Blog Archive

Friday, June 12, 2009

Kenya's winners after the tough times

Just a quick overview

Equity Bank - Acquisitions + Organic growth will propel it to the #2 Kenyan bank by 2012. Plenty of cash for NBK and/or HFCK acquisitions.

KCB Bank - Organic regional growth but need to raise cash in 2010. Huge bet on housing in E. Africa will propel lending.

EABL - The classic tortoise expansion strategy into regional markets. Dominates Kenya but strong challenger (SABMiller) elsewhere but Tanzania is no-go for EABL. Ethiopia is the Holy Grail for EABL.
Cash is a-plenty plus Diageo is always there if needed.

KQ - Huge hedging 'paper' loss in 2008-9 which will translate 'cash' loss of cash by Dec 2010 but KQ generates plenty cash from operations. Cash-flow + cash hoard ($100 million)allows for route & fleet expansion. Dominates many African markets but Ethiopian Airlines is tough African rival. Other competitors expanding but Africa is littered with dead airlines.

KenolKobil - Expansion is afoot & the cash is available. Borrowings mostly short-term to finance inventory. Kenya is the largest & toughest market but KK hints acquisitions in Central & Southern Africa. Smart, lean, responsive & voracious management.

AccessKenya - Huge capex in laying cable in Nairobi. Other metros will follow. Push for SoHo customers. Remains a juicy acquisition target. I expect Access to enter Tanzania & Uganda after SEACOM goes live in 4Q 2009.


MainaT said...

CT- good post and welcome back. I think you've picked all the winners though I'm not so sure about EABL whose growth is limited by the ownership structure.

Athi River is another, though it must urgently sort out its issues with the big gorilla. My preference would be for it to force Bamboon to list the 14% in the NSE.

coldtusker said...

MainaT: I disagree with your views on EABL coz it has a better chance at growth within Africa (Central + East) coz they are the flagship firm in the region. Ethiopia is enough to chew on if EABL can get in.

Tanzania Breweries (SABMiller) is restricted to Tanzania. EABL can't enter the market coz of 20% ownership of TBL & the 'non-compete' agreement.

It would be WRONG to force Bamburi to list the 14%. Bamburi should make the choice/decision.

MainaT said...

Possibly on EABL, but I don't see it. Maybe it might work well in EABL but elsewhere I think those non-compete agreements are in place.

On Bamburi-watch this space my friend. The relationship doesn't and can't work. Whatever happened in 1990s happened. This is 2009 and things are different. ARM has many ways of skinning Bam and it'll within the next 18 months. You see the way Carbacid is going to move now?

coldtusker said...

For Kenyan shareholders of EABL, Diageo is a better majority shareholder. SABMiller would have locked EABL into KBL i.e. Kenya only. Tanzania Breweries can't expand into any other market.

Diageo has/will allow EABL's expansion into the East & Central African region. As I said earlier, Ethiopia can keep EABL busy for the next 5 years. 80mn people, mainly Christian and no 'private' brewery.

coldtusker said...

On Bamburi... I am sure Bamburi can bail out (14% will be snapped up by a few funds) but it is the 'forcing' them that I am against.

Selling its 14% should be Bamburi's decision (not ARM or GoK or other shareholders). The same issue at EAPCC. Bamburi invested in EAPCC (&ARM) when everyone else stood on the sidelines.

MainaT said...

I missed out Ethiopia in my response on EABL. Kenyan firms are weirdly avoiding Ethiopia. Like you said, its has 80mn peeps who must surely want some of these goods/services we Kenyans consume.
On ARM,whether its force or Machiavellian tricks, I think ARM will use them to get rid of Bamburi. Its ARM's main rival in East Africa and I think ARM is more aggressive. It doesn't even make sense for Bamburi to be a shareholder apart from enjoying capital/dividend gains...

coldtusker said...

Ethiopia is tough to do business in coz of the socialist past/attitudes. Ask Kenol-Kobil...

(Tanzania has the same hiccups esp for Kenyan firms e.g. Kenya Breweries, Nation Media, etc)

BTW, Sarova's CEO died in Ethiopia on the way to the airport back to Nairobi... Well, no Stanley in Ethiopia yet.


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