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:

• Retail (65% of Offer) 1,000 shares = 9,500/-
  
• Corporate (30% of Offer) 10,000 shares = 95,000/-

This is an Offer for Sale thus the Proceeds go into the Seller's pockets NOT to the Company. Merali did the same thing will the ill-fated listing of Firestone (now Sameer Africa).

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...

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.

• 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
  

Basically, the cost of petrol delivered to the customer costs 35/- per litre (or lower) based on $60 per barrel.

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?
  

Why do we pay taxes (as private firms, listed firms or individuals) without seeing the benefits?

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....

• 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.
  

There are challenges for KQ. I will try and be KQ specific where possible.

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.

• 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.
  

In spite of the current challenges esp new entrants, I expect KQ to do better in 2H 2006-7 since they will have newer - more efficient - aircraft with a network that is continously being expanded thus reducing costs across the board. New agreements in East Asia will allow for better connections. The Paris sector allows for increased N. American connections (in addition to LHR & AMS) while tapping into a new tourist market.

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.

Premier World Investor (Warren Buffett) does not believe in Share Splits

Splits are all the rage but the way I see it the PRIMARY beneficiaries are your "friends" the stockbrokers...

Why?

• Unlike a Rights Issues, there is capital "raised" by the Listed Firm
• The trading increases thus raising listing costs for the Listed Firm
• The costs of maintaining share registers increases
• The extra trading benefits the brokers who trade in & out for the shareholders!
• There is a valid point that some investors may not be able to buy the higher-priced shares but they are in a minority.
  

Mr. Warren Buffett has never "split" the shares of his Investment Firm, Berkshire Hathaway, since he feels it only creates an opportunity for fast money types. This is the 2nd richest man in the world & he "earned" his money unlike some sheiks & crooks.

When Buffett’s Berkshire Hathaway (nyse: BRKA - news - people ) stock reached $1,300 in 1983, Buffett addressed and rebuffed the prospects for a stock split. “We want [shareholders] who think of themselves as business owners and invest in companies with the intention of staying a long time. And, we want those who keep their eyes focused on business results, not market prices,” he wrote in a letter to shareholders that year. Source: Forbes

Note that the current price is over $104,000 per share! Yes, that is over KES 7.25 Million per share!

If Berkshire Hathaway was in Kenya, the shareholders might riot in the streets!

Back to Kenya...

Barclays - They have never split their shares in Kenya but there is a chance they may do so. The majority shareholder does not trade their shares i.e. the share price is less of a concern than the profitability of BBK.
BAT - Unlikely at the moment. They prefer paying "good" dividends. The majority shareholder does not trade their shares i.e. the share price is less of a concern than the profitability of BAT.

E.A.Cables - The majority shareholder (Trans-Century) is an outfit that would probably take profits to re-invest in other businesses OR leverage their EAC holdings. Note that the price of EAC has fallen gradually (I told you so) to more reasonable levels. EA Cables has a bright future but the price reflects that future and more!

ICDCIC - The majority shareholder (Chris Kirubi) is a smart investor who IMHO probably take profits to re-invest in other businesses OR leverage his ICDCIC holdings. Note that the price of ICDCIC has fallen and IMHO will continue to fall to reflect the "truer" value. ICDCIC has a bright future but the price reflects that future and more!

RAVE - For Ibrahim Mo and his "Best Prez" prize!

Ibrahim Mo (of Celtel fame) has launched a "competition" for best African president... the winner gets $5 Million!

This is a great idea... in spite of the critics objections....

Who do you think will win?
Does someone have a ready list of all African presidents?

Of the presidents I know.... I vote for Paul Kagame (Rwanda)
Others potential winners:
Thabo Mbeki (S. Africa)
Mwanawasa (Zambia)

Those who will definitely NOT win:

muggz mugabe (Zimbabwe) - Human Rights abuses & decrepit economy
bashir (Sudan) - Darfur genocide
geddi or something like that (Somalia) - He is sitting pretty in Kenya!
kikwete (Tanzania) - Short-sightedness in economic matters
museveni - blew it with 3rd term!

Can we sue the NSE for their idiotic errors?

How a comma can be very expensive!

From Canada... a story on a comma that could cost C$1 Million...

Blogger Problems --- pondering shift to Vox or WordPress

I am tired of issues with Blogger... they have grown so huge, so fast that it seems they have too many hackers, etc...

Anyway... so I am thinking of moving... I am NOT a techie so I prefer less functionality but easier maintenance/updates!

HASH suggested Vox
m suggested WordPress

Any other suggestions?

I want to keep the old entries when I transfer over... any tips?

NSE makes simple (idiotic) errors...

Does the NSE hire folks who flunked their Math classes?

This is NOT calculus but note the following!

October 19th (Thursday) TPS (Serena) share prices were shown as follows:
High - 94
Low - 85
Average - 84

This information was from the Excel File the NSE had on their website for Price & Trades downloads.

Since when was an AVERAGE lower than the minimum value in the data range?

As noted by dudej;
I do not need a Bsc in Maths to show that the if high is 94 and low is 94,the average statistic of 84 is misplaced. Even the lowest weighted average for would have to be 85. Perhaps someone accidentally replaced 94 with 84 on the average price.

It is pathetic to note such errors! What other errors are "hidden" from us?

There was another mega-goof in the past month when the price list had Olympia at 3/-.... Someone could have placed a BUY order at market expecting the maximum 10% to kick in but instead buys at 5x the price coz of a IDIOTIC error!

As dudj asked "Aren't these costly mistakes? and who is paying for them?"

Dudej, all I can say is definitely not the NSE...

Lee Kuan Yew for President (Again)

Apparently, Lee Kuan Yew went to Harvard in the early days to talk to the economists (among others) to figure out HOW he can lead his country to greater heights.

What was kenyatta doing? He was touring Kenya to figure out how much more land he could grab!

moi was no better...

There is a difference between LEADERS (like Yew) and CROOKS who pretend to be leaders (like kenyatta & moi)...

Don't give me the BS about kenyatta dealing with multiple tribes & political expediency.

If Kenya had had leaders, the ethnic problems would not arise. Its the CORRUPT that render Nations apart.

Cosomopolitan leaders like;
Tom Mboya (who was a Nairobi MP thus supported by more than just Luos)
Joseph Murumbi (who quit after seeing how kenyatta & his cronies were out to screw Kenya)
Pio Gama Pinto (the first high-profile politician to be murdered)
JM Kariuki (who was the only prminent Kikuyu politician to go for Mboya's funeral)

were all killed or sidelined...

I hope we choose someone who is a LEADER not of the same mold as the presidents of the past!

Just imagine if we had a Yew as president!