Friday, July 20, 2012

ARM vs KQ - Performance & CEO's ownership

Pradeep Paunrana, the CEO of Athi River Cement, is a substantial shareholder of ARM.
March 2009 ARM was trading at 60/-. July 2012 the price of the shares 198/-.
Pradeep has raised funds to expand the firm's operations without diluting the shareholders' value.













Titus Naikuni, the CEO of Kenya Airways, has ZERO shares in KQ. His compensation is probably in the region of KES 30-40mn annually [based on the info on the Annual Report under Executive Directors' compensation].
March 2009 KQ was trading at 18/-. July 2012 the price is 14/-.
The under-performing Board raised funds by diluting existing shareholders through a huge (16:5) Rights Issue that required exemptions from the CMA to be considered successful.














Comparing the two on the same graph. ARM in red. KQ in blue.





7 comments:

Guru said...

My friend u jst picking on Tito 4 nothng..its quite obvious dat after every right issue the ex-ryt price goes down..the sharehold cn exercise his/her ryt,sell or ignore bt ignorance brings dilution in wealth..infact KQ's core business is affected by fuel,a factor beyond mngt cntrl..&plis its misleading 2 compare KQ and ARM since they' r in diff mkt segment.concerning Esop pradeep share in arm ws entirely inheritance<18% slice frm amanat invstmnt>infct personally i thnk theres no direct corelation btw mngmt share &co. Perfomance.its jst a myth.infact it gives precedent 2 conflict of interest by mngt using privilledged info 2 influence s/price 4 their gd..eg uchumi.all in all tito naikuni hs steered KQ 2 profitability..+ succesful rights issue.kQ is undervalued..& is a longterm stock..wait till they get their boeing 787 dreamliner delivered&they create new destination& voila tito will no longer be the vilain u claim he is.

Kauka said...

Guru don't make me smack you!

You must be a Tito apologist. It doesn't matter that Pradeep inherited his shares from Amanat. Infact one can say from the first day the company was started he had direct ownership as long as ARM and amanat existed. What is the import of this post is that he has contributed immensely to growing this business from a tiny limestone business to the jaggernut it is in the cement industry. I am sure a graduate of Stern Business school he would easily have walked to Wall street and made himself a fortune by now but he chose to come home and build a small family business- We can only marvel at his entrepreneurial mind and ability. Infact we need to celebrate him as a great business man from within here.

Tito on the other hand has presided over massive value destruction during his stay at KQ. When he joined he was handed a reformed and refocussed company by Brian presbury together with a script from McKinsey consulting. His work was easy and therefore success was inevitable. However when the script ran out he also ran out of ideas it would see.

I refuse to buy that nonsense of oil. Tito passes all his oil costs comfortably to customers who have continued to pay for even the inefficiencies in that business. It's not the price of oil that keeps delivering displaced travelers in droves to Panari and Ole Sereni hotels is it?? And there is nothing wrong with the CEO topping up his holdings as long as the company is growing and in any case trading by directors or their directors is closely monitored by CMA.

If KQ can't get it with the current business set up you can be sure dream liners won't change anything, they will probably make it worse. I keep getting astonished by this new destinations propaganda. My simplistic argument is if the new destinations promise more money and better fortunes shouldn't KQ start flying there now with the current planes as opposed to where they fly to currently and make the cash and when dream liners do come they can use them for the current destinations which it would follow make less money!

This new destination story is warped thinking from where I sit and it's not KQ's only problem. If I was an investor in KQ, I would go short on KQ stock and long on a 3-4 star large hotel along Mombasa road when the first dreamliner comes on stream.

There is nothing called a long term stock - That is the myth! company performance and share price go toe to toe, they are not a myth. People buy shares for the returns they offer i.e dividends and price appreciation they offer. prices will go up if investors perceive the company will make more money faster which they will hope to acccess as dividends. If your profits keep bouncing like tennis balls well investors can't tell whether the ball is on its way up or down.

Unknown said...

Going KQ short is a non-brainer.
How I wish Lornho chose the IPO path while seeking to recapitalize FLY540 ?
The FLY40's , Jetset etc are the real aviation growth stocks in this part of the world.
Why Tito wouldn't think of acquiring one and running it as a seperate entity that adopts a more point to point flight model rather than a hub & spoke , I have no idea.
The previous model that KQ so much rode on of interconnecting Africa cities is coming under attack by these upstarts as African countries that ran down their National carriers revive them through PPP's or outright state funding.

coldtusker said...

Price of KQ shares on 31st dec 2012 are about 11/- and the decline continues. Subsequent to the Rights Issue, KQ announced a PBT loss of KES 6bn, the highest ever by a firm on the NSE.

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Anonymous said...

Even warren buffet advices against airlines. Spare Tito