Monday, May 15, 2006

Don’t sell Kengen

Official allocation results of Kengen IPO were published today for the shares, which start trading on Wednesday May 17.

Applicants who applied for 500 (will get 500 shares), 1,000 - (812 shares), 2000 - (1,436), 5,000 - (3,309), 10,000 - (6,431) and applicants who applied for more than 10,000 will also receive only 6,431 shares.

Already some lucky investors are planning to cash out at 30/= or 50/= shillings per share within a few weeks of the shares trading.

However, institutional investors, who were short-changed in the allocations, may hold firm and choose to wait out the individual shareholders (burdened by bank and other loans) by holding out to buy at the lowest price, preferably at or below the IPO price of 12/=.

The best performing shares I bought in the last year are Express Kenya and Diamond Trust which have both gained about 78% to date. But they pale in comparison to other shares held for many years such as KCB and Kenya Airways which have only come into their own recently with strong management and direction, and have yielded over 1,000% each, not including dividends.

So it pays to keep the shares over the long term and not to cash out of Kengen this year.

23 comments:

sassy said...

preach on Banks!

VituVingiSana said...

Bankelele: As long as the fundamentals are good holding for the long-term is beneficial BUT sometimes the price outstrips the fundamentals.

Each case needs to looked at separately. A great company e.g. EABL can be overpriced thus leaving little room for further PRICE growth. It makes sense to SELL a good firm that is overpriced to reinvest.

KCB - The going seemed good but when the full extent of the bad debts was known the price fell substantially. It was only after Gareth George was made MD that we saw the "true" picture. He was forced out in what some saw as his insistence on following/exposing the moi-era bad debtors/defaulters. Terry Davidson lucked out with the change in government which left moi-era politicians "naked".

Terry's masterpiece was segregating the bad debts into his "Bad Bank" thus allowing for organic growth for the "Good Bank". He shifted the focus away from solely chasing up bad debts but assigned a special team to do so.

KQ - People just underappreciated the good job done by the management. KLM's deal allows them to appoint/nominate the MD & FD. Naikuni's team has done a great job in focusing (initially) on cost containment then expansion.

DTBK - The current MD has gotten DTBK over the bad debts hump experienced by a prior management that lent to the matatu sector thus entailing major losses.

KenGen - Due to the "government" involvement I fear there will be skeletons in the closet which will weigh down on KenGen. It is highly unlikely it will fall to 12/- esp based on current rains. BUT will it be 50? I doubt but I would SELL asap coz the fundamentals DO NOT support 50.

Most counters are overpriced. Maybe its time for a market correction?

Anonymous said...

jst to add my feelings to the above, the year end for kengen is june i have a feeling that they will announce gud results to please the share holders hence it could push the prices even higher.

novice

bankelele said...

sassy: That's my take, now read on for VituVingiSana's comments.

VituVingiSana: These days price and fundamentals are unrelated for many NSE shares and I agree on EABL

- KCB is making a killing not on Kengen billions, but on the cheap deposits that their rural branches have sourced. Gareth George probably 'saved' the Bank, but his controversies (salary, asset sales) overshadowed his work

KQ - Titus Naikuni has done his part. He needs a new challenge, perhaps to revamp our railways (KR) or ports (KPA) and get our regional trade possibilities back on track.

- Nuff said about Kengen

Anonymous novice: Kengen's year-end (June) results should be good, but we won't know about them till around August. Am waiting for KQ's results any day (their year ended March 31)

BizKenya said...

To add on to these KenGen hullaballoo, The share was split into 8 parts to accomodate as many people as possible and yet it was not enough.
The demand is still high and the energy sector is growing amid risng demand for power in the country.
A quick look at the KPLC and EA Cables' shares shows the demand for the energy related shares with Transcentury Company which cannot be ignored keen on snapping any shares available.
The shares will take long though to stabilize but for sure it will reach the Sh100 bench mark

VituVingiSana said...

Dear Friends:

bizkenya: 100/- is hype. The brokers wud love this coz it means MORE commissions but fundamentally KenGen is not worth 50/- TODAY. Perhaps 20/- based on good rains that will benefit year ending Jun 30 2006 as well as increased demand from economic growth.

Bankelele: Nice meeting u & putting a face to the name! Did I ever send you my take on the Barclays or BAT AGM?

Bankelele: I agree with the LONG-TERM hold on KenGen if the prices don't too out of whack i.e. 20/-.

KCB was priced OK at 100/- BUT at 170/- (IMHO) is overpriced coz all the GROWTH is factored in already. It will become a Barclays i.e. remain stagnant or fall as the fundamentals catch up to the price.

KQ - Naikuni could use a new challenge but he is doing a great job at securing KQ's future. The tough part starts now coz KQ is now in the target of airlines like SAA, Emirates, Virgin & BA since they have shown how lucrative Africa is.

On an unrelated note, I think Titus Naikuni among others should be the new political leadership.

NAIKUNI for PRESIDENT!!!

mashatall said...

Vituvingisana, good managers are not neccessarily good leaders, politics is a different ball game altogether.Worried about the rapid KQ expansion, without first consolidating their market position on markets that they penetrate. am all for steady slow expansion with good solid growth, so results this year might vindicate Naikunis plan on exapansion, or the stock exchange will punish KQ's shares. thats my take..

BizKenya said...

Mashatall:
Expansion is necessarily at KQ as it will enhances capacity building then it can focus more on market consolidation.
I have had a sneak preview at KQ's un audited results(Yet to be released) and they are something to write home about.
As you maybe aware, KQ need to incerase its fleet so as to have a firm grip on its routes hence an urgent need for expansion.

Anonymous said...

NOT BAD - a start of 45/ for kengen is wonderful.

kamujinga said...

Dont sell Kengen????? At over 40 you should sell immediately. And buy KQ - which should be publishing its results any day now.

Why do I say this? The fundamentals support a Kengen price of 15, maybe 20. OK, 25, 30 if you are really bullish.

Kengen is not your fast growing exploding company. It is not your independent dynamic private sector enterprise. Kengen is a large, government controlled entity, which can only grow slowly, has a regulated market is serves, and is susceptible to government intervention. Worse, if a drought hits next year, Kengen will be hit very hard.

Over ten years, you will probably make some money IF IF big IF the government stays out and the weather plays ball. But, it would be better to sell now at 40, and buy back (at about 40) in three years time.

Or instead, invest the money in KQ and double it over the next three months, and then buy back into Kengen in August/September - at the same price.

You talked of KCB, KQ doing well over the very long run. Fine and dandy. But you could have done much better if you sold after the respective IPOs at abnormally high levels, waited for the price to come to correct levels and then bought back.

Investment is about patience. But it is also about taking risk. So take the plunge and sell now, and patiently wait for the share to revert to the correct price, or stay at the high price until the fundamentals support the price again, and then buy back.

bankelele said...

BizKenya: Great Kengen start as you prediced but many IPO's peter out over a few months as tehy stabilize

VituVingiSana; Please send your take on the Barclays and BAT meets

mashatall:

BizKenya: si you give us a peek at KQ (via e-mail)?

kamujinga: If as you say KQ can't pay better dividends, how can you justify buying at the current prices?

falconsgladiator said...

Nice discussions guys.I have been a longtime reader but first time commenter.I believe the price of the shares will stabilize after a few months at around 25/= since the institutional investors will hold out and wait for the numerous individuals to settle down and think about repaying the loans they took.

Speaking of loans, the CMA should ban the issuing of loans to buy shares in the stock market. This issue was one of the factors that led to the 1929 US stock market crash that kickstarted the Great Depression. It gives a false sense of liquidity and encourages wide instability from speculators.

By the way, does anyone know a website where I can get stock charts of Kenyan companies and maybe even financial results.I hate having to look in the newspapers everyday especially being out of the country for long periods at a time.

maitha said...

@ falconsgladiator - try http://www.nairobist.com/stocks/

kamujinga said...

On dividends and share prices: are you insinuating that it would tak high dividend payouts to support a high share price?

Bankelele, the company that is confident about itself invests its earnings in its own growth ie pays out minimal dividends. A company that does not have scope for growth would do well to pay out the money and let the shareholders invest it elsewhere.

In both cases the share price should be high. In fact, some of the best performing stocks globally do not pay out high dividends. But investors expect to make a return on capital gains.

So, to justify buying KQ even if I expect a low dividend payout - I expect high, very high capital gains. Driven by growth in the company.

sassy said...

I totally agree with Kamujinga companies with low dividend payout most of the time will invest in growth and with growth high capital gains depending on the industry. I believe it pays off on capital gains rather than waiting for dividend payout which is rather discouraging to risk seeking individuals and stock panters.
KQ is set to grow with network expansions/partnering with other airlines esp in middle east ,asia and Africa. Management run by a competent team and many more factors its going places.

Anonymous said...

The argument about dividend v. capital growth has been settled; read Jeremy Siegel's "The Future for Investors". Of course, those in it for short-term speculative purposes can ignore the dividends. The hullaballoo about KenGen is pretty amusing; I suppose very few read through that 98-page prospectus. But, who am I to burst people's exuberance!

dropmyload said...

so did anyone get a peek at kq figs? are they really that good?

kamujinga said...

Siegal's argument actually reinforces what I am saying.

The thrust of his argument is essentially this: new and exciting growth stocks typically trade at P/Es that are so high that the eventual return (dividend + capital growth) is less than what you would get if you invested in a low P/E tried and trusted stock.

I agree. BUT, KQ's P/E today is at about 10 (based on 6 month results for this year - annualized), versus the tried and trusted EABL has a P/E of 20, Bamburi 25, Stanchart 16 etc. This is quite the opposite of what it should be. KQ would be expected to be trading at a very high P/E because it is a high-growth company. And if that were indeed true, then Siegal's argument would hold true.

Siegal's argument works very nicely against purchasing high growth companies like Mumias - trading at the relatively high P/E of 23, or Kengen, which is priced at a multiple of ??. But not KQ - it does not have a P/E inflated because of its growth. So actually, based on what Siegal says, it is doubly attractive - it is a high growth company, yet does NOT have a stratospheric P/E. Buy now.

bankelele said...

falconsgladiator: I agree that institutional investors will wait to pay below 25/= and that more guidance should be given on loans to the public (i.e. regulations, information, risk warnings etc)

maitha: Thanks, nairobist are doing a great job with charts

kamujinga & sassy: Am satisifed with the few KQ shares I have, but can't see myself buying more at 130+

Anonymous: some people expect a modest Kengen dividend after June, but nothing to justify the prices

Anonymous said...

@kamujinga,
That's just part of Siegel's argument. His main argument though is about the power of consistent dividends. That investors who stick with consistent dividend-paying counters and reinvest laugh the most in the end.

@banks
The dividend KenGen is likely to pay will only benefit those who'd have accumulated substantial shares by then. I don't foresee them sustaining it for long though; KenGen is heavy laden with debt (a D/E of 0.49?) and the planned heavy capital expansion will suck in more debt and the profits. I don't trust Eddy Njoroge either.

Anonymous said...

Bankelele:how can you justify doubling or tripling your capital gains from KQ in the next three months! what would you advise a blind man on that

Anonymous said...

reviews are welcome @ http://www.stockskenya.com

Peter Tole said...

Fundamentals Stink!
Look at the NSE charts and make your kill.Fundamentals will tie your money for longer than you suppose unless you're just lucky,but i guarantee you won't be as lucky the second and third attempt.
Why hold, you won't even own a millionth of the company by holding say 15000 shares of EABL! You probably know what that cost! But it's just a drop in the ocean.
I beleieve we are in to make money , NOT own companies like Warren Buffet.Guys it's all in black and white, the charts... charts,... charts..... Aint i having fun at NSE
ptosh73@yahoo.com

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