Thursday, July 27, 2006

Equity Bank Listing: A to Z

About Equity Bank, will have a secondary listing on the Nairobi Stock Exchange next month at a price of Kshs. 70 per share. I located an information memorandum (prospectus) a at thanksgiving celebration /prayer /dinner the company threw for 3,000 Nairobi customers at KICC last night – and went through it do decide on whether to buy the shares next month.

Commissions: Banking at Equity is not cheap, and this is the situation in the entire the micro-finance sector – and Equity will probably have to lower some of their bank charges. Their account opening minimums are very low, but some of their charges e.g. cheque clearing are rather high compared to other banks who are now targeting Equity’s customers.

However lowering charges may not be an easy option since, these form a greater portion of the Bank’s income (52i%) than at its peers (CFC 33%) NIC (24%) and D-Trust (30%).

Employment: Despite the staff high turnover, the bank is a good, fast growing, employer that has gone from 354 employees in 2003, to 884 in 2005. It has 35 branches, (14 in Central province, 8 in Nairobi) and over half of them have opened in the last two years.

One issue I disagree with in the memorandum is that Africap agreed to sell 50% of their shareholding in the Bank to staff. But the truth is that staff were forced into buying these shares. The staff trust (unregistered staff ESOP) now owns 5.52% pf the Bank’s shares, same as Africap.

Listing costs: Floatation was much cheaper than a new IPO. Equity’s listing is budgeted at 28 million compared to the Kengen IPO at 401 million and KCB rights issue at 104 million. The CMA and NSE get their fees (8.1m and 1.5m here respectively) as they did from Kengen (24m, 1.5m) and KCB (6.1m, 0.5m) and most of the savings come from not having to pay stockbrokerage and advertising costs. Equity has budgeted 11m for the financial advisers and sponsoring brokers; compare this to Kengen who paid 101m for advertising & 118m to brokers and KCB who paid 13m for advertising, 6m to brokers, 37m as agent commissions, 9m for postage, and 11.5m for printing etc.

Loans: Equity has been keen to grow their loan book ever since they became a bank to keep up with their ever growing deposits. They have five times as many depositors as they do borrowers and while this was acceptable at a micro-finance level, it is important they grow their interest income.

They doubled their loan portfolio in 2005 from 2.9 to 5.5 billion, but NPA’s likewise doubled from 246m to 519m. Their loan to deposit ratio is now 72% (June 2006) which is comparable to CFC (76%), NIC (85% and D-Trust (785) at the beginning of the year

Management: The MD, current Chairman, and former Chairman, are among the largest shareholder in the Bank - and along with employees (in the ESOP) are barred from selling their shares for the next two years.

Marketing: Equity is now a Bank and should focus on marketing as a bank, not a micro-finance institution. The more, the MD shouts about how the Bank is not about one community, being very liquid, excellent global capital rating, not depending on government deposits etc, the more it makes one think about those very issues. Imagine if Adan Mohamed said the same thing about Barclays every time he was on TV. The focus should shift to marketing the bank’s customers, products, and convenience.

Nakumatt like: I’d compare Equity to Nakumatt in terms of their fast growth and they also own very little property (branches).

Ownership: Confusing to say the least, and it would be good to know why the management took such a convoluted route - from building society converting to a bank, converting deposits into shares, private placement to finance the bank’s share capital, and finally the issue of 4 bonus shares for each 1 held that created the 90m shares, that will be on offer in August.

Pesa Point: Equity has signed and agreement with Pesa Point to link their ATMs.

Verdict: In 2005 the Bank returned a pre tax profit of 501 million, which translated to an EPS of 3.77, up, from 2.51 the year before. (Dividend was Kshs. 2 per share, same as in 2004). The Bank is on track for another year of record profits of 800 million before tax and could pass the billion shilling milestone next year.

The memorandum contains joint statement by Dyer & Blair and Suntra Stocks that values Equity shares (par value 5/=) using the DDM method at Kshs. 91.4 shillings per share, PBV at 64/=, and PE method 63.4 shillings per share. The advisers reckon that this compares well to CFC, Diamond Trust and NIC banks, who they consider to be Equity’s’ peers listed on the NSE

Yes, Buy Equity: But not immediately. It will take a few months for the share to settle since, the current 2,800 shareholders of the bank will have to open CDS accounts and immobilize their shares before they can be traded. In 2006, 2.5 m shares have been sold in the OTC market. A share split is likely but it is also prudent to ask if the Bank is growing too fast.


JabaBoeku said...

@Banks: Thx so much for the 411 on Equity - I have literally perused all financial blogs looking for infor on it. Once again thanks.

On the forced ESOP scheme; I think its a cheap management strategy.

Marketing: True true - its time Equity took a more realistic approach to the market - ranting and raving about 'what they are not' is not marketing...sounds more like what happens to someone trying to deny a nickname!!!

CDS Immobilisation I thot there was a set window btwn which all existing s/holders were to immobilise their shares?

Final analysis: Equity Bank holds a very significant place in the rural sector - which explains their growing deposits.
The euphoria @NSE alone will def push the share price up, so I agree, a buy decision is good!

coldtusker said...

@Banks - Nice summary. Valid points. I know many disagree but the "superfast" expansion can be problematic if your systems can't cope.

Trust Bank expanded very fast with branches in all large towns (Nairobi, Mombasa, Kisumu & Eldoret). They were in TZ as well.

Is there an Equity Bank prospectus or copy online anywhere?

ESOP: The truth is that MANY employees prefer not to "invest" in their company. When the going is good, they will be the "dissatisfied" lot who will downplay the success of the firm since they are NOT participants!

There are risks e.g. HFCK, KCB, NBK etc whose prices fell due to poor management BUT ESOPs give employees a direct stake in the success of the Bank.

There are Walmart employees who earn minimum wage BUT are MILLIONAIRES thanx to buying shares in Walmart in the early years!

CDS: You have the RIGHT to a paper cert but there is a cost vs free for "electronic" entries.

bankelele said...

Banks: Gathinga, Stock-detective, and someone else have also written aboout Equity.

The shares are immobilized from 24 july to august 4 i think

Coldtusker: Their expansion is rapid, and they are gobbling up deposits, and they are not buying up buildings. The day they announce they are building a new super headquarters, then you'll know something is wrong!

No prospectus online yet, but abridged version should be up in a few days.

On ESOP as many employees have been burnt by havins so much retirement invested in ccompany shares e.g. enron

Joseph Walking said...
This comment has been removed by a blog administrator.
Joseph Walking said...

Bankelele. I also think equity is a good buy but the price is kind of high so I choose to pass but could you explain how IPO prices are determined coz I think equity is kind of on the higher side. Same applies to scanad I can’t seem to reconcile how scanad shares can have a higher IPO price than kengen. Given that in terms of assets and profitability scanad is nowhere near kengen. Based on those two facts I was expecting scanad shares to be like 1 shilling and 40 cents. Please explain so we don’t miss out on good deals

coldtusker said...

@Joseph Walking: Helping Banks out here (hope doesn't mind)...

First an admonition - you can't expect Banks to do your basic research. Put some effort into it... but since you are a newbie...

ScanGroup - Shs 10.45
KenGen - Shs 11.90
Therefore ScanGroup is priced lower than KenGen. This is research you could easily do on your own!

The price an IPO is set at depends on MULTIPLE factors not just Net Asset Value. The price of shares on the secondary market is determined by additional criteria.

I recommend you beg, borrow (not steal) "A Random Walk down Wall Street" and then move on to "The Intelligent Investor".

Do not compare Equity Bank to ScanGroup & KenGen but to other banks e.g. BBK, HFCK, NBK, etc.

Then whittle down the list to its peers that have a similar deposit base or size e.g. NIC, CFC, Diamond.

Compare EPS, P/E, growth rates, interest margin, etc....

Here are some blogs & websites: (Dont let the name fool ya) (plug for my blog) (a fav of mine)


coldtusker said...

The idiotic MPs are at it again! Why do we elect the most moronic legislators!

Kenyans are idiots!

Check my rant at

"Immovable Assets" - Do those idiots have any idea what they are jabbering about?

MpendaPesa said...


Sasa wewe - if you updated your blog regularly it would be a good read! Lakini you keep reminding us to visit your blog na wewe mwenyewe you are not visiting (updating) this blog. Please update that blog - we will visit the blog! Good colors on your blog though!

Anonymous said...

what the fuck ?

Nelie said...

I agree with Mpendapesa. I always check your blog lakini wapi. Nada! not an idiot! Don't generalise that all Kenyans are!

bankelele said...

Joseph Walking: Equity is not an IPO and their shares have been trading at between 70 and 100 OTC in the last year - After August 7 the public will now determine the 'true' value, if there's such a thing.

Coldtusker: a lot of what is said in parliament is 'hot air' as you can see at

MpendaPesa & Nelie: In defence of Coldtusker, he has two blogs ( and ( with updates on either especialy "financial gaffe's" posting. I have asked him to merge them since.

Nelie said...

Coldtusker - I read the gaffes post and NOW I understand your indignation at business journalism in Kenya. Yes, I am (temporarily) embarrassed to be one of them and gobbling humble pie with my foot firmly lodged in my mouth.
Liked your blog -- no am not buttering you up!

Sijui said...

I completely disagree that Equity should market itself as a hifalutin 'conventional' bank. To me this would be the kiss of death.......after all banks in Kenya have a well deserved reputation of being elitist, under-handed and predatory to say the least. Personally I am switching to Equity PRECISELY BECAUSE I KNOW IT IS NOT BARCLAYS....I take great pride in moving a sizable deposit from them to the 'little engine that could'. And I will make sure I do a production out of it!!!

What I will agree with, is that Equity should become more savvy in its marketing. Stay true to your roots i.e. the hardworking informal entrepreneur however tease away more conservative, middle class/upper income customers by highlighting the REAL return on investment for them. Simple......use the WAL MART model.......focus on the nitty gritty that appeals to all conscientious investors. THE BOTTOM LINE FOR YOUR POCKET BOOK.
Buy! Buy! Buy!!!!!!

Joseph Walking said...

hey! cold tusker my question still hasnt been answered. yes i know scanad shares are a little less priced than kengen, but given that kengen makes huge profits ,has lots of assets and is practically a monopoly how does an ordinary mwanainchi like me know that the shares are priced accurately. thats all i am asking.

coldtusker said...

Nelie, mpendapesa (I like the name): - 2 blogs. I try to update both but the Financial Gaffes is a 'constant" update... Thanx for visiting...

Banks: M trying to separate the "finance" from my "politics/personal gripes" thus the 2 blogs. Thanx for the clarification.

Nelie: Not all Kenyans are idiots but I get frustrated when we keep on re-electing the same "thieves, crooks & harlots".

I am from Westlands constituency & just coz Gorilla gumo jumped from KANU to NARC, he was voted in by the fools in my area who "forgot" gumo's past crimes including VIOLENCE! gumo is an IDIOTIC THIEF who confessed to getting land for "free" then selling it to CBK for KShs 300M. The land in question is where Times Tower is built on & apparently CBK ("the owners") doesn't even have a Title Deed!

Hmmm... you think KRA & CBK will be evicted when the "real owner" shows up with a Title Deed? Will the building be "taken over" for free by this "owner"???

Do I see a SCAM? Unless CBK can move the tower, it will end up in the hands of the owner of the land/Title Deed!

Of course there is no refund for the Shs 300M!!!

Amazing... my word verification was CHAOS for this comment! What a blast considering what I feel...

coldtusker said...

Joseph Walking: My friend... What you are asking is a COMPLEX subject that could be an MBA program in itself...

The reason for the websites was for u to get started.

No-one can answer for certain what the true price is thus the best determinant is the market. You need to figure out if the market price is higher (then sell), same (then hold)or lower (then buy) than your value/calculations.

KenGen has larger profits & asset value than ScanGroup BUT they have 2.2 Billion shares thus 14x the shares!

To be "equivalent" KenGen has to have 14 times assets, profits, etc... even then it is NOT a comparable coz the dynamics are different.

ScanGroup doesn't need physical assets but CREATIVITY. KenGen needs DAMS, GENERATORS, etc...

No easy answers here... but hope the above helps!

Ken said...

Banks, your analysis is priceless and will take your advice with a pinch of salt.
I think Equity is a huge dillema and a chance to really test the 'wisdom of the crowd' Whether the price settles below 100 or not really depends on Kenyans moods plus a couple of institutions.
checkou my thoughts
May I join others on this blog to request cold tusker to consolidate his content into a single blog. (Tumia tags bwana)

Anonymous said...

@ joseph walking: the fact tha one share costs $35 and teh other $10 means absolutely nothing execpt the affordability. otherwise its like teh price of an orange and an apple they may both cost $1 dollar but that doesnt make them equal and orange maybe considered cheap @ $1 and an apple maybe considered expensive @ $1

coldtusker said...

@ken - I am still learning the ropes.. What are tags & how do I use them on my comments/blog?

@anon - Nice analogy... plus tasty!

propaganda said...

Banks: Mwangi recently made some remarks about shareholder democracy that may explain the forced ESOP and your question about ownership changes. I was hoping they appear in the prospectus...

Coldtusker: If you want to get really angry about democracy's failure to prevent people from reelecting 'thieves' like Gumo, read Amy Chua's World On Fire. The 'power of property' has been snookering the 'power of the ballot' for centuries!

About tags: use (x) to open and (/x) to close*. E.g. to put 'World on Fire' in italics I used (i) before it and... Blog on.

*The tags allowed don't work in the post, but you get what I mean.

coldtusker said...

nelie/banks/anon/mpendapesa - Well, posted new materials this weekend on my blogs. But you have to leave comments otherwise I have no idea you visited... the Chicken & Egg gig... more comments more incentive to blog!

JabaBoeku said...

@Banks: On a totally diff topic: do you know if its possible for CDSC to post members' statements via emails rather than smail mail?
It would save then quite some cash on postage fees?
Any word on this topic?

Joseph Walking said...

"joseph walking: the fact tha one share costs $35 and teh other $10 means absolutely nothing execpt the affordability"

As an investor affordability is one of my prime concerns .

."otherwise its like teh price of an orange and an apple they may both cost $1 dollar but that doesnt make them equal and orange maybe considered cheap @ $1 and an apple maybe considered expensive @ $1"

thats exactly my point as a trader i am not investing for short term goals. all my investments in kenya are long term and as such i want to get my moneys worth. your anology does not help they may be apples and oranges but is the value assigned to each varifiable and correct.. i dont want to invest in an overpriced companyy then a few year later when ythe nse improves its regulations and minitoring my shares are devalued to junk status.

coldtusker said...

@jw - If you invest for the long-term you are an INVESTOR not a TRADER.

Congrats on your reasons for looking for more than the superficial! I like your deeper probing thus this is what makes you successful.

Markets are NOT rational in the short-term but generally correct themselves in the long-term.

Individual firms have multiple variables in the long-term that need monitoring.

Start with trusted management. I wrote a blog on that recently. Let me have your thoughts.

bankelele said...

Nelie: Nation writers have great story today (Tuesday) about Equity MD not being who owns 7% of Bank. Law says bank execs can't own more than 5%.

Sijui: They can market themselves as a mwananchi bank, but they will have to disclose more info to the public and customers especialy on charges and interest rates. Good luck banking at Equity and do share more details

coldtusker: I hear Gumo sold for 300m, but only got a pittance of that

Ken: Thanks. I'd give it a few months, as more shareholders immobilizise their shares for the price to settle

Propaganda: all ownership changes appar in the IM, but it's a bit confusing. Mwangi really upped his own shareholding in the private placement last year

JabaBoeku: CDS statements not being e-mailed. They should consider it though, I mean there's a slot on the application form for an investor's e-mail - so it's possible!

gathinga said...

your blog now has matured in terms of critical mass. would you consider to allow jamaas to advertise on it...?


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