are closing there coz of chinese productions. i think the best way is to to do it our way. lets make all the mistakes we can. lets develop business models which are uniquely kenyan and cannot be copied then we will take over the world. like the unique nyama choma, or the kosewe model, or the kenchic model etc but we cannot afford to belittle our efforts.

i really am happy with the economic progress of our country . i think the future is bright.

on another note does anyone know why South African firms ALWAYS fail to make it in kenya? think castle, supreme, steers name it?

Anonymous said...


Then why have the asian countries succeeded? nobody is forcing you to do anything! besides, kenya can't keep relying on tea & coffee forever. They need to diversify that economy and learn to compete in the global marketplace.

I'm not sure if you live in the west or not (I suspect not)- but if you had the chance to compare and contrast, you'd see the differences.

let me give you an example:
my electricity company has informed me that they'll be switching off my lights on nov 26 for one hour between 1am and 2 am.

they've given me 2 months notice. They'll be doing it at a time when most people will be asleep and I can guarantee that by the time I wake up on friday morning my lights will be back on. I'm not even worried. That is efficiency.

coldtusker said...

Odel - I agree with KE on some issues... though he/she is in an ivory tower!

We blame the "West" for many problems of our OWN making! Most African countries have been independent for 40+ years! That is more than 1 generation!

Kenyans/Africans need to GROW UP... be responsible for our own destinies!

Kenya imports more Japanese (than American) cars coz Japanese cars are BETTER...
Toyota & Honda also have models in the top 10 in the USA market!
Toyota, Honda & Nissan didn't whine about America bombing Hiroshima, while doing nothing, they built up RESPECT by producing the BEST they could!

If Kenyans (or Africans) feel the "West" underpays for our tea & coffee, let's sell to someone else!!! We willingly sell/market to the West. Its biashara!

KQ buys Boeings from the USA coz they get a better deal (according to management)... What would you do? Buy Tupolevs & Antonovs?

I think we need to wake up & smell the coffee... we need to stop whining & compete like the Asians. Let's fight the subsidies by taking the countries to court/WTO... the USA & Europe do it all the time!

We pride at beating the S.Africans in Kenya but we need to beat them in every COMESA country!

EABL whacked the S.Africans in Kenya, then in Uganda...

KQ is dominant in the NBO-Jo'burg sector! KQ flies twice daily whereas SAA flies once daily. KQ caters to the business traveller while SAA to the "economy/leisure" traveller!

Kudrinketh said...

I think Kengen share value is a good example of market ineficiency. The company doubled its profit to sh3.8 billion even without the overdue price increase!

And shareholders will get 55 cents per share dividend, up from 23 cents. Now that's some growth! and how is it trading? worse, KPL is doing better yet we all know that the price increase is inevitable, and they cant seem to connect more customers.

odeglenyanginv said...

phew ! coldi those points are too many. i think i may have overstated a few things but i still believe in oursleves and suppose that that self belief is going to be our corner stone. I also think the asian tigers have managed to go this far since they had homegrown solutions, their own education system, own architecture, own tourism models, own business models, own government models etc. its difficult to beat someone if you use his method.

pray tell me , did anybody else associate murungarus problems with the decision to terminate the landrover deals and go the toyotas or do we all believe that UK was genuinely worried about 'corruption'

coldtusker said...

Odegle (Ohlanga lover) - LandRover is owned by Ford (USA).

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