Blog Archive

Sunday, July 30, 2006

Rating the Management & Boards of Listed Firms on the NSE

If I am not sure or have no comment I have left the ranking "blank". I concentrated on firms that have enough info on their directors & on those that are consistently 3-stars+ in my book.

Please note the rankings do NOT reflect the movement in share prices. The movement in share prices is NOT always correlated to firm's performance in the short-term.
Example: IMHO, EABL shows a price gain that outstripped profit growth in 2005. The price has since stagnated/dropped. I expect little movement upwards UNTIL the profits catch up to the share price!

Ranking will be updated to reflect additional info or thoughts/opinions.

0-stars (Huge one-way sucking sound from shareholders' pockets to Board+Mgmt)
1-star (Management spits a little back AFTER sucking out most of the juice)
2-stars (Minority shareholders are NOT likely to benefit much)
3-stars (They make profits but there is a niggling feeling that profits could be much higher)
4-stars (They make profits for the minority shareholders but the "majors" benefit a tad more)
5-stars (They make profits & money for ALL shareholders)

Unilever Tea - 4**** coz the weather & tea prices isn't entirely in their control. Great dividends when they make money. Management depth is good.
Kakuzi -
Rea Vipingo -
Sasini Tea & Coffee - ???? Merali controlled. Professional (not family) managers.

Car & General -Gidoomal family controlled.
CMC Holdings Ltd - 4****. Board is full of "friends" but it has done a great job in the past few years.
Hutchings Biemer - ZERO. Need I say more?
KQ - 5***** coz they are on a roll with great CEO & backing from KLM who has RIGHT to appoint MD & FD. Government can't interfere even though they have tried in the past!
Marshalls -
Nation - 5*****. Independent board & great management with superior products & services. Aga Khan firm.
TPSEA - 5*****. Independent board & great management in a challenging sector esp with insecurity. Aga Khan firm.
Uchumi - Management seems to be doing a good job BUT no financial info available. Unknown management.

Barclays - 5*****. World-class management drawn from the smartest Kenya has to offer. Great resources to draw upon if needed. It has strong results every year with a nice dividend.
CFC Bank - 4****
Diamond Trust - 5***** all the way. Aga Khan firm that has great management depth to draw on when needed.
HFCK -3***. CDC provides depth of management BUT there is political pressure even though government is a minority shareholder.
ICDCIC - 3*** coz kirubi controlled otherwise the firm profits are steadily on the way up.
Jubilee Insurance - 5*****. Conservative which is what an insurance firm should be! Aga Khan managed.
KCB - 3.5*** coz of possible government influence. I think Terry Davidson has done a great job but the best is yet to come. Will upgrade to 4**** if the government reduces its stake to less than 10%. Govt appoints CEO. I like their growth initiatives into Sudan, TZ & UG in near future.
NBK - 2** coz of government influence through the board & NSSF. The bank is also "insolvent" without the generous assistance of the NSSF.
NIC Bank - 3*** but almost a 4****. If the ndegwas relinquish substantial control & provide an independent board. The bank is miles ahead of its competition in the range & quality of services.
Pan Africa Insurance - 3***. Sanlam managed. Possible upgrade.
SCBK - 5*****. No complaints about the big banks coz they are solid firms with great earnings & dividends.

Athi River - 3***. Paunrana family control but Bamburi has board seat & influence. Entrepreneurial firm.
BOC - 4****. Well managed. BOC (soon to be Linde controlled). Profit growth is a constant!
Bamburi - 5*****. Great management. Low key but very profitable firm.
BAT - 5**** in how they handled Ngilu's arbitary but political "smoking ban" by tackling it through court & the media. Smoking & profits are back, baby! Kenya is an export hub.
Carbacid -
Crown Berger -
EA Cables -
EA Portland Cement - 1* - Ole Mapeyu & 5 senior managers resigned in the face of governmental interference. Hats off to them!
EA Breweries - 5*****. Great, smart management. Guiness controlled thus lots of experienced management depth all over the world.
Kenol -3***. Biwott controlled (75%) but professional management that has expanded the firm regionally.
KPLC -2**. The 2 stars are solely on the basis of new managers from Manitoba who are World Bank funded so not directly influenced by local politics. Needs time to upgrade.
KenGen - 2**. Will do well coz its a monopoly but not necessarily well managed. Electricity in Kenya is very expensive & visionary management would lower the cost while boosting supply. Excessive government control through is 70% ownership.
Mumias - 4****. Great show by management but government influence in Mumias is worrisome.
Olympia -
Sameer - Merali controlled.
Total - 3***. Well, they are Francais.
Unga -

A. Baumann -
City Trust -
Eaagads - 2**. Controlled by Socfinaf. Very little info available.
Express -
Williamson Tea -3***. Well managed but stingy with dividends. Its problems emanate from the nature of agriculture i.e. dependent on weather & international tea prices.
Kapchorua -3***. Williamson Tea controlled.
Kenya Orchards - This is a NEGATIVE in my book! Why haven't they been suspended from listing?
Limuru Tea - 5*****. Unilever Tea controlled.
Standard Group - 2**. Almost 3*** but their ownership is politically biased. SGL gained respect with their bold handling of (anti) government issues which led to the raid on their offices. The quality of their business reporting sucks!

Friday, July 28, 2006

Olympia Capital Holdings Ltd (OCH) releases 1H 2006 Results

The Interim 1H 2006 results were released in record time (within 30 days of the end of the Half Year) at the 2005 AGM held at Nairobi Club on July 28 2006.

The shares have been trading around the 16/- mark for the past few months.

OCH is a Holding Company & owns/controls the following:
  • 100% of Dunlop Industries Ltd (DIL) which is a Kenya based manufacturer of PVC tiles & rubber solutions.
  • 53% of Olympia Capital Corporation (OCC) which in turn owns 100% of Kalahari Floor Tiles (KFT) a Botswana based manufacturer of PVC tiles & rubber solutions. KFT also supplies the S.African market. KFT has a chemical division acquired in 2006 that manufactures & distributes industrial cleaning solutions.
Other Info:
  • Chairman - Chris Obura
  • CEO - Michael Matu
  • 10 Million Shares in issue
  • OCC is listed on the Botswana Stock Exchange
  • DIL is the sole PVC tile manufacturer in the East African region
My comments in BLUE.

The growth in profits was limited to Kenya but generally Botswana provides the bulk of the profits.

The info is for 1H 2006 vs 1H 2005

Turnover: +9%
PBT: -1%
PAT attributable to OCH: +41% (primarily due to lower "minority interest charge")
EPS: +41%

The 1H EPS is almost the same as the entire 2005 (1.13 vs 1.14) therefore OCH can do much better in 2006 vs 2005 if they maintain the current "streak".

CEO's Commentary (per the Announcement):

During the six months under review, we did not see a significant improvement in the group profitability before tax. The key difference in the results was an improvement in the Kenyan operations where we own 100% of the equity versus a decline in the results of the Botswana operation where we own 53% of the equity.

Prior to any acquisition we expect the second half of the year to be similar to the first half.

Our Botswana subsidiary is in the final stages of making a significant acquisition in South Africa. This acquisition, if successful, will have a significant effect on the profitability of the company. We will make every effort to meet our equity funding requirements to retain majority shareholding in the subsidiary during the acquisition. We expect this acquisition to be complete during the second half of the year.

Michael Matu

The South African Acquisiton:

  • The cost of the acquistion?
  • Will it be accretive to earnings in 2006?
  • Ownership structure?
  • How much will OCC need to to acquire the SA firm?
  • OCC plans to raise the funds by acquiring debt & raising equity i.e. Rights Issue
Since OCH intends to maintain its "control" in OCC & replace the aging Kenya DIL plant (2005 Annual Report), it will need to raise funds to fulfill both needs.


OCHL's 2005 AR states that "Our aim will be to meet our rights to ensure we maintain majority shareholding in our Botswana listed subsidiary" thus raising the bar to meet funding for the DIL plant & OCC Rights. The new plant is expected to increase DIL's profitablilty.

Monday, July 24, 2006

Machines or Not? Storm in a teacup?

The numbers thrown back & forth make little sense since there is no accurate count of workers who depend on tea plucking.

Plucking tea is one of the lowest paid jobs in the formal sector but very important to the rural masses in the Central & Rift Valley regions.

COTU (thru Atwoli) has been bandying around that the introduction of te-harvesting machines could lead to a loss of 200,000 jobs!

KTGA contends they only employ 68,000 workers!

I think Atwoli is full of it but the hyperbole plays well.

What Kenyans need to reliase is that the Growers are in it for the money & the workers though low paid have great facilities (relative to the peasant tea farmer) since the "consumer watchdogs" keep an eye on the plantations.

Furthermore, Tea is no longer the beverage of choice for many. I see more Kenyans drinking sodas, caffeinated drinks & water than tea! Thus the market for tea is NOT expanding but worldwide production is soaring thus depressing the world market.

Kenyan tea is renowned for its "colour" but there are various grades of tea. Tea sold in most Western countries is blended. Unless Kenya creates a "name" e.g. Colombian Coffee, there is no point in having pricey tea that can't be sold at a premium.

James Finlay has ventured into the Green Tea market & if it can't produce quality Green Tea, it can't compete. It needs the tea harvesteing machines to ensure "freshness". This is a NEW product for Kenya.

Other countries will introduce the machines & Kenyan tea will be priced out. There will be a lot more jobs lost!

EABL had to shape up & is very efficient & growing its market.
KQ fired lots of inept employees but is now hiring while it grows exponentially.

Let the Tea Companies do their thing! I hope they can get into growth mode & provide BETTER jobs for the populace.

Sunday, July 16, 2006

Uchumi Reopens but will it be re-listed?

Uchumi will have a tough time getting re-listed UNLESS the CMA bends the rules & regulations.

Nevertheless, the CMA can redeem its image by thinking out of the box by allowing Uchumi on the NSE as an AIMS (Alternative Investment Market) listing but WARNING to ALL that there are risks involved & the exceptional circumstances for the re-listing.

For the relisting, either Uchumi will have to either come out of receivership OR the shares will trade even though it remains under receivership. In the latter, the ordinary shareholders will have no say (i.e. voting rights) since the receiver has the "control".

It is not a crime to be STUPID so those who buy into Uchumi should be made aware of the risks.

Uchumi might become another NBK story i.e. just as NBK will take at least another 2 years to pay dividends (unless the government "rescues" it), Uchumi will be in the same spot. It will be a slow but necessary part of Uchumi becoming a firm capable of moving to the Main Board of the NSE.

Good news: Uchumi will not have to pay income taxes on its profits for many years & that means it gets to keep more of the cash! Nakumatt will be forced to pay income taxes considering it is profitable & under greater scrutiny. A strategic investor could shield profits by doing a Reverse takeover.

Ironically, Nakumatt will probably list in 2009 which is in line with the earliest Uchumi will be profitable. I wonder which will cause more excitement in the market?

A better option is to start shopping Uchumi to the highest bidder asap i.e. while in receivership, it is easier to negotiate the sale of a huge chunk to a strategic investor.... that could be Sameer, local outfit like Tesco (which had franchised some stores but not in kituyi's good books), foreign chain...

This would re-energize the brand while providing a "real" lifeline that puts real cash behind the name thus ensuring suppliers will fully be on board. Other "large" suppliers including Mumias, EABL, Unilever, Bidco, etc should be allowed to take up either preference shares or ordinary shares to lend the "cash" support OR convert debt into equity.

Yes, I am recommending a recapitalisation via another RIGHTS issue but restricted to corporates to keep costs low but raise the maximum asap. They could be issued a different class of shares that have preference over current shares thus encouraging the investment.

Uchumi should be allowed to float Commercial Paper esp to pay its suppliers. The suppliers earn interest while Uchumi buys time with increased cash flow. The government should do its part accept Uchumi's CP in lieu of taxes for 2 years!

Without the tough BOLD moves, Uchumi will die a slow death again...

Wednesday, July 12, 2006

ScanGroup IPO - July 2006

ScanGroup has posted the prospectus online on July 12 which is 5 days ahead of schedule.

Salient Points - My observations (read at your own risk & do your own research!) in Blue:
  • KShs 10.45 per share. Priced to sell i.e. the price will attract many investors like the "cheap" shares solely on account of price & not fundamentals!
  • 9 Million "new" shares will be sold to raise KShs 74 Million for ScanGroup. These funds will go to reduce debt, increase working capital & for acquisitions.
  • 60 Million shares will be sold by the "Vendor" (Bharat Thakrar - CEO & founder) for KShs 584 Million. He is cashing out a good chunk of his shares. Plus he will still own an additional 45 Million shares after the IPO thus effectively he is a Billionaire! Our first (public) media BILLIONAIRE! Not a bad deal... This listing will open the eyes & doors for other private businesses to go public as a way to cash out.
  • NAV of KShs 1.58 (Price = 6.61 x NAV) High ratio for listed Kenyan firms & there will be little left for ordinary shareholders if ScanGroup goes under! Nevertheless, in this business it is the earnings/creative talent that counts. How do you value creativity & ideas?
  • EPS 2005 = 0.96 thus P/E of 10.88 Not cheap but in line with many other listed firms on the NSE. Was it "boosted" for the IPO?
  • EPS 2006 (estimate) = 1.05 thus P/E of 9.95 Not cheap but in line with many other listed firms on the NSE. An estimate is just that... an estimate!
  • AJL White (Creative Director) is not selling his shares but has "contributed" 3 Million to Bora Services (an ESOP-like structure). The shares will vest after 5 years for the benefit of Key Management. Hopefully, this will keep the Key management on board for at least 5 years. Thakrar contributed 12 Million shares towards Bora. Venkataraman contributed 3 Million shares to Bora - though he is sole beneficiary in 5 years.
  • High dividend payout since this is not a capital intensive business. A bad year can mean reduced dividends thus the shares could be volatile.
  • Management team is relatively young. Bodes well or new ideas but ScanGroup will experience poaching by other firms (thus the Bora incentive!)
  • Most MDs & GMs of the subsidiaries are not Kenyan e.g. A.J.L White, S. Ambegaonkar, S. Venkataraman, M. Shah, S. Sundaram, P. Sham, etc. Why aren't there more Kenyans? Anyway, the incentive to stay on in Kenya is not as strong for expats as for Kenyan managers thus reduces the expats' loyalty to ScanGroup.
  • Executive compensation (2005: KShs 25 Million) will increase substantially as the management feels they were underpaid as "owners". How much more? This also disincentivises management since lower profits does not necessarily reduce their income.
  • Shares in the IPO: 5% reserved for employees, 45% reserved for corporate buyers & 50% for individual investors. I would have preferred all investors (corporate & individual) be treated as equals thus "spreading" the wealth. To reduce costs for ScanGroup & BT the minimum application should have been for a minimum of 1,000 shares.
  • Promoters (Thakrar & White) will not be able to sell (except with "permission" from the Company (ScanGroup) any shares for 3 years. Even then only 25% of their shares. They can dispose of all their shares after 5 years. Note that BT+AJLW control ScanGroup so it might be "easy" to get permission from themselves!
  • Key Management has incentive for prices to rise in the long-term since the value is locked in the shares' value in 5 years. Basically the higher the price in 5 years the more the Management makes! This is a HUGE incentive for the longer-term. But we do not have access to the documents thus they may be clauses that allow opt-outs.
  • The economy is geared for growth for the next 2 years leading up to the elections. Whereas there are always chances of pre-election violence, I don't think Kenya will see it on a large-scale. Spending on ads will increase as we see American-style electioneering e.g. DSTV carried Raila's ads. The savviest firms will be used by all politicians to make themselves look good. The ads will cut across all mediums!
  • Increased viewership on TV means slicker ads thus increased profits. The big guns can afford the fancy equipment for these ads. BTW, the smaller shops will become very competitive with falling technology prices & greater computing power. This is a very real threat to the "Production" department of ScanGroup.
  • Regional expansion esp by multi-nationals who prefers one firm doing all the PR & marketing instead of finding new partners in each market/country. Potential is huge for ScanGroup as incomes rise in the greater E.African region e.g. Uganda, Rwanda, Congo, etc.
  • The salaries are going to be pretty high (i.e. direct costs will increase regardless of profitability). The promoters have taken a pay rise but the new salaries are not revealed in the prospectus.
  • Section 6.4 (ii) seems to ALLOW for INDSIDER TRADING! I would appreciate someone reading the section & providing their interpretation!

Buy - at least for the short-term since there is a dearth of IPOs. Expect lots of speculation but support from the underwriters.

Friday, July 07, 2006

Uchumi Supermarkets Limited (in Receivership) appoints new MD

The ball has started rolling on Uchumi's re-opening on Friday July 14 2006.

I hope that the government & parliament has learnt the need for "Restructuring" rather than Receivership & will update the Company's Act to ensure that businesses need not shut down just because they run into financial turbulence.

Back to the new MD...

Who is this Jonathan Ciano?
  • was the Manager - Strategy & Restructuring at KPLC
What are his qualifications?
Does he have any experience in the retail sector?
Which firms has he restructured?
How are they doing after the restructuring?
Does he have any experience in FMCG?
Has he ever been a CEO?
What did he accomplish at KPLC?

Bottomline: Does he have what it takes to run Uchumi?

I expected the stakeholders (or whoever picked the MD) to have picked a seasoned retail executive like Titus Mugo (ex-USL MD) or Ajay/Vijay Shah (ex-Nakumatt MD) but I hope they have the right man for the job! After all the government (aka the tax payers) has KShs 600 Million at stake! Unfortunately, MPs don't count as taxpayers so they have little to lose!

I wonder if the major stakeholders had input into Ciano's selection coz Uchumi needs a hardworking, honest & selfless individual to regain lost marketshare. The MD should be able to get into the trenches just like Suresh Shah did in Uchumi's heydays since that is the best venue for genuine feedback from customers, employees & suppliers.

I hope Kenyans (esp customers & suppliers) support Uchumi when it reopens & in the critical months ahead otherwise the bailout will all be to naught! Kenyans' words are often louder than actions! Many Kenyans lamented Uchumi's demise while they shopped everywhere else BUT Uchumi!

Kenyans should take pride in shopping at Uchumi which has traditionally supported Kenyan suppliers & manufacturers.

I am curious.... where does kituyi shop after his rant against Nakumatt?

Finally, I wish Ciano the best!