Thursday, July 19, 2007

Kenya Re Prospectus

A to Zz

Applause: A clap and sympathy hug to the Kenya Re advisors, just as I am typing this at 3 a.m.; they also had to burn the midnight oil to update the prospectus and keep everything current. Still there are a few typos there and errors there

Auditors? : prospectus has statement from pricewaterhousecoopers, but not KPMG who are the Kenya Re auditors. And their statement was signed on May 28 (so was their audit/investigation reason for the delay)

Directors : or lack thereof. There’s no mention of the former managing director and finance director (how can former directors have 2.5X the loans that current directors have?). Instead there are mentions that no current directors had no unusual dealings with the company

Dividend: Kenya Re has been paying 1 shilling per share previously, but they project just Kshs. 0.25 for 2007 (out of an EPS of 0.89)

Earthquake: yesterday and evacuation of high rise buildings gave me a chance to stroll down and get a copy of the prospectus

Employees: are only 115, but they get a raw deal and have to buy a minimum of 2,000 shares like everyone else. Plus they were almost retrenched.

Fluff to ZZZZ: insurance is a boring (through lucrative) business. And a good chunk of the prospectus is taken up by narrative on the insurance sector, reinsurance sector, and how Kenya Re is supposed to make money. Association of Kenya Insures should get paid for how much of their content (a 2005 report) is used in the prospectus

Investments: Kshs. 3.3 billion in property, 615m in mortgages (doubled from 2005), 2.2 b in quoted shares (1/3 is KCB, ¼ is BAT, 1/5 is Barclays), 2.1 b in government securities

JKIA: Kenya Re has land along the passenger terminal road at the airport where it plans/hopes to put up a hotel for transit passengers.

Kenya National Assurance: an attempt to roll it (KNAC 2001) appears to be largely responsible for increase of the IPO cost by over 100 million to a budgeted Kshs. 289 million shillings. (Kengen budgeted 400m to raise 7.8 billion). Increased advertising costs (over many months) was offset by reduced printing costs

Mortgages: Kenya Re does not come to mind when you think of mortgage companies, but they do offer finance to home buyers esp. of their residential properties like Villa Franca and South C houses.

Projections: or lack thereof. I remember the Equity listing prospectus had several calculation methods to come up with the value their shares. This one is scant, but maybe they were thrown out of whack. The fact that the prospectus pegs the US$ at 73 shillings shows how many months ago it may have been synthesized.

A Qualified institutional investor: is financial institution or investment funds (expected to buy 100,000 shares minimum). So is this, like a US IPO, where an investment bank can parcel out shares to preferred select clients?

Real estate: a big investment of Kenya Re and almost half the portfolio. But not how upper hill properties are worth much less than before owing to increased availability

A Share certificate: is still an option for IPO investors here - some people still don't believe in CDS or trade their shares (buy and hold for dividends and AGM)

Valuation: see projections

Verdict: Kenya Re is Parastatal that lucky to be where it is today (it was almost sold a mere Kshs 400m song in 2002). It still operates under the notorious state corporations act and is not immune from politics and politicians, and was subject to machinations by former directors that seem to have delayed IPO. Still it’s a good Buy, but after the IPO, and when it lists on August 28.

13 comments:

MainaT said...

Banks-its dull but risky. The recent tremors in Nai will probably cost KRe some coins.
Minor pedantic correction: listing is on 27th not 28th.

Anonymous said...

a note on equities,you seem to have skipped EABL,which at 1.2B is about 1/2 the portfolio.
on real estate,kenya times media trust got 94M for and upperhill plot back in '93.how straight was that?

ka-investor said...

I think its a good buy only in the short term due to the supposed opportunities it has. but in the long term when the compulsory 18% ceding will be out and it will be facing stiff competition from other efficient Reinsurers, it may go the everready way. one thing for sure is that it has alot of un-utilised opportunities.

don said...

Financial institutions are QII? not just unit trusts run by the banks?

Are QII defined with each IPO or is there a CMA definition?

Confusion....

Maishinski said...

Kenya Re is perfect for pure speculation. I would buy into the IPO - and sell during the first week.

It would also make sense to buy only the minimum amount you can be sure of getting. Playing just for the thrill - rather than profit (the "What-if" game hahaha).

I'm not gonna waste my time reading the prospectus. From Bank's Summary, it looks like the document may be full of smelly brown stuff.

Still.. I learned from Accesskenya that Kenyans don't give a hoot about fundamentals. Bigger fool theory is very much alive - so to those who have the time...

SPECULATE AWAY!!!!

You can't lose.

stevo said...

Unless you have several CDS/Nominee accounts, its an effort in futility. Allocations will be around 5-600 shares max, If the price triples day 1, you will end up with a whopping profit of Ksh 11,400 or $172! Hooray!

pesa tu said...

I doubt it will be much cheaper post IPO with only 120million(50% to QIIs and insurance co.s) shares available.

bankelele said...

MainaT: Tremors have come out of nowhere - I doubt if there's much earthquake insurance here
- correction noted

Anonymous: will confirm that error. as I said, Kenya re is lucky to be still standing

Maishinski & ka-investor: I'm going the opposite way and thingking long term - compare it to other listed insyrance companies
- on fundamentals, forget about access kenya. what about the 160,000 who bought eveready?

don: even unit trusts I think. QII is a new term (specific to this IPO) but is that legal?

stevo: The more CDS you have, the bigger the hassle of chasing each account. and e.g if you bbought eveready, you'd get several small cheques that would cost more to bank than they are worth

pesa tu: True. They didn't do a split before the listing. But I hope it won't be above 20 when I'm ready to buy in September

propaganda said...

But since you don't seem to have a problem taking advice from some anonymous guy on the Internet, here's some good advice: keep your money in your pocket. Why? Just because.

propaganda said...

Sorry folks. Wrong conversation.

my said...

An IPO is always a good buy depending on the investment strategy you use to take advantage of IPOs leave along Kenya Re,
i have published an artcle on IPO investment strategies on my blog
mykenyanmoney.blogspot.com
you can read the article and add more insight
The Editor,
My Kenyan Money

Anonymous said...

Dond dilude yourself, Kenya Re is just another fraud. Check this out:
1. The forensic audit was never availed even to the advisors(Kimunya actually lied when he said that the advisors had access to it).
2. There is no discount here, Kenya Re's P/E is 15, the insurance average P/E for listed companies is 13.( Of course they will quote a lower offer price so that idiotic wananchi would think its 'cheap')
3. Why didnt the audit go back at least 5 years, since the NSE listing requires at least 5 years of profitability(Maybe they did not do that because they are hiding losses that would have disqualified it from listing this year).
4. The employees have managed to blackmail the management into retaining them even though retrenchment is overdue.(They must have something on them to warant such drastic change of tact)
5. Just look at the prospectus. Everyone involved is trying to cover their asses in case Kenya Re pulls a ka Uchumi. D&B does advisiong and then comes out with a scathing anaylsis. Ditto Pricewaterhouse.

And I cannot believe that you guys are falling for this fraud.

Anonymous said...

can't agree much with the anony.guy,I thot analysts are trained to see financial shenanigans in the co.s they analyse,and I can't see a single Ins. co. in KENYA which ain't.sometimes we wonder what kind of job auditors in big 4 do as financial gatekeepers.Kenya RE is not an exception.ask accountant in an ins. co.if you aint speculating,KenyaRE ISN'T A LONG TERM BUY,unless of course an analyst needs the commissions.

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