Merali Firms... more losses for Investors

I have never been a fan of merali's listed firms...

Sameer Africa (Firestone) - Shares were sold to an unsuspecting public who did not know better at 35.50 about 10 years ago. Today they sell at 15/-. Dividends are a hit or miss thus an extremely poor performer over the years!

Sasini - The recent run-up makes no sense to me. Compared to other agricultural firm (except Limuru Tea), Sasini is horrendously over-priced. Wait for the price to fall as the 1H 2006-7 results are released.

Eveready - Need I say more? The WAP price on Mar 13 2007 is just a mere 3% above the OFS price.

Compare merali's firms to the Aga Khan firms & you realise that Management matters...

NSE has jitters - and it is a good thing!

They say... it never rains but pours...

So what happened?

- thuo & crooks were suspended thus freezing over KShs 100mn of investors' funds. Other investors at other broker firms bailed out of fear of a contagion of collapsing brokers. The CMA does not produce a (public) report that helps us sort the wheat from the chaff.

- Prices rose too high, too soon. The expectations for splits & bonuses led to price increases that were unjustified. Profits not splits/bonuses should drive share prices.

- Banks have pulled back on loans for stocks. Decreased liquidity means fewer trades & a drop in prices.

- Valuation mismatch. Valuations were out of whack & they are pulling back. Most shares remain too expensive.

- Economy growth was 6% (2006) from 5.3% (2005) which is not a spectacular rate of growth. Furthermore, a growth rate of 6% is nothing to be proud of for our small economy! We need rates of 10% annually over 25 years to see a real difference!
As a comparison, India's was 8% while China's was 9%.

- Brokers cut back on credit to customers i.e. no cash = no play. This has led to reduced trades. Some brokers forced the sale of shares to cover customers' debit balances thus increasing supply of shares with a consequent reduction in prices.

All in all... this was GOOD for the market... Why?

- CMA & NSE will be (hpefully) forced to police the brokers. It is time for either new blood or mergers among the brokers. There should be a minimum capital requirement for brokers.

- Pullback of credit is good but it needs to be reintroduced in limited doses with a high margin requirement. Many speculators will be shut out but they are needed to provide liquidity!

- The govt can stop crowing about the stockmarket's gains & start providing real impetus to the economy by supporting infrastructure development which will boost the economy & stockmarket.

I expect further price drops for many shares but that will allow for investors to buy in at better prices. I hope the govt continues with the divestiture since this allows businesses to tighten their belts & act in the best interests of the shareholders NOT the cronies!

CMA's silence is deafening

Kenyan institutions have it down pat... they weather scandals by just doing or saying nothing...

Their Motto: See evil, hear evil, speak evil, just do evil...

CMA & francis thuo - The CMA failed to act on FT in a timely manner thus causing ripples across the broker community as well as their clients.

Anglo-fleecing - If not for Githongo's gradual release of information, this would have been buried

Goldenberg - Golden what? Even the architect (pattni) is running around while he plans to run for office!

Grand Regency - What is happening here? Who owns it? Who doesn't own it?

There are hundreds of such instances!

Solutions, anyone?

Another Scandal - CMA, CDSC & NSE - The Unholy Trio

Many readers of this blog will have heard of the mess at the CDSC where some crooked/unethical brokers have been trading in shares that belonged to their clients.

Essentially, the brokers are selling client's shares without their knowledge! Even if the shares are "replaced" the clients/shareholders may not get dividends since the Listed Firm only recognises shares held by in the client's name.

Until this loophole is patched, all long-term investors should insist on share certificates to forestall the crooked stockbrokers' dealings. There are extra steps & it is not as convenient but safer.

With a certificate, you can use any broker without the hassle of transferring shares. You will need to "immobilise" & "dematerialise" the shares. Many of the large shareholders have NOT placed the shares with the CDSC.

Furthermore, except for fraud by having duplicate certificates, the share cannot be sold as (apparently) francis thuo & thieves did...

Who would you rank as the top 5 trustworthy brokers?

My list includes (in no particular order):

• CFCFS
• Kestrel
• African Alliance

Fees, costs & Taxes

The government continues to hinder development by pandering to special interests as well as its short-sightedness... That said, I would like to say that some silly fees/permits were rescinded by the current government... One of these was a permit fee on bicycles! In a country racked by poverty, why did we have such a fee?

Please let me know what other fees/costs that you feel should be eliminated...

• Stamp Duty - Share Capital
  

1. Why should we pay Stamp Duty on the Share Capital of a firm?
2. We should encourage more firms to incorporate by waiving or better ELIMINATE stamp duty!
3. We have stamp duty on various transactions that are unnecessary e.g. share purchases & sales. We pay fees to the CMA which is a government organisation. Shareholders pay taxes through Corporate Taxes (30%) as well as 5% withholding tax on dividends.

• Lawyer Fees - Loans

1. I had posted earlier on this topic. Why should the government/judiciary mandate what attorney fees should be?
2. In the USA, many banks & mortgage use programs to create the documents. These are generally standard documents which can be reviewed by a lawyer. The costs of buying a $100,000 house in USA is much lower than Kenya!

• Stamp Duty - Cheques

1. We should encourage a shift from the cash economy to cheques & electronic payments but there is a fee payable on cheques!

• Taxes - Petroleum Products
  

1. Taxes account for 60% of taxes on petroleum products. This encourages smuggling & "diversion" of petrol tankers.
   
2. Many of the "independent" petrol stations sell "diverted" petroleum products. Furthermore, this encourages an underground economy in adulterated petrol.

*** Some (unsolicited) advice - Don't try & save KShs 2-3 per liter on petrol from these independents. I know money is tight but the long-term damage to the car's engine & performance in much higher!

Bottomline
We have numerous taxes/fees/costs that are "hidden" but they add up for the final consumer as the businesses pass them on to us. We need to be aware of these costs. We need to lobby for their elimination.

Taxes are the price we pay for a civilised society (Some famous guy said that...) but some of these are archaic & counterproductive. It behooves the investor community to lobby for the elimination of these onerous taxes.

Can Kenyan Firms be the Indians of the Africa?

Harking back to an earlier blog that incensed some folk when I suggested Kenya is an economic laggard when compared to India...

There needs to be a concerted effort by the GOK & local firms to stamp their authority all over Africa starting with our backyard (East & Central Africa).

Therefore, I want to pose a series of questions:

• Are Kenyan firms expanding abroad (esp into Africa) just as Indian firms are doing in Nepal, Afghanistan, Russia & even China?
• Are Kenyan firms using their (IMHO) superior balance sheets to power their way into neighbouring countries?
• Is the Kenyan government ensuring the protection of Kenyan firms (e.g. closure of Nation Media's outlets in Uganda) abroad?
  

There are some successes e.g.

• Bidco - in Uganda but they moved coz of the hostile Kenyan business environment!
  
• Chandaria Group - Mabati, etc in TZ & UG
• Nation Group - in UG & TZ. They face lots of government opposition but nary a word of support from Kenya.
  
• Kenol - One of the best example with stations in Rwanda now Ethiopia. They have LPG sales distribution in TZ. They also wholesale Oil Products in UG & Congo.
• KQ - I think GOK has realised their importance to the economy but it needs to do more to help a true homegrown company fight for more flights.
  

Furthermore Kenyan firms (esp in the Tea Sector) need to aggressively purchase downstream assets. Kenya is the world's largest exporter of CTC ("black") tea. Whereas Indian firms e.g. Tata Tea are buying Tea distributors (Tata bought Tetley's) in the UK, what are we doing?

KTDA & GOK needs to be in the forefront since small tea growing operations provide among the best teas that can benefit from substantial value addition.

Kenol which is expanding its African footprint suffers from delayed tax refunds especially for bonded export markets e.g. in Uganda, Rwanda & Congo. This is a disincentive to Kenol while we allow Libya's TamOil an entry into our markets.

Just as KR's operations were privatised, we need to privatise the inter-province road system in Kenya. Most Kenyan firms would prefer a road that is free of axle-breaking potholes, safer & well-lit for transporting goods 24-7-365 rather than the current set-up.

Many toll (pay-to-drive) roads in the USA are well maintained, have constant police patrols, emergency crews, etc & these services are paid for through tolls/fees. Some are privately managed, others public-private partnerships & some are state-owned but with Road Boards in charge.

In the meantime, while the GOK gets its act together, are Kenyan firms helping their own cause or do they just shoot themselves in the foot?

Extras:
India still remains a 3rd World Country - Can Kenya benefit as a secondary location/option?
Foreign Investments continues in Indian Firms - I wish Kenya had the same draw!

Plus ca Change, Plus c'est la Meme

TPSEA is a savvy tourism operator & its seems they have a valid grievance against some dodgy business carried out by some folks at KWS.... At least in today's Kenya, they can fight through the (inefficient) judicial system unlike dan "the idiot" moi's days in power. My comments in RED.... Don’t revoke lease, firm urges court Story by NATION Correspondent Publication Date: 2/9/2007

A company permitted to put up lodges in Meru National Park stands to lose Sh500 million if its lease is revoked, a court was told yesterday. They have taken possession of the land without proper documentation. They should not have spent substantial sums on the project! In any event, so what? The lease was done in a back-handed manner! Mara Landmark Ltd, through lawyer Githu Muigai, further told the Court of Appeal that the completion of the multi-million shilling project, scheduled to be opened next season, would be thrown in disarray if stay orders against it were granted. “Your lordships, the orders being sought will have an adverse effect on the Sh0.5 billion investment my client intends to put in the park,” the advocate told judges Samuel Bosire, Erastus Githinji and Philip Waki. Is the lawyer an idiot or a liar? Does his client intend to put KShs 500 mn into the project or already has done so? Lease agreement Mara made the plea yesterday during the hearing of a petition in which the Tourism Promotion Services (TPS) is seeking to have the lease agreement with the Kenya Wildlife Service revoked. However, TPS, which was not among the parties that tendered for the lodges, has challenged the award, saying the procedure was flawed. Dropping bid It argues that KWS deceived it into dropping its bid by indicating that the lodges would be built on a different site. It is appealing against a High Court decision not to hear its substantive application last year, only choosing to hear the company’s request for leave to sue. TPS argues that the two applications ought to have been argued together. Why would KWS "deceive" TPSEA unless there was something fishy going on? Lawyer Evan Monari, for TPS, said his client moved to the High Court after the Public Procurement Complaints Review Board locked out its bid to challenge the award, saying it was not party to the tendering process. Apparently, TPSEA never bid for the project since they were interested in a specific area but were told that more desirable area was not on the table. Of course, then the KWS changed course... The judges will rule on the matter next week. KWS conceded that a formal agreement had not been executed with Mara, although the firm has taken possession of the sites in readiness for construction of the lodges. ,This does not pass the sniff test! Land grabbing of a different form... the firm that offers the best value should get the lease... somthing tells me it was not Mara Landmark! I am glad the private sector is fighting back since it does decrease the likelihood of rip-offs...

Where is the new NSE website?

Nothing done on NSE website

Last December, Mr Hoseah Njuguna wrote to The Standard about the woes of the Nairobi Stock Exchange website. The bourse’s chief executive Mr Chris Mwebesa explained that the website would be updated. That was on December 14. Nearly two months later, no new website is in place. The issues Njuguna cited have not been addressed. On Wednesday — February 7 — the NSE website still showed trading figures for February 2. The home page has poor graphics and picture resolution and information is outdated. Financial statements have not been updated since 2004. Concerned investor, US The above is a letter published in The Standard dated 9 Feb 2007. It harks back to an earlier letter... click on this link for more information... Let's see what happens now... but do not hold your breath! In addition, we do not want just a pretty face but increased functionality with additional information that can help us including real-time prices! Websites like www.eight.co.ke do a better job of informing us than the NSE... After all we pay a hefty fee per trade! For those who are unaware... the NSE also charges firms to list so they double-dip... they charge investors & their firms!

India to power ahead with 9% growth while Kenya manages a mere 6%

Kenyan (govt) politicians keep on crowing about 2005's 5.8% growth like this was going to pull us out of the current economic doldrums! Estimates for 2006 are 5.7%.

India expects a 2006 growth rate of 9.2%... which means the additional growth in the Indian economy could be greater is larger than Kenya's entire economy! BTW, this is on top of India's 8% growth over the past 3 years!

India's estimated 2006 GDP (PPP) is just shy of $4 Trillion... so a 9% growth = $360 Billion!

The compounding factor year after year is what separates the men from the boys... The difference of 3% between the two growth rates means India's economy ccould grow at a rate that is 50% higher i.e. 9% vs 6%.

If India continues at this pace & Kenya lags, then compounding kicks in thus the gap between 2 economies will grow even faster!

Indian firms, & by proxy India, is the 3rd largest investor in UK. Tata Steel's recent purchase of Corus (UK) made headlines the world over as they beat off a challenge from Brazil.
Kenya's Magadi Soda is part of the Tata Group through Tata's purchase of Brunner Mond (UK) which gave Tata control of Magadi Soda.

Magadi Soda was recently in the news after Exim Bank rejected their application to finance locomotives & rail stock. Nevertheless, Magadi Soda did secure financing since it had the support of GE & Tata.

Kenya needs to wake up from its reverie... Stop comparisons with regional poorhouses & our benchmarks should be Powerhouses like India & China.

Kenyans can't use the "Western Oppression" excuse this time round when India & China start making our life difficult! As an example, Kenya has lost most of its USA textile market to China, Pakistan & India in the past 2 years. We had many years under AGOA to build up our competitiveness but squandered it to inane populist politics & economic blunders! Kenya should have built up its infrastructure:

• Reliable & cost-effective electricity supply
• Transport efficiencies incl Railroads, Shipping & Raods
  

What can we do to ensure we don't get steam-rolled by these fast developing countries while all we can manage is a mere 6% growth amidst increasing insecurity & poverty?

What options for HFCK?

HFCK announced they intend to do a Rights Issue but the details will be released later on as to the:

• Number of shares
• Price
• Timing

IMHO, I do not think HFCK will survive in its current form. The market for mortgage financing is under pressure from better funded competitors including:

• Savings & Loan (KCB)
• BBK
• SCBK
• I&M

Therefore my take is that the following will happen during the Rights:

• CDC/Actis will take up their Rights
• Transcentury (or some other group) will buy Rights from the Market
• GOK will sell its Rights. A politically connected group like TCG will use D&B to effect this trade at the right time under everyones noses.

After the Rights Issue is over, then the following scenarios will take place by Dec 2008:

• S&L bids for a takeover of HFCK for cash &/or KCB stock
• TCG buys a controlling interest through purchases on the NSE & the Rights Shares.
• An alternate group follows the strategy above
• A smaller bank e.g. Equity or Stanbic offers cash &/or stock

Whoever buys HFCK buys a strong customer base for mortgages. In addition, HFCK has branches all over the country & can ramp up production with a strong(er) parent.

Nevertheless, all said & done... HFCK is in play!