Thursday, August 10, 2006

NSE: Share split and divesture

EA Cables split
The Board of East African Cables which has been riding high atop the stock exchange has recommended a 10 for 1 share split - 20,250,000 of par value 5/= will be split in 202,500,000 of par value 0.5 each.

Shareholders will be asked to approve this (really a formality since the Trancentury Group controls 75% of shares) at an EGM on September 1, books close on September 4, and the new shares will be listed on September 5, 2006.

This is the third company after Kenya Oil and East African Breweries to split their shares, and the others appreciated significantly thereafter. EA Cable shares have already climbed by 10% this week from 364 to 399 per share.

Intriguing, but maybe out of reach for me now since, a typical investment of 10,000 shillings, will yield only 25 shares at the current price of 400 shillings. After the split, this becomes 250 shares of about 40 shillings, which still looks promising.

Mumias Divestiture
As promised in the 2006 budget speech the Government has now began the process of divesting from Mumias Sugar Company. GoK will sell 18.04% of its’ 38.04% shareholding through an offer for sale on the NSE and parcelling the shares through brokers should be cheaper than going the mwananchi route again. As such they have advertised for transaction adviser/lead broker, legal advisor, reporting accountant, receiving bank, and PR firm to assist with the process with applications expected at the Treasury by 24 August.

26 comments:

mushenzi said...

Do you think EA cables are gonna appreciate more after the split. Considering how they've risen in the last few weeks, i highly speculate they could hit 100 fast after the split just like akina kenolkobil....au sio?

Ig-know-rant said...

It's precisely because of these things that one gets to mistrust the NSE. Obviously, someone in the market was aware of the forthcoming share split, was playing with the prices hence the price appreciation. Technically, only the Board of Directors should be privy to this info. With Corporate Governance levels being so low in this country and the Companies Act remaining a colonial relic (hasn't been substantially revised since 1948) we'll not get very far. Right now I'm waiting to see how the SG share allocation will play out before I make my next move in the market.

JabaBoeku said...

@Banks: Thx for the insight on this blog.. it remains a true must-read blog.

Keep up the good works!

JabaBoeku said...

@Mushenzi: Given the euphoric, unregulated nature of NSE and the amount of cash lying around, I bet the prices will sky-rocket.

Furthermore, @40 it will be a really hot share to have. what du u think, Banks?

Annex said...

@Banks - thanx for the info. I don't brag but I had told you so (EAC split & boardroom tactics - see annex comments 03-08-06).with the number of EAC shares in the mart - split was in the offing once it hit 300.
As for Mumias - Kimunya needs cash (with KRA shortfalls & 2007 election)& knows the market is ripe & drippin'.
Expect more of this.I hear the pressure is on for some % of EAPC -to reduce govt interference

bankelele said...

mushenzi: Likely to appreciate after, but I think there wil be more sellers than buyers after.

Ig-know-rant: Something was up clealy with the company moving up 20/= on Monday (3,400 shares traded) and 15 on Tuesday (19,332 shares traded)

JabaBoeku; Thanks, I have to evaluate. Prices may even reach 500 before the split, but I think new shareholders are too late to the party

bankelele said...

Annex: Unexplained skyrocketing prices a amrk of insider trading. On EAPC: Problem is there are no shares to trade with the public only owning 6%. NSSF tried to sell some shares last year, but Government refused. So I think Govt will sell, but only after Lafarge also reduces their stake (hence the sudden anti-monopoly noise) ensuring control remains with the Minister of Trade.

Alibaba$tocks said...

For current shareholders except T.G nothing much to celebrate for a share split nothing changes fundamentally except the par value.

Caveat emptor for i see price fixing b/n certain brokers and guaranteed blind eyes from CMA & NSE but viola for T.G.

In current case T.G is broadening ownership and window dressing for acceptability aka maketing gig. In developed marts hostile takeover would have been eminent with such a thin spread of ownership and with an eye in the future and possibly a change of gov't within an year we are seeing self alignment.

With informed investors unlike speculative NSE no appreciation of share was necessary. But with excess liquidity a scamble is expected with demand outsripping supply. For the near future MPs will be dishing money to the economy as elections approach conditions worsening.

Prospects good for the share price with uninformed public confusing a split with a bonus.

speculatar said...

I see EA Cables hitting sixty then starting to sway between 55 and 65. Which will mean a 50% rise in prices. Of course the share split had to be done knowing that less and less people could afford to buy a significant number of the shares.

annex said...

STOCK SPLIT CYCLE:
1.Pre-Announcement - Stocks tend to climb faster than usual during the 60-day period prior to a split announcement, and even that rate of increase will normally accelerate during the final 30 days before the announcement (Ref EAC recent gains) 2.Announcement - Stocks often jump sharply on the split announcement, and may continue to increase in value during the following few days (watch EAC next 5 trading days) 3.Dormancy - A few days after the announcement, stocks will usually begin to drift into a "dormancy phase." This is when the stock will level off and consolidate its recent gains. However, exceptionally strong stocks in a leading sector may not go through a dormant phase as they continue to power higher. The shorter the time frame between the announcement and the execution date, the shorter the dormant phase. 4.Pre-Split Run - When a stock nears its split execution date, it tends to pull out of the dormancy stage, and accelerate as it heads into the split. 5.Split Execution - Stocks generally move higher quickly as they begin trading at the post-split price 6.Post-Split Depression - Once the initial excitement of the split fades away, the stock typically declines on lower volume for a period of time.
The flow of the market and its sectors will also affect how the split life cycle plays out. Traders and investors should consider the market and sector environment when deciding on their trades. Each stock split behaves differently. Some will soar after a split announcement, and others will drop. A lot can depend on how much appreciation the stock enjoyed before the split.

Do our local examples esp. EABL exhibit this cycle?

bankelele said...

annex: announcement day price up 78 shillings from 399 to 477 (19.5%). Is that even allowed? I thought shares could not rise or fall more than 10% in a day

coldtusker said...

Annex - great summary of the general characteristics of the Split...

Banks - After an announcement is made the latitude widens considerably i.e. the price setting mechanism is an auction. The 10% band does not come into play.

EACables - Very impressive performance but IMHO, overpriced. The EPS is expected to be Shs 12-15 for 2006 (based on 1H 2006 Results). The profit growth is much higher than most other firms.

At 477/- the forward P/E is 32. Unless the firm can manage growth of 25% over 5 years, the current price is too HIGH.

BUT I thought it was expensive at 120/- & have fallen flat on my face!

annex said...

@Banks: crazy market today.
EAC up 78/=;KCB falling despite 63% increase in 1st half prof;EAPC up inspite of all thats going on;NBK steadly going up despite their non-exstent b/s & no dividends for next 2 years.
At least EQTY is correcting!
@coldTusker...(ur name makes want to skip jobo this very moment)
I think the frwd P/E at 477 is around 45.8

mushenzi said...

EACables looks like it might touch 800 bob before the split happens... Any idea of any other listed firm Transcentury might be targeting to acquire a stake? maybe we could jump ship early enough and make some buck with them as well.....

coldtusker said...

annex: I used the upper range of my EPS estimate (15/-).

If you extrapolate from the 1H 2006 results then it is 12/- but EAC acquired the TZ subsidiary in 2H 2005 thus I expect benefits to accrue in 2H 2006.

Plus EAC will be higher gear with KPLC's expansion.

I doubt TG will bail BUT some of the individuals may own shares that they can sell at higher prices.

BUBBLE...

gathinga said...

interesting info.
true our company law is rubbish. bu all should agree that we are going forward. the market is vibrant now... there is a healthy debate on many issues (see Mbaru calling for review of the bankrupcy laws)...we are doing well in the circumstances.


With EAC this share is grossly overpriced for nothing. the net asset value does not warrant this kind of price in a rational market.

but the fatcats who are in it will make cash anyway

Anonymous said...

hey, what criteria is the govt using to divest or sell shares in companies - i think some transparency is needed,

im becoming suspicious as for example why was kengen put on the block before KPC or kenya-re. or numerous other corporations.
could it be that the people who run this companies are close to the center of power and hence
have lined up there friend to buy major shares - are this other cases of insider trading?

why is the govt still holding shares in some corporations - what criteria.

i think all the govts holding need to be transfered to one holding company - sort of like temasek in singapore
http://en.wikipedia.org/wiki/Temasek_Holdings
and also clear guidelines need to be set on govt divestment

bankelele said...

Alibaba$tocks: Kudos to T.G. cashing in big time as more buyers rush to "now affordable" EAC shares.

speculatar: Good projection of after-price

coldtusker: I doubt if the 10% rule is watched too closely at the NSE unless a share is dropping. I too thought EAC was expensive in the 120 to 150 range. chewing my shoe

annex: market is crazy. NBK inexplicable even with Stanbic rumours (unless NPA agency take over & govt assumes some of their debt)

mushenzi: 800 would be madness, unless its brokers tapping up the price.

gathinga: It's sad that everyone knows how bad our old laws are but its never a priority to change. some business licences have been eliminated but the skeleton is still there.

annex said...

@Anon/Banks - Told you Kimunya's busy.Futher divesture - ads out for professionals to assist in divesture of 40% of Kenya Re through IPO. Kenya-Re had fair results last 2 years
Gross Net Premiusm - 1.2B(2005) 1.37B(2006)
Profit after tax 380M(05),387M(06)
Kenya-Re is in good business (Very little compe) so with better mgt looks like good investment.
Also 40% off-load means less corp tax so better EPS in future.

roughalmasi said...

Anonymous:If details of all Government ownership in various companies/parastatals were checklisted you might collapse and need the services of a Doc., money badly spent !

Ken said...

Last year EAC had a lawsuit with KPLC so i decided to stay out, then after the transcentury restructuring and all I started thinking its overpriced at over 100/= I have been singing that all the time. Now I truly believe it's overpriced at anything above 260/= I keep singing it keeps climbing, I'm I the irrational one?

Banks thanks for the info.
Sorry for sounding lazy but is it possible to rss the comments section too. :-)

Anonymous said...

everything annex has said is pretty much garbage.

Alibaba$tocks said...

Investing in shares is an art rather than a science as you can't be exclusively right or wrong. What matters is the game plan you employ-stick to it. Stientific precision is a no, no, no whichever school of thought.

A stock price is always fairly priced based on the sum total of investors ( aka mart) perception.

A few rules i strictly observe;

1) Sum total of investors, "you" will always beat me with perception based on info held- a secret weapon-unless it gets to the public domain.- 'annex' did u use the hindsight as predicted.

Lesson; Always buy the business i.e the future price of a stock and not the current stock price to trade. I have to keenly watch your moves to at least predict & gather what you hold as fresh info. Suprises yes but a spread of 3-6 months does not deter my strategy unless a mart corrective measure.

2)Movements generally does not worry me so much as my pick fundamentals hold. Generally blue chips having matured and predictable signal bearish or bull market. You can tweak moderate returns with low risk- EABL,BBK,BAT etc.

Lesson- As long as my pick moves downwards with the blue chips no cause for alarm, a general trend. Percentages are more rational than points.

More......? lets compare notes!

Anonymous said...

My take is that You are forgetting that more cash is needed for the upcomin IPOs.
Which stocks are geared for a rise? A steady rise at that.
Don give the go to your broker stuff.

mwasjd said...

With the news that CMA is going to investigate EAC for insider trading, and NSE immediately coming out saying that there's no foul play, we are in for interesting times regarding stock trends and rules.

I'm relatively new to the game but I think the 10% rule definately doesn't apply when a major announcement is made. But EAC to hit 800 before the split, that's a bit too much. I'm also one of the pple who said it was too high at 120's. Now, I'm in pain!!!

But somehow, it seems some major players are lining up coffers for next elections bankrolling...

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