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Wednesday, March 09, 2011

A Random Walk on Kimathi Street

Wow! What a year so far... [Say it like Jeff Koinange: Whaaat a year... Whaaat a ride... We have seem NOTHING like it... Only on this blog. Only from COOOOLDTUSKER...]

I enjoy Financial Analysis [I crunch numbers for a living] but I need to brush up on my 'psychology' knowledge. I trust my number crunching skills are [immodestly] better than most but not Behavioral Psychology! [I completely misjudged the aftermath - or mood of folks - of 2007 elections]

2010 was a decent (economic) year for Kenya which also translated into a decent year for many Kenyan firms.
2011 is proving to be tougher, just 3 months in, with the myriad problems facing Kenya. Let's see:
- Politics. As Kenyans we can ignore politicians. The problem is the MPigs & cronies control the purse strings. Most Kenyan politicians are unethical, corrupt & shameless. Period.
- The constant & annoying political wars! kibaki-raila; PNU-ODM; KKK-'others'; you name it, we have go it... These 'wars' affect Kenyans' psyche as well as portray Kenyans as savages to investors... Before anyone gets on his high horse just reflect back to 2008...
- Revolutions in [oil-rich] Africa. Protests in [oil-rich] Middle East. Kenya as a net oil importers pays 25%+ more vs 1Q 2010.
- Drought. Well, this is a problem not necessarily the making of Kenya's inept & corrupt government or the feckless voters who elect the same or similar turds over & over. Nevertheless, we have failed to reclaim the Mau or other water catchment areas...

I will not include the scams. The latest is the NOCK scam. More on that in a post later on.

Anyway, all said & done, I do not expect an Annus Horribilis for most firms... A tough year? Yes. Disaster? No.

Yet the prices of many listed firms has dropped to crazy levels. Great for investors with resolve, cashflow & a thick skin...

KenolKobil [FY 2010 was 1 Jan - 31 Dec] Price: 9.70
Kenya's oil industry is loaded with scams [The latest is the 100% GoK owned NOCK scam] but KK is a tough cookie. They fought both KPRL & KPC [who had the support of the perenially inept or corrupt Ministry of Energy] though I would not say it was an unequivocal win.

The 1H was quite good with strong support from the subsidiaries but the Kenya profits will suffer in 2H because of the KPC & KPRL fight nevertheless I expect a decent 2H.

Price: 9.70
EPS 2010 (Est): 1.15
EPS 2011 (Forecast): 1.25
PER 2011: 8
P/B: 1.2

KQ [FY 2010-11 is 1 Apr - 31 Mar] Price: 35
It is going to be tough for KQ in 2011. In 2008, tourists disappeared. In 2009, the high oil prices hit KQ as well as the Global Financial Crisis. In 2010, it was rebuilding but the delayed 787s hurt KQ. In 2011, KQ have problems with lack of sufficient aircraft, pathetic Nairobi Airport, high fuel prices, lousy politics... Sounds bad? Sure, except most of the doom & gloom has been priced in already! And then some...

KQ continues expanding into [profitable] Africa including N'djamena & Ouagadougou. Jeddah also on the list for 2011. 2012 & beyond includes Kuala Lumpur & Sao Paolo. All these are trade destinations not just (volatile) touristy destinations.

The weak KES does [sorta] help KQ since 90% of the revenues are in hard currencies [primarily US$] which outweighs the forex expenses. For now.

Price: 35
EPS 2010 (Est): 4 [There is much more to EPS after taking into account various hedges]
EPS 2011 (Forecast): No idea!
PER 2010: 8.5
P/B: 0.81

Williamson [FY 2010-11 is 1 Apr - 31 Mar] Price: 180
It is a mixed bag for Williamson Tea. Tea prices are at high [vs 5-yr averages] but the drought will negatively affect 2011 production unless it rains. Seems India & sri Lanka are also facing supply problems. I doubt the prices will rise much more but increased production would help.

Price: 180
EPS 2010 (Est): 80 [includes non-cash profits of 40]
EPS 2011 (Forecast): No idea!
PER 2010: 2.5 [4.5 cash]
P/B: 0.4

The above is just basic information & folks need to dig much deeper!
For a long, unleveraged investor I see very little downside [expect for a repeat of 2008] for the above [& other] stocks at these prices.


Anonymous said...

KK is likely to roast us.

Anonymous said...

Interesting take on the prospects of the year. Particularly re: kq. Any thoughts on how banks (Barclays particularly, given their recent UK profits, and ridiculous boss bonuses), and telecommunication companies (AccessK and Safcom) are likely to fair?!

Saldanha said...

Now, here I am! Lets just say that you did do your homework! Tho' I would have toasted you if you had the forecast numbers!! Another thing, well the numbers were, how do I put it, garnished well with requisite info!

OtienoHongo said...

Re: Drought - I think there is a big role for govt and people to play in planning for this as we know that this is coming almost every year. I would therefore not exonerate this class -- the noise spent on politicking could be used on discussing how we could be better prepared to deal with it.

coldtusker said...

Anon 5:24 - Barclays Kenya is an independent entity from BBK. BBK's growth is limited to Kenya which will not grow much in 2011.

AccessKenya is a lame duck. The core business is under assault from other ISPs + Safaricom. I am not interested except at a much lower price where it may be acquired for its metro cable.

Safaricom faces revenue & profit pressures from Airtel & Orange. It will be bruising for all parties. I like Safaricom but at much lower prices.

@otieno - GoK is a lost cause. Too much infighting at our expense.

@saldana - asante

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