Stock splits aren't all they are hyped up to be especially for the smart money.
Warren Buffet has NEVER split the shares of his Holding Company - Berkshire Hathaway "A" shares were trading at over $107,000 as of 10 Nov 2006.
Regardless of the all the smokescreens about the real value of a split, the Kenyan retail investor seemingly loves bonuses & splits!
There seems to be a pattern of share prices rising in anticipation of a split. The price hits a new high & the company splits the shares to make them more affordable!
All that has happened is that some folks who owned the shares BEFORE the rally increase the value of their paper holdings.
The really smart ones cash out...
Friday, November 10, 2006
Thursday, November 09, 2006
Banks' profits rise 3Q 2006 vs 3Q 2005
So far most banks are reporting greatly increased profits over the same period in 2005. This could be attributed to larger deposits that Banks have been able to garner.
Barclays (+44%) profit announcement, and subsequent share bonus & split, has boosted the share price to over 600/- on 9 Nov 2006.
KCB & SCBK profits & share prices are at record levels even though they did not announce a bonus or split.
Even laggards like NBK have shown a modest but commendable growth in profitability.
It seems the banks have a better handle on bad debts especially KCB & NBK which suffered from poor loan quality due to political lending.
Bankelele normally does a summary of Banks' profits. Since all banks are required by law to publish quarterly results within 60 days, we can expect other banks to report within the next 3 weeks.
I expect most private & listed banks to continue reporting good profits through 3Q 2006. The elections are in 2007 & it will be an interesting time for banks to competitively grow their asset base.
Competition is heating up for banks as more banks (notably Barclays) targets the "underbanked" population. This puts the larger banks (BBK & KCB) in direct competition with Equity Bank & Family Finance.
Furthmore, there are numerous smaller credit firms that will bear the brunt of the big boys as competition intensifies.
I think the increased competition will benefit Kenyans in the next few years as there will be:
Barclays (+44%) profit announcement, and subsequent share bonus & split, has boosted the share price to over 600/- on 9 Nov 2006.
KCB & SCBK profits & share prices are at record levels even though they did not announce a bonus or split.
Even laggards like NBK have shown a modest but commendable growth in profitability.
It seems the banks have a better handle on bad debts especially KCB & NBK which suffered from poor loan quality due to political lending.
Bankelele normally does a summary of Banks' profits. Since all banks are required by law to publish quarterly results within 60 days, we can expect other banks to report within the next 3 weeks.
I expect most private & listed banks to continue reporting good profits through 3Q 2006. The elections are in 2007 & it will be an interesting time for banks to competitively grow their asset base.
Competition is heating up for banks as more banks (notably Barclays) targets the "underbanked" population. This puts the larger banks (BBK & KCB) in direct competition with Equity Bank & Family Finance.
Furthmore, there are numerous smaller credit firms that will bear the brunt of the big boys as competition intensifies.
I think the increased competition will benefit Kenyans in the next few years as there will be:
- Increased credit availability
- More locations
- Better deposit rates
- Credit availability to a larger part of the population
Wednesday, November 08, 2006
Barclays announces Bonus & Rights
Barclays gave with both hands...
A 1:3 Bonus as well as a 5:1 Split. Expect the share price to JUMP on this news since the profits were also up 44%.
The speculators are going to have a field day but the P/E ratios are out of whack & they can also get worse!
I based my earlier comments on Barclays Botswana's split. Pesa Tu did not agree.
A 1:3 Bonus as well as a 5:1 Split. Expect the share price to JUMP on this news since the profits were also up 44%.
The speculators are going to have a field day but the P/E ratios are out of whack & they can also get worse!
I based my earlier comments on Barclays Botswana's split. Pesa Tu did not agree.
Monday, November 06, 2006
Why the price of Petrol remains high
Instinctively, I blamed the Oil Marketers for the high price of petrol but as I delve deeper I realise they are as much victims as the consumers!
As mentioned in my previous post, IMHO is blowing hot air regarding petrol prices. Finally, an Oil Marketer (Kenol/Kobil) has come out fighting the bullying government, putting the record straight while exposing us to the morass that is tax collection.
The Oil Marketers are arguing that since the government's taxes & levies constitute an increasing percentage (40% at the minimum) of the price of Petrol, the government should reduce its profligate ways.
The link below shows 70% of EABL's revenues go to the government in the form of taxes & levies. The government makes 3.3x what the shareholders get!
Essentially, for 100/- EABL gets from the sale of beer, the goverment gets 70/- without doing much! Not 70% of profits but 70% of REVENUES.... What a scam!
EABL's "distribution" graphic go to Page 29
Oil Marketers are in the same boat. Examples:
Refining crude at the Mombasa refinery is mandatory and oil firms must refine at least 70 per cent of their requirements at the facility, under the Baseoad Rule.Kinyua (Kenol-Kobil), however, pointed that two months ago, Kenya Petroleum Refineries Ltd increased its basic refining fee for crude oil processing from $1.75 to $2.15 per barrel, an increase of 22 per cent.
As mentioned in my previous post, IMHO is blowing hot air regarding petrol prices. Finally, an Oil Marketer (Kenol/Kobil) has come out fighting the bullying government, putting the record straight while exposing us to the morass that is tax collection.
The Oil Marketers are arguing that since the government's taxes & levies constitute an increasing percentage (40% at the minimum) of the price of Petrol, the government should reduce its profligate ways.
The link below shows 70% of EABL's revenues go to the government in the form of taxes & levies. The government makes 3.3x what the shareholders get!
Essentially, for 100/- EABL gets from the sale of beer, the goverment gets 70/- without doing much! Not 70% of profits but 70% of REVENUES.... What a scam!
EABL's "distribution" graphic go to Page 29Oil Marketers are in the same boat. Examples:
Refining crude at the Mombasa refinery is mandatory and oil firms must refine at least 70 per cent of their requirements at the facility, under the Baseoad Rule.Kinyua (Kenol-Kobil), however, pointed that two months ago, Kenya Petroleum Refineries Ltd increased its basic refining fee for crude oil processing from $1.75 to $2.15 per barrel, an increase of 22 per cent.
Kimunya (govt stooge) never mentions that the inefficient KPRL gets more for doing less while we (taxpayers) end up footing the bill.
How & why is KPRL allowed to charge more for refining?
Isn't this a subsidy for an inefficient refiner?
Why should taxpayers have to pay for it?
Who owns KPRL?
Isn't this monopolistic behaviour?
He said the adjustment followed an earlier increase last year by Kenya Pipeline Company (KPC) for its charges at the Kipevu Oil Storage Facility from $2 to $3 per cubic metre.
A subsidy for a government owned entity that is mired in scandal. The KACC wants to confiscate the MD's passport.
They now "own" a KES 1 Billion building instead of investing in upgrading the pipeline! Wrong priorities!
The road leading to the Fuel Depot in Nairobi is pathetic (& leads to dangerous situations) but they spend KES 1 Billion on an office building!
BTW, isn't this monopolistic behaviour?
What remedies do we have to reduce the costs inmposed on us as consumers?
Collection of taxes upfront since August last year and delayed tax refunds, he pointed out, had increased the cost of doing business.
So Oil Marketers (via the consumers) further subsidise the government! No wonder the government collection targets are so rosy since they do not refund the money!
Why should consumers have to pay for the excesses (bonuses, perks, outsized salaries, cars of the MPs & ministers?
Why do ministers who STEAL by overinflating their mileage allowances get to go scot-free?
If I file my taxes late, I am penalised but is it OK if the government REFUSES to refund my money?
City Trust hit KES 500 (6 Nov 2006)
I don't know if this is a joke, an error or the real deal but the NSE pricelist had the following for City Trust (listed under AIMS)...
There was a dividend of KES 3.10 announced.
Does anyone have any idea what is going on?
Does anyone have access to City Trust's results?
- Low Price for the day = 120/-
- High Price for the day = 500/-
- Avg Price for the day = 407/-
- Shares traded = 2,600
- Previous Price = 91.50
There was a dividend of KES 3.10 announced.
Does anyone have any idea what is going on?
Does anyone have access to City Trust's results?
Wednesday, November 01, 2006
Rant - Where is the 1 Nov 2006 NSE price list?
As of 9PM on 1 Nov 2006, I have not received (via e-mail) or been able to download the pricelist.
When I tried to download the pricelist from NSE's website I got the following error message!
Has anyone received the price list?
HELP...
When I tried to download the pricelist from NSE's website I got the following error message!
Has anyone received the price list?
HELP...
Tuesday, October 31, 2006
Eveready EA to go public - Offer for Sale
Why would Eveready NOT have a functioning website?
Someone tell Eveready that it makes sense to post info on the company so potential investors can view it?
Or do Kenyan investors not care about information?
At 9.50, I see cucus lining up to buy shares! The minimum applications are:
This is a small issue (KES 600 Million) for Kenya's current bull market thus there is a strong likelihood of an oversubscription going by ScanGroup's IPO.
Opens on Nov 13 - 24
Read the PROSPECTUS...
Someone tell Eveready that it makes sense to post info on the company so potential investors can view it?
Or do Kenyan investors not care about information?
At 9.50, I see cucus lining up to buy shares! The minimum applications are:
- Retail (65% of Offer) 1,000 shares = 9,500/-
- Corporate (30% of Offer) 10,000 shares = 95,000/-
This is a small issue (KES 600 Million) for Kenya's current bull market thus there is a strong likelihood of an oversubscription going by ScanGroup's IPO.
Opens on Nov 13 - 24
Read the PROSPECTUS...
Monday, October 30, 2006
Oil Majors getting a BUM rap - Its politics not economics!
The Oil Industry in Kenya has had enough BS from the Government. They have started fighting back but still act as wimps.
The Government is successfulyy scoring populist points with the voters by acting tough on Oil Marketers.
The Oil Majors contend they get a maximum of 10% as their margins but this includes all operating costs e.g. salaries, depreciation, maintenance, rent , etc.
Apparently the "cost" of oil is relatively low but the following adds to the cost of petrol.
The "gross profit" is KES 3-8 per litre. From this the oil marketers have to pay salaries, rent, maintenance, utilities, etc from that slim profit margin. Safaricom's gross margins are a hefty 50%! Why? Its a duopoly that government turns a blind eye to!
The additional 45/- is skimmed off by the government through taxes, no payments of interest on late refunds, KPRL & KPC's inefficiency. The law does not allow Oil Marketers to sue for timely payment of refunds!
Why aren't NOCK stations selling petrol at larger discounts than the Oil Majors?
I think the Oil Marketers in Kenya are wimps. They need to take the government head on and ask:
The Government is successfulyy scoring populist points with the voters by acting tough on Oil Marketers.
The Oil Majors contend they get a maximum of 10% as their margins but this includes all operating costs e.g. salaries, depreciation, maintenance, rent , etc.
Apparently the "cost" of oil is relatively low but the following adds to the cost of petrol.
- Import Duties (bulk of the added cost)
- VAT
- Fuel/Road Levy (3/- per litre)
- 3/- additional cost of local refining vs importing White Oils - Petrol, Jet Fuel - directly
- Losses through forced local refining (inefficient process thus 15% lower production of White Oils). Black Oils (Fuel Oil) have a lower sale value
- Interest costs on late refunds (Kenol & Total borrow at least 11% while they receive 0% on the late refunds)
- Higher transport costs to Nairobi & Western Kenya - using lorries - since KPC spent KES 1 Billion building a HQ instead of upgrading the pipeline! The cost-benefit from an upgraded pipeline far outweighs savings on rent!
- Demurrage costs as KPC favours certain players when the ullage (storage) is allocated
- Pathetic roads means transporters charge "extra" which is then reflected in the price
- The petrol stations sell petrol at break-even prices while using their convenience stores, garages & restaurants as the profit centers
- Licenses, municipal taxes & administrative costs
- Forced imports through OTS i.e. all importers have to buy from the same vendor
- NEMA certification
The "gross profit" is KES 3-8 per litre. From this the oil marketers have to pay salaries, rent, maintenance, utilities, etc from that slim profit margin. Safaricom's gross margins are a hefty 50%! Why? Its a duopoly that government turns a blind eye to!
The additional 45/- is skimmed off by the government through taxes, no payments of interest on late refunds, KPRL & KPC's inefficiency. The law does not allow Oil Marketers to sue for timely payment of refunds!
Why aren't NOCK stations selling petrol at larger discounts than the Oil Majors?
I think the Oil Marketers in Kenya are wimps. They need to take the government head on and ask:
- Where the taxes are going?
- Why are refunds delayed by 8-12 months (thus adding 11% to the landed cost)
- Why is KPC not expanding the pipeline asap?
- Why are the roads leading to & from all major oil depots atrocious?
- Why do we need more MPs with HUGE perks while refunds are delayed?
Friday, October 27, 2006
Am I looking at KQ thru rose-coloured glasses?
I have been an effusive supporter of KQ... Now let us be clear on one issue...
Share Price and Company Performance are DIFFERENT... therefore I will discuss what is important... not the share price but
the Company's and Management's Performance.
"Past performance is no predictor of future performance."
True... So true...
KQ is in the same league as Barclays, EABL, SCBK, etc... I did a review of what I think are TRUSTWORTHY MANAGEMENTS...
Business is about risk and vision. Credit goes to KQ's SMART & TRUSTWORTHY MANAGEMENT TEAM... They have not let me down, yet...
KQ has a measured expansion plan that allows them to be either #1 or 2 (remember GE's credo) on most routes they fly... Bilateral agreements make this the only choice (monopolistic or duopolistic) in some cases but let's look deeper....
Oil Prices
The bane of airlines for many years. KQ will do OK as long as it doesn't rise beyond $80. KQ is in a much HEALTHIER position than most African competitors including SAA and Ethiopian. A privatised SAA could become a formidable competitor but most African countries can't afford to start their own airlines thus there is a larger untapped market as African economies grow.
Terrorism
There is little one can do when idiots want to kill others. Definitely a threat but you have to learn to live with it. After 9/11, New Yorkers (more than ever) live in high-rises. Did the hijackings of 1970s & 1980s kill off air travel? No, coz the easiest way to travel long distances remains air travel.
Tourism
Important to KQ but less profitable than Business tourism. I think most African travellers are business travellers thus less sensitive on price. The expansion to the Far East to reduce reliance on UK market for tourists while Paris will open new markets.
Kenya can maintain the tourism momentum by improving security & roads. Improved roads and security will boost the market for tourism thus creating a further need for KQ's expansion.
Competition
It is good. It is needed and it has forced KQ to be leaner & meaner. All African airlines have a deadline to be E-ticket compliant by 31 Dec 2007. Fewer than 10 airlines have done so by 31 June 2006 & among these are KQ, ET and SA. More airlines will become compliant b 2007 but many will not especially the struggling airlines. This will allow KQ, SA & ET to expand into these markets for international passengers.
KQ's "real" growth can only come from international routes since the local market is "small" in comparison. There are a limited number of Kenyans who can afford the Nbi to Msa/Ksm flights. As the roads and railway get rehabilitated, the local market for KQ will reduce or stagnate on these internal routes. Kenya is a small country and Tanzania has a larger number of towns served by Precision Air than KQ does!
KQ's biggest threat is Emirates, especially in the West African & Dubai markets. Unless KQ is restricted from further African expansion, I do not see SAA & Ethiopian as significant threats yet.
Pandemics
There is little any one airline can do but ALL international airlines will be affected.
For Kenya's part, it needs to ensure that humane rearing methods are used.
I recommend becoming vegetarians... less hassles with Avian Flu, Mad Cow or a host of other emerging diseases!
It seems the pandemics start in Asian countries which means more European tourists will perfer Kenya/Africa as a destination.
Labour
Yes, that is a problem.
Sometimes, it is NOT the employees but the vision that drives firms. When things are tough, employees cry about "working conditions" and "low wages" but when things are good they want to share in the pie... QUIT, if you think you are underpaid!
Anyway, whatever the merits of my views, I think KQ should sacrifice short-term gains to crush the unions. Unions generally want to reward "seniority" not productivity. KQ has started traning new staff who will probably supplement the current staff.
Brain drain IS a problem for KQ esp from the Middle Eastern airlines. Nevertheless, I hope Kenya produces more airline staff who can be "exported" since that brings in more forex!
KQ has embarked on recruiting staff fluent in Mandarin, Thai, French and Hindi as those markets become more important.
Mandarin - China (3 cities and counting).
Thai - Thailand is becoming a "hub" for KQ for the Far East e.g. Korea
French - The new Paris route with associated expansion to destinations like Mayotte, Brazzaville & Comoros.
Hindi - Daily flights to Mumbai with Delhi, as a destination, in 2007.
So without worrying about the "share price"... KQ is slowly becoming an engine for some of Kenya's economic gains. I expect the growth to continue with stumbles along the way. One important thing is I TRUST the Management.
Please comment... I do want to know if I am on the wrong track... or have missed an important part of the puzzle.
Share Price and Company Performance are DIFFERENT... therefore I will discuss what is important... not the share price but
the Company's and Management's Performance.
"Past performance is no predictor of future performance."
True... So true...
KQ is in the same league as Barclays, EABL, SCBK, etc... I did a review of what I think are TRUSTWORTHY MANAGEMENTS...
Business is about risk and vision. Credit goes to KQ's SMART & TRUSTWORTHY MANAGEMENT TEAM... They have not let me down, yet...
KQ has a measured expansion plan that allows them to be either #1 or 2 (remember GE's credo) on most routes they fly... Bilateral agreements make this the only choice (monopolistic or duopolistic) in some cases but let's look deeper....
- Kenya-Europe -> KLM & KQ dominate the Nairobi-Europe routes. KQ essentially runs the AMS-NBO route for KLM. Intense competition from BA & charter flights. Expect steady growth especially after the new Paris flights open up new tourist markets as well as another European gateway to N.America. Note that KQ uses its regional heft to ferry South & Central African passengers to Europe via JKIA.
- Kenya-MidEast -> In spite of strong competition from Qatar & Etihad... KQ & Emirates dominate the Kenya-Middle East routes. That said, the competition on these routes is intense. Definitely a challenging market but necessary since lots of traders like visiting Dubai.
- Kenya-S.Africa -> KQ dominates the business sector. KQ has 2 daily flights vs 1 for SAA. There is no other airline that comes close to SAA or KQ. The growth is limited but KQ can attract (wealthier) S.African passengers to use JKIA as hub to China, Dubai and India.
- Kenya-Southern Africa -> KQ is dominant in most countries it flies to from Kenya. KQ crushed Air Tanzania while Air Zimbabwe is almost dead. The other airlines are small and inconsequential, as yet, to KQ.
- Kenya-Central & West Africa -> Slow but surely... expanding. The goal is to connect to China and India using Nairobi was a hub thus the push to enlarge and modernise JKIA. This market is huge esp considering China's push into Africa e.g. Sudan and Zambia.
- Kenya-China -> KQ will face competition in due course but for now they are the only airline that serves China direct from Nairobi. Plus 3 destinations... Hong Kong, Guangzhou & Shanghai. This is the new market for KQ. There is potential for BUSINESS and TOURISM. Chinese tourists are among the highest spenders. Hong Kong's per capita is at OECD levels.
Oil Prices
The bane of airlines for many years. KQ will do OK as long as it doesn't rise beyond $80. KQ is in a much HEALTHIER position than most African competitors including SAA and Ethiopian. A privatised SAA could become a formidable competitor but most African countries can't afford to start their own airlines thus there is a larger untapped market as African economies grow.
Terrorism
There is little one can do when idiots want to kill others. Definitely a threat but you have to learn to live with it. After 9/11, New Yorkers (more than ever) live in high-rises. Did the hijackings of 1970s & 1980s kill off air travel? No, coz the easiest way to travel long distances remains air travel.
Tourism
Important to KQ but less profitable than Business tourism. I think most African travellers are business travellers thus less sensitive on price. The expansion to the Far East to reduce reliance on UK market for tourists while Paris will open new markets.
Kenya can maintain the tourism momentum by improving security & roads. Improved roads and security will boost the market for tourism thus creating a further need for KQ's expansion.
Competition
It is good. It is needed and it has forced KQ to be leaner & meaner. All African airlines have a deadline to be E-ticket compliant by 31 Dec 2007. Fewer than 10 airlines have done so by 31 June 2006 & among these are KQ, ET and SA. More airlines will become compliant b 2007 but many will not especially the struggling airlines. This will allow KQ, SA & ET to expand into these markets for international passengers.
KQ's "real" growth can only come from international routes since the local market is "small" in comparison. There are a limited number of Kenyans who can afford the Nbi to Msa/Ksm flights. As the roads and railway get rehabilitated, the local market for KQ will reduce or stagnate on these internal routes. Kenya is a small country and Tanzania has a larger number of towns served by Precision Air than KQ does!
KQ's biggest threat is Emirates, especially in the West African & Dubai markets. Unless KQ is restricted from further African expansion, I do not see SAA & Ethiopian as significant threats yet.
Pandemics
There is little any one airline can do but ALL international airlines will be affected.
For Kenya's part, it needs to ensure that humane rearing methods are used.
I recommend becoming vegetarians... less hassles with Avian Flu, Mad Cow or a host of other emerging diseases!
It seems the pandemics start in Asian countries which means more European tourists will perfer Kenya/Africa as a destination.
Labour
Yes, that is a problem.
Sometimes, it is NOT the employees but the vision that drives firms. When things are tough, employees cry about "working conditions" and "low wages" but when things are good they want to share in the pie... QUIT, if you think you are underpaid!
Anyway, whatever the merits of my views, I think KQ should sacrifice short-term gains to crush the unions. Unions generally want to reward "seniority" not productivity. KQ has started traning new staff who will probably supplement the current staff.
Brain drain IS a problem for KQ esp from the Middle Eastern airlines. Nevertheless, I hope Kenya produces more airline staff who can be "exported" since that brings in more forex!
KQ has embarked on recruiting staff fluent in Mandarin, Thai, French and Hindi as those markets become more important.
Mandarin - China (3 cities and counting).
Thai - Thailand is becoming a "hub" for KQ for the Far East e.g. Korea
French - The new Paris route with associated expansion to destinations like Mayotte, Brazzaville & Comoros.
Hindi - Daily flights to Mumbai with Delhi, as a destination, in 2007.
So without worrying about the "share price"... KQ is slowly becoming an engine for some of Kenya's economic gains. I expect the growth to continue with stumbles along the way. One important thing is I TRUST the Management.
Please comment... I do want to know if I am on the wrong track... or have missed an important part of the puzzle.
Rave - KQ has another banner (Half) Year
KQ did not disappoint though the torrid profit growth over the past 3 years has slowed down during 1H 2006-7.
The total passengers carried were up 7% to approx 1.3 Million thus setting the stage for another record for 2006-7.
KQ owns 49% of Precision Air, which has now become the largest Tanzanian airline as well as regional powerhouse for the Tanzanian market.
Highlights
Turnover (KES Millions):
Passenger 24,237 +10.7%
Cargo and Mail 2,812 +13.5%
Handling 541 -7.8%
Other 876 +129.1%
Total Revenue 28,466 +12.3%
Direct Expenditure 19,803 +15.4%
Overheads 4,572 +11.6%
Total Expenses -Fuel 7,648 +26.3% (The largest cost increase but only 15% attributable to the increase in the cost of fuel thanks to hedging)
Other 16,727 +10.0%
Operating Profit 4,091 +0.2% (Rather disappointing)
Operating Margin (%) 14.4% -1.7% (Not good but fuel costs is the major contributor)
Net Finance Expenses (592) +3.4% (Cash rich but more loans needed to buy more planes)
(Loss) on Foreign Exchange (155) +51.6% (Primarily due to strong KES effect on $ deposits)
Other Non-Operational Items 126 + 223.1% (Precision Air in TZ)
Profit before Tax 3,470 +8.9%
Taxation 1,041 +8.9%
Profit after Tax 2,429 +8.9%
Net Profit Margin (%) 8.5% -0.3%
Earnings per share before tax (KShs) 7.52 +8.9%
Earnings per share after tax (KShs) 5.62 +8.9%
So what do I think?
A commendable performance considering the extremely high fuel prices experienced during the past 6 months. There will be some relief in 2H since fuel prices have dropped since Oct 2006. KQ benefits from the price drop only to the extent of the unhedged portion.
KQ has hedged its fuel thru April 2007 - probably at higher prices than the current $60 per barrel but has already reduced the fuel surcharge on their tickets. This may neutralise any benefit KQ has from the decrease in fuel costs.
Over all I expect lower fuel prices will boost KQ's bottomline as it has been subsidising some seats in Economy class on many sectors. Furthermore, KQ will be able to sell more tickets to price-concious travellers. They will have a new 737-800 in time for the Xmas rush
I expect that the general price reduction of air travel, lower fuel costs, winter in the Northern hemisphere and better economic growth in Africa will be the key to KQ's having a better 2H 2006-7.
The total passengers carried were up 7% to approx 1.3 Million thus setting the stage for another record for 2006-7.
KQ owns 49% of Precision Air, which has now become the largest Tanzanian airline as well as regional powerhouse for the Tanzanian market.
Highlights
Turnover (KES Millions):
Passenger 24,237 +10.7%
Cargo and Mail 2,812 +13.5%
Handling 541 -7.8%
Other 876 +129.1%
Total Revenue 28,466 +12.3%
Direct Expenditure 19,803 +15.4%
Overheads 4,572 +11.6%
Total Expenses -Fuel 7,648 +26.3% (The largest cost increase but only 15% attributable to the increase in the cost of fuel thanks to hedging)
Other 16,727 +10.0%
Operating Profit 4,091 +0.2% (Rather disappointing)
Operating Margin (%) 14.4% -1.7% (Not good but fuel costs is the major contributor)
Net Finance Expenses (592) +3.4% (Cash rich but more loans needed to buy more planes)
(Loss) on Foreign Exchange (155) +51.6% (Primarily due to strong KES effect on $ deposits)
Other Non-Operational Items 126 + 223.1% (Precision Air in TZ)
Profit before Tax 3,470 +8.9%
Taxation 1,041 +8.9%
Profit after Tax 2,429 +8.9%
Net Profit Margin (%) 8.5% -0.3%
Earnings per share before tax (KShs) 7.52 +8.9%
Earnings per share after tax (KShs) 5.62 +8.9%
So what do I think?
A commendable performance considering the extremely high fuel prices experienced during the past 6 months. There will be some relief in 2H since fuel prices have dropped since Oct 2006. KQ benefits from the price drop only to the extent of the unhedged portion.
KQ has hedged its fuel thru April 2007 - probably at higher prices than the current $60 per barrel but has already reduced the fuel surcharge on their tickets. This may neutralise any benefit KQ has from the decrease in fuel costs.
- There is still a 20% unhedged benefit that will flow through in the next 6 months.
- KQ will replace its 2 SAAB aircraft with new regional jets which increase carrying capacity, range, are faster & have lower costs per km. Of course, they will raise the current debt levels
- New 777 will be delivered in Feb 2007 for a larger network as well as lower costs per km. Full benefits will flow through in 2007-8.
- The old 737-200s will be replaced by 3 new 737-800s in 2H 2006-7. Full benefits will flow through in 2007-8 since the capacity is higher.
Over all I expect lower fuel prices will boost KQ's bottomline as it has been subsidising some seats in Economy class on many sectors. Furthermore, KQ will be able to sell more tickets to price-concious travellers. They will have a new 737-800 in time for the Xmas rush
I expect that the general price reduction of air travel, lower fuel costs, winter in the Northern hemisphere and better economic growth in Africa will be the key to KQ's having a better 2H 2006-7.
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