Mavuno Securities

CFC: Was someone in the loop?

Isn't it interesting that the share price rose steadily ahead of the announcement of the merger with Stanbic? Did anyone notice how many shares changed hands. If you've read the cautionary released by CFC, the price for the deal is to be determined in part by the 30 day average upto 18 Jan (inclusive). That is the period shaded in the chart alongside. Could there have been a leak?

It is important to note that these things are very difficult to keep under wraps even in the most sophisticated markets. Also it is very hard to prove that the rise in the share and increased activity is solely due to insider trading. It could all have been a rather innocent coincident.

PS: I'm not a techie so forgive me for the quality of the image. As I go along I'll figure out how to present clear, crisp images. Anyone with ideas on how to post an MS Excel generate chart feel free to educate me.

EABL half year results 2006 (Sh.148.00)

On Feb 23 EABL will reveal its 6 months (Jul-Dec 06) performance after the close of trading. I expect the numbers to be quite interesting and if the market pays attention should push the share price higher. Two things in my mind strike me as important:

1. Like it or not this government has placed significant emphasis on shoring up our rural economy. If you assume 60% of the population is to be found here, then any efforts in this regard will only be music to mass market companies. Rural farmer incomes have been improved through price support mechanisms and market guarantees. Add to that the subsidy provided to these families through free primary school education (and there is talk of extending it to secondary schools now). You can thus start to see the case of higher disposable incomes across the country. Remember Safaricom stated that the record profit announced recently was achieved thanks to increased new connections in the rural area? I think EABL is benefiting from this same factors and volumes in Kenya particularly must have seen some lift.
2. Another factor is a tax reduction on unmalted beer announced at last year's budget. The bottom line effect was to reduce the retail price per bottle of beer to the same as a bottle of coke. Now imagine how many of our rural folk would be enjoying a bottle of Citizen or Senator instead of Chang'aa? Combine this factor with the improved disposable incomes.

Well on the afternoon of 23 Feb, after the exchange stops trading we shall finally know. Methinks there is still a growth story here and we are still in the early days of an extended period of growth.

CFC Bank

Last week management announced that it had entered merger negotiations with Stanbic Bank, while Standard Bank of South Africa the parent of Stanbic has reached an agreement to buy out leading shareholders of the company. The resulting merger and take over will result in the creation of a new and relatively large commercial bank - listed on the NSE. Standard Bank has operations in insurance services as well as commercial banking in South Africa, while its international operations are dominated by banking operations. Standard Bank has set its sights on becoming a leading emerging market bank and in the processes has identified some key markets including Kenya and Nigeria in Africa.

The deal as agreed includes a price worked out as the average price over a 4 week period prior to the announcement. This market has just not learnt how to read a company announcement - for control Standard Bank did not pay more than the market price. So why on earth would anyone want to pay Sh.368.00 the close price or worse still Sh.900.00 per share? CFC at Sh.120.00 was already expensive well beyond its peers ..... In the end it will be good for market players to burn their fingers now and in future start paying greater attention to fundamentals. CFC is a great business, CFC the share at current prices is a poor investment. If only we could short sell in Kenya!

The Trip

As we got ever closer to D Day the list of things to do continued to grow wildly. Packing was horrific, the movers did not arrive untill 1:30PM. All morning was spent packing stuff in cartons and it is amazing how much stuf we gather in our lives. Surely human beings are a wasteful lot. Anyway the truck eventually got there and loaded up until 7:30PM. Back breaking stuff. Later we handed over keys to the buyers of our home and slouched off to a hotel for the night. Early in the morning of Wed 20 Dec 06 we hit out for Botswana got to the border crossing called Martin's drift at about 4:00PM and were on the other side at about 6:00PM - I was later to learn border crossings are a pain! From here we headed towards Francistown in N Botswana, a mining town and got there at 8:00PM. The drive was pleasant no major incidents to talk of. I'll have to continue this later.

How long will it take

I've been out of a job for six weeks and had to delay my trip by a month. This moving countries thing takes too long and to many frustrations to speak about. It is simply amazing how old school I've become being away from a networked PC - anyways needed the rest. Can't wait to hook up with some muturas!

The expectation of it all

It seems companies in Kenya are piking up the bug to get listed. I read in today's EA Standard, Family Finance has also decided to convert into a fully fledged bank, issue shares to directors, employees and account holders. The newly constituted shareholders will thereafter get the opportunity to trade their shares on the NSE probably sometime next year. The statement was made in Kisii where the company opened its twentieth branch.

Interestingly the chairman announced they had no interest in attracting foreign investors and wanted to remain local. More crucially I wonder if it is a good thing for all these rural finance institutions to convert into commercial banks, take on the increased regulatory costs and presumably lose focus on thier core client base? I suspose they have considered all the associated issues, but I hope the poor rural folk do not lose out. They have very limited financial services targetted at them as it is already.

On a different note things are looking up for next year. All manner of records are set to be broken in my view and Kenya could be fast approaching the 500,000 individual shareholder mark. Elections - expect a high spend year with good numbers to be reported for media and some consumer good companies. Also the NSE should see bouyant activity.

I'm now trying to figure out the best computer option and leaning towards buying my office one from the company and installing some open office software - its free. Will keep you posted on this.

Planning the move

It is now two weeks since I decided to quit and the amount of things I have to do to get back home are just impossible to get through and still remain sane. Sell the house, settle all bank debts, finalise with the South Africa tax man, pack and ship stuff, move my people - then get a place in Nairobi, clear customs in Kenya (ouch!), get a school for the son etc I just hope I'll be sane enough in early December to figure out what is really happening at the NSE.

But at least and without a doubt I'll be on a goat's case in December and all frustrations, tribulations will be soothed each time I down a tasty mutura! Aaahhh, I can smell it now.

I hear Mumias will be selling shares soon, Olympia might go for a rights issue to fund a purchase of additional shares in a Botswana Stock Exchange listed subsidiary that in turn wants to buy a South African blinds making factory! I generally don't like pyramid corporate structures and will take a long detailed look at this company. I also hear Diamond Trust Bank will be issuing a rights offer - seems bank's capital bases in Kenya are sorely stretched after they discovered that it is actually possible to lend money in Kenya. All the best of luck to them. The government also wants to sell Kenya Re on the exchange - I don't know much about this idea ...... My only question is where is Telkom?

Kenya is cooking!

Getting it together

This week I've read a great book (The long tail). If you are interested in how markets have beome more efficient and to hear a really good argument that the retail end of the market is profitable please read this book. I'm that more convinced there is a case for retail based financial services company in Kenya and probably in other countries in Africa as well. Think about it - to start investing in a mutual fund in Nairobi you need an initial investment of Ksh.50,000 (approx $700)! Surely there must be an opportunity here.

In the begining

After 5 years working in South Africa I've finally decided to call it a day. I'm now ready to move back to Nairobi to start on the next phase of my life's journey. My greatest desire that will drive me from now on is to make it possible for anyone to own a share on the Nairobi Stock Exchange (NSE). I want to see a Kenyan people familiar with owning shares and the idea of selling their own companies on the exchange. I have some experience in the market having entered in March 1996 during the share offer of Kenya Airways and have developed some skills in research since then. I left Nairobi in June 2001 when a friend of mine suggested I join him in a company (www.liquidafrica.com) he was launching in Johannesburg. I handled a bit of everything and there I learnt how hard it is to focus on the big picture when starting out on your own. I later joined Standard Bank in November 2003 in the economics team where I learnt how valuable considered opinion can be to investors. Today the first day of October 2006 I'll hand in my resignation letter and start an uncertain journey back to the NSE. From what I gather the market is alot bigger than I left it 5 years ago, I fear I may not have a clue what to do when I get there. I'm however confident that my next phase in life will have to continue in Kenya. It's time to roll up your sleves and dig in to the opportunities that are openning up. I left with a new wife (9 mths) a new son (3 mths) and I return with a not so new wife, an older son and another son (3 mths). I pray we'll love it back home.