Shares Portfolio August 2011

Comparing changes to three months ago and since then, investor confidence has dipped following rising food & fuel prices, power rationing and a sliding shilling.

The Stable

Barclays Bank ↓
Bralirwa Breweries (Rwanda) ↑
British-American Investments (Britak) ↔
Diamond Trust Bank ↓
East African Breweries (EABL) ↓
Kenya Airways ↓
Kenya Commercial Bank (KCB) ↓
Kenya Oil Company (Kenol) ↑
Scangroup ↓
Stanbic (Uganda) ↓
Uchumi Supermarkets ↓

Review: The Portfolio is down 5% in the last three months while the NSE 20 Share Index is down 12%
- Best performer: Bralirwa 33% (this Q), then Kenol 22%
- Worst performer: Uchumi -39%, Diamond Trust -26%
- In: Britak, Safaricom
- Out: None
- Increase: None
- Decrease: None

Other:
Splits: Barclays
Bonus: Diamond Trust , Scangroup, and Stanbic Uganda
Dividend: KCB, Diamond Trust, Bralirwa, Kenol Scangroup, Stanbic
Events:
- Uchumi re-listed after five years of suspension.
- Took on the new IPO from Britak IPO (results on August 23), but passed on other new listings from Transcentury and Bank of Kigali. Meanwhile there are no privatizations on the table from the Government of Kenya
- NSE companies are making efforts to clean up their shareholder registers, with a view to applying dividends that have been unclaimed for several years to their reserves, otherwise they will have to be surrendered to the Government

Data: The NSE has stopped sharing free price lists, which now makes it harder to access daily market data. Meanwhile the CDSC has stepped up with investor awareness, and you now get a SMS notification of trades (shares sold/bought)

5 ways to protect your NSE shares from irregular sales

We all hope the days of collapsing stockbrokers at the Nairobi Stock Exchange (NSE) are now a thing at the past. However new share offering such as Britak, Family Bank and Bank of Kigali, and other personal finance initiatives such as the I’m a Cooperator movement are likely to convert some people into first time share buyers. So how does one ensure that their funds are not misused by an errant stockbroker or their employees? Read on

A guest post by Shiroh
While it takes a lot of sweat to save for investments, many investors have found themselves in a tricky situation when unscrupulous dealers engage in irregular sale of their shares. While this practice cannot be tolerated for all involved, it is important that one takes proactive steps to avoid losing your investments. These can include;

1. Subscribing to the Central Depository System Alert Service: The mobile phone has truly revolutionized many industries in Kenya. For a nominal amount of Kshs. 10, one can receive alerts to their mobile phone anytime a transaction is made from their CDSC account. For more details, check the CDSC Kenya website.

2. Freezing activity on CDS Account: Since getting mobile phone may not be possible for people residing abroad, freezing any activity on a CDSC account can be done. These instructions are communicated to the CDSC and activity can only resume at the request of the account holder.

3. Constantly monitoring your activity of your account at your preferred Stockbroker. Many people don’t bother to check the activity of their accounts once they make the investments only to get a shock of their lives when they want to liquidate them. A broker is under obligation to provide investors with a statement of account through which they can monitor the movement of their investments.

4. Developing a personal relationship with a dealer or broker. While some personal relationships work to the detriment of the investor, sometimes having a specific person who can address any enquiries that you have can be a great plus.

5. Finally, you should report any fraudulent sale of shares to the Complaint Handling Unit of the NSE.

NSE Portfolio August 2009

Market picking up steadily since last quarterly review in May 2009

The stable

Diamond Trust ↑
Kenya Airways ↑
KCB ↑
Safaricom ↑
Scangroup ↑
Stanbic (Uganda) ↑


Review:
- Best performer: Safaricom up 34% this quarter
- Worst performer KCB up 5%
- In: none
- Out: none
- Increase none
- Decrease none
- Unexpected gains/losses: KQ record loss, safaricom profit drop

Events & Outlook:
- Performance: The Portfolio is up 12% in the last three months while the NSE Index is up 14%. I’d like to think I’m doing better, but Safaricom has lifted the index to a greater extent than my portfolio (8% weight). Safaricom largest weight on the NSE, is also probably now the country’s largest tax payer, largest retail ISP, seller of mobile phones, mover of retail money etc.
- got dividends from all the banks, which are experiencing a slowdown in growth in 2009. Dividend included Stanbic Uganda but will have to increase shares there to minimize impact of clearing foreign cheques so that it does not eat ¼ of
- Looking forward to dividends from Safaricom (but no SWAG ) from Safaricom and another from Kenya Airways (despite their making a massive fuel hedge loss)
- Privatization The Kenya Government has lined up several companies that may be availed later in 2009, however these may not be listed until the market picks up sufficiently. Will look at Family Bank and KWAL (Kenya Wine Agencies)
- New media: The Nairobi Stock Exchangem - @NSEKenya is now on Twitter, while the CDSC launched a new web site to enable investors to better track their portfolios.

Ugandan Envy

this is NOT about Migingo Island

Google Earth image courtesy of afromusing

A year ago wrote this on the information availed to Ugandan investors by their companies; this year the envy is even more, it makes me sad; that by being the leading country in the region, we may not notice we are being passed in some aspects of investor awareness & rights.

Use of E-Mail: The Stanbic Uganda invitation/AGM notice again arrived by e-mail; now many Kenyan companies have passed by-laws allowing them to send out e-mail notices and annual reports to shareholders, but none has done so far. Maybe, with the eventual passage of the much maligned/controversial communications bill the legal framework is now there to back enable this – but we’ll see; While not every shareholder will have an e-mail account, if 1/4 of 1/3 of some company’s shareholders (Kengen, Co-Op, Safaricom) do, then these companies could potentially saves millions of shillings in postage costs.

Investor Disclosures:
(i) For Stanbic UG, rules of voting are clearly stated – shareholders are to endorse new directors and that 1/3 of directors will retire at each meeting.
(ii) for directors who are up for election, their mini-CV’s are printed out for all to peruse i.e. their ages, year of appointment, educational qualifications, directorships in other companies, and committee seats they. In Kenya, Company Chairmen just mumble through, if at all, fully expecting elections to be a foregone conclusion. Refreshingly here, the directors up for election at Stanbic Uganda (Hannington Karuhanga, Kitili Mbathi, and Samuel Sejjakka) are all younger than 50 years. In Kenya, opportunities for younger leaders & directors are the exception rather than the rule. But at Stanbic Uganda - the Chairman and Deputy Chairman have their tenure is capped at two terms of 5 years only.
(iii) Remuneration of directors is declared. Again in Kenya money amounts paid to directors are rarely mentioned, but in Uganda they are spelt out for shareholders to approve – here the Company (non executive) Chairman gets an annual retainer of US$7,500 while a director gets US$5,500

Language used; several companies (most recently) KCB have amended their company article to allow for electronic communication with clients; but they merely replace one of gibberish with another one, without bothering to explain what the jargon means. Here; Stanbic explain allows video-conferencing or tele-conferencing to be used at board meetings

Proxy detail proxy forms contain a lot more details including the items to be voted for with shareholder able to vote for or abstain on votes. They also call for shareholders to provide contact details (name, e-mail – what an easy way for a company registrar to build up a working database to manage is subsequent years)

Shareholders or their proxies (who can be more than one)are entitles to attend, speak, and vote, and the endorsement /presence of a proxy does not disqualify a shareholder from attending; this enables a shareholder to bring his wife/wives or children for them to learn about the process!

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Investor guides: There are many things to learn from other countries in the region on investor rights and information despite Kenya being the leader. We are innovative, Uganda is about to unveil a CDSC system that Kenyan investors have had for three years, but which rogue stockbroker have besmirched. It would not be surprising if the Ugandan version may be sorted out ahead of time, closing loopholes that will be used to protect shareholders, and by educating them on how the system works.

All the regional exchanges – Kenya, Tanzania, Uganda, and soon Rwanda (where KCB, Kenya’s largest bank in Kenya will be the first company to have its shares to be (cross) listed & trading) all have the same information; but my NSE seems stale, like all the regulations were put up years ago and forgotten. Usualy we just check for the latest share trades, bond trades and quarterly financial announcements.

e.g. Faced with a budget deficit, Kenya has lowered the minimum amounts to invest in bonds to Kshs. 50,000 ($625). The Central Bank of Kenya which issues these bonds has put up some investor information basics, but nothing from the NSE who trade in these bonds. In Uganda, there is an advisory page for investor guides for bonds and shares, for any new investor to read, download for free.

Also in Kenya , tribe is the unacknowledged elephant in the room; one we pretend to not be influenced by, but which governs many aspects of our lives. Kenyans are required to communicate official in English (almost all government documents), and to a lesser extent in Kiswahili. But there are rural folk who may not understand the national or official language, but may wish to learn about shares and bond Uganda has investor awareness booklets in vernacular languages – including a Luo investor guide (PDF)(for the Northern Region) available from the Uganda Securities Exchange. And that, properly disseminated, may be worth much more than a small island.

Difficulties Changing Nairobi Stockbrokers

Stockbrokers are falling at the rate of almost two a year, and tales continue to abound.

The reality is that, sooner or later, you may need to change your broker and while I've had this post for over three years about how simples the process of transferring shares from one broker to another should be, the reality is very different!

Kenyan shareholders have had the option not having share certificates for a few years now. With a central depository system (CDS), you surrender your share certificates e.g 1,000 Kenya airways (KQ), and in exchange get an electronic account/statement which is updated each time you buy or sell, shares. You also get all your dividends and annual reports by mail.

Still to buy and sell shares you have to go through a stockbroker, who ideally should have the same tally as your CDS statement. Recently problems have been had with rogue brokers, who would sell share without informing clients – and clients would only find out when they got a CDS statement showing less shares than what the broker said they had. Later the frauds went even further when brokers would ensure that even CDS statements didn’t get up-to-date records of share sales.

I had to change broker for a company account this week and the reality was much more than. I had a team of people, the transfer was between two viable brokers and we were able to get all the (numerous) documents that were asked for. Yet it still involved almost a dozen trips to the office and took almost two weeks.

The steps taken included
(i)Open an new CDS account with new broker
(ii)Close old CDS account with old broker
(iii)Move shares from old to new CDS account

Documents that were asked for included
- 3 copies of Certificate of incorporation with – one stamped by old broker, one stamped by new broker, one for the CMA (all stamped by company seal)
- Memorandum & articles of association requested by new broker (was not required at old broker so copies had to be traced and photocopied)
- 3 copies of director ID or passports – stamped by old broker, stamped by new broker, one for to the CMA (all stamped by company seal)
-2 copies of form of shares being transferred one called CDS 4A and one called CDS 4B, signed by directors and stamped with company seal. One form must be stamped by old broker, one stamped by new broker
- 200 shillings ($2.50) transfer fee

Now imagine what it is like trying to reconcile accounts, reclaim investments or move from a collapsed stockbroker? Or a fraudulent one? Or one who doesn’t have motivated (paid) staff, or proper records?

Also until last year, IPO’ were considered sure winners – and people would open several accounts e.g. in the name of their mother, grandmother, cousin, maid, driver etc, all in a bid to get more shares after the fractional allocation that characterized Kengen and Safaricom IPO's, but before the price rocketed up on day one. Many CDS accounts were opened, many by new temporarily hired staff in a bid to get as many applicants in as possible during the limited (IPO’s usually 2 -3 weeks) and some rules were readily relaxed. I explained these to the new broker, but they said CMA can come and audit their files and they have to comply CMA have their hands full with collapsing or non-compliant stocbrokers!

So, finally, the new account is now open, after a very tiring two weeks, during which I confessed that it was maybe better to sell all the shares held at old stockbroker and open a new account at new stockbroker than to attempt to transfer the shares.

Nairobi Stock Exchange Fiddles

While investors burn or run

Fresh off the appointment of a new chairman of the Capital Markets Authority, the owners of the Nairobi Stock Exchange welcomed him with another pledge to:

-Cap broker ownership of the stock exchange (NSE) at 40%
- Reinforce compliance and supervision through implementation of a risk based supervisory approach yada yada yada.....
- Deal with the findings of the PWC Forensic Report on Nyaga Stockbrokers once the report is received from the CMA i.e. they officially haven’t seen it!

So they throw the ball back to the Government (to fast track the demutualization process - and what this entails) and the CMA (new Chairman to act on the report) while investors rush back and forth like headless chicken changing brokers in search of the one honest broker left in Nairobi, while also yearning to return to the good old days when share certificates were kept in bank vaults or under mattresses.

Kutwa Tuesday: July 8 Briefs

away from the Grand Regency

Banking

- CFC/Stanbic merger/takeover formalized: As at June 1, the combined banking groups had assets of 78.3 billion shillings [$1.26 billion], deposits of 55 billion [$888 m] and loans of 38.9 billion [$627m]

- EABS Bank is now Ecobank Kenya

- Business Clubs: Bank of Africa will launch a small business Club for clients. 

- Going international: building on the success of Safaricom’s M-Pesa, Vodafone will do money transfer between UK and Kenya challenging Western Union on phone transfers to India, Turkey, Egypt and South Africa (from Balancing Act Africa) 

Investments

- Everyone loves Safaricom; with 90% of the shares volumes since listing, the company has been added to the AIG index, NSE 20 and NASI indexes from July 1

- One month after Safaricom allocations, and despite paying an extra fee (30/= for a CDS statement) and making several trades, no new CDS statement has come in the mail 

Media

- KTN joins the morning show club with Sunrise Live – coming a few months after Citizen TV and Nation (NTV) with their ‘breakfast shows’

- There’s a relaunched Standard newspaper out today with new layout – but their byline For Fairness, Justice, and Prosperity is straight out of Superman

Energy

- Sweden/China joint oil search: Lundin Kenya has bought a share of the field assigned to China [Block 9, Kenya]. 

Travel

- Having moved to cut out travel agents, Kenya Airways will next offer hotel and car booking online at their website

- Rift Valley Railways (RVR) will raise freight charges up 14.5% and will charge a fuel surcharge based on average diesel cost and US$ exchange rate from 1st August. 

Other

- Kenya has no summer or winter, but the high court has a summer vacation from 1st to 8th August 

Questions from the blogs

- A recap of the Kenya Re AGM

- Has tourism in the Mara recovered in 2008?

- Does EDGE or 3G after all?

Opportunities

Digital: KDN and the ICT Kenya Digital Village are offering free connectivity for digital villages and schools: the program targets rural cyber cafes and schools – who are willing to pay a set-up fee, and share some revenue earned with KDN 

Investments

- The Barclays Bond closes tomorrow (9/7)

- KCB rights close on 18/7 – so far only NBK has offered loans for KCB rights (up to 90% finance)

Jobs

- EABL: logistics manager, governance improvement manager, group audit & risk manager, application support analyst, procurement managers (2). Apply to hr.recruitment@eabl.com 

- The electoral commission of Kenya: registrar of political parties, internal audit manager, finance officer. D/L is 23/7 by snail mail

- Captains of B1900 C and D at Executive Turbine. Apply through info@xturbine.co.ke

- Film commission of Kenya: head of programmes, hear of HR & administration, head of finance, Programmes manager, marketing assistant, legal assistant, ICT assistant, executive secretary. Apply to ceo@filmingkenya.com by 18/7

- Keroche: distributors, area sales representatives. Apply to director.marketing@keroche.com by 11/7

- National Oil Corp of Kenya: risk analysts, internal audit assistant, procurement analysts, supply analyst 

- Executive director of the Privatization Commission which became operational in January 2008. Apply (through Deloitte) to esd@deloitte.co.ke (22/7)

- Resources manager at the Rockefeller Foundation. Apply (though KPMG) to esd@kpmg.co.ke by 11/7

and

Marie Stopes: deputy director of male circumcision project (Africa) [location: Zambia} and male circumcision partnership deputy project manager [location: Zimbabwe] d/l is 19/7

Scholar/internships

- Rhodes Scholarships (2) for Kenyans. D/L is 31/8

- World Bank young professionals program. D/L is 15/7

IPO Train: full on board

It’s now the fourth official day of the Safaricom IPO, with some banks and brokers working over 7 days processing applications. And, over the weekend, many of the negatives of the IPO turned into positives;

Politics align: The IPO was launched last Friday by President Mwai Kibaki, who placed a personal application for 1 million shares, worth 5 million shillings ((0.01% of the shares on offer) . Since then the ODM side have also changed tune of the IPO matter, as they realized that as leaders they have to guide their people – and one of the ways to do so is to enlighten them on opportunities of wealth building and methods of advancement beyond agricultural and real estate productivity. Why tell people not to buy shares, when other communities buy the shares? What do you want your people to do? In any case the public holds minority stakes in most NSE companies with over half the shareholding hidden behind other companies whose shareholders are not well known.

Competitive sisters: Kengen was a watershed IPO but that was 2 years ago. The last massive regional IPO was Stanbic Uganda – how do they compare?

Company; Stanbic : Safaricom
Target; (Ushs 70 billion) USS$ 38 million: (Kshs. 50 billion) US$ 770 million
Beneficiaries; Standard Bank (SA) & Government of Uganda ; Government of Kenya only
Shares on offer; 1 billion shares : 10 billion shares
Share price; (Kshs. 3) $0.04 : (Kshs. 5) $0.08
Oversubscription 3 X : (2X is a conservative estimate)
Applications: 37,000 ; (1 million expected)

Animal Metaphors: We now have CNBC Africa which has been live for about a month and it’s a great channel to watch especially late at night, when they are covering Asia or American markets. Last week, they were discussing the US banking crisis and one analyst used the Sherlock Holmes tale of the dog that did not bark in the night to reflect on the silence of Japanese banks that were heavy investors in US mortgage securities but have not declared any losses.

The animal metaphor with Safaricom - is the elephant in the room which everyone is ignoring and that is Vodafone (UK): Did they want the IPO? I doubt it – they are not making money from the IPO, and will go from having a cozy boardroom, to having a million shareholders (estimate) demanding phones and umbrella’s at AGM’s.

- They are reluctant partners in this who for the last three years (and long before Mobitelea became a Matatu name) they had tried to buy 9% or 11% of Safaricom from the Government of Kenya, for a figure far less than the Government will raise from the public. Vodafone will remain the largest shareholder with 40% (or 35%) to GoK’s 35% , and retain veto power over business plans, budget, and CEO & FC appointments. But most companies listed on the NSE have parent companies who find it prudent to retain at least 50% of the company’s ownership to control the strategic and management direction of a company – and could they be buying any floating shares out there after listing? They can own up to 60% of Safaricom.
- It has exposed the embarrassing practices that gave rise to Mobitelea

Will stockbrokers’ change?: The only smudge so far has been the past performance of stockbrokers. It is sad that the lines outside Nation Center (of Nyaga Stockbroker clients) is as long as that any broker/banker I have seen this week. Stockbrokers have put out their best clothes, advertised and got new staff to woo investors for the 1 billion plus shillings ($15 million) commissions from the IPO - but what happens after? Will they revert to their dark old ways of insider trading, and secret share dealing? An ominous story from the Nation goes that one of the most interesting but unconfirmed anecdotes at the bourse is that Nyaga Securities managing director Patrick Gakiavi actually attended (as a director) the NSE meeting that decided to pump Kshs. 100 million into his operation. - and that joins the NSE urban legend archive like the one of the CEO who was able to cash out his significant stake on the last day of Uchumi share trading

Modernization to eliminate rogue brokers: The central deposit settlement corporation (CDSC) is seeking an SMS solution (mobile phone messaging) to alert investors on their account share trades (theirs/by rogue brokers) and also respond to client requests. (Deadline is April 9) The laws have already been amended to allow them to collect 30 shillings from each Safaricom applicant for postage and this will probably continue for any statements thereafter – as investors will be eased into the cheaper option of SMS (maybe at 5 or 10 shillings per message)

Beyond Safaricom: Hisanet Africa recommend that investors look at some other shares of interest amidst the IPO: these include NIC Bank, Kengen, Barclays (who are now expanding into Rwanda), Access Kenya, and East African Cables.

CDS expands

The Government will implement a scriptless securities settlement and central depository system for private listed securities and government debt instruments through the FLSTAP program.

Info for shareholders

At the end of the E A Cables AGM, Peter Waiyaki, chief executive of the Central Depository & Settlement Corporation answered questions on the new system of trading shares on the Nairobi Stock Exchange (See linked article: NSE's New Way of Doing Business) He mentioned that:
- Even if you don’t intend to trade your shares, you should open a CDS account. You can open an account, and not put your share in, as you wait for new opportunities to trade
- The Kengen IPO and future new offerings will be done though CDS only (no more paper share certificates)
- With CDS trading is faster (if you sell shares you broker should have your cheque within five days)
- one day you’ll be able to trade though internet, but now
- is confidential: only you, your broker and CDSC know what’s in your account
- if you want to transfer shares to a friend or relative, you still have to go though your broker and fill out transfer forms
- you can get old certificate back after immobilization, (some people like to hang share certificates in their office) at a cost of 500 shillings each
- with CDS, it is easier for you to pledge shares as collateral for a bank loan