Celtel Zambia: Prospectus Peek

After taking a peek at Safaricom prospectus, take a look at the Celtel Zambia one (Thanks M for mailing it in) with two weeks to go in the calendar.

January 2008, showed that cross-border diversification may not be a bad thing, even for Kenyans - and if you have the money and the chance, you should do it. Stanbic Uganda has performed quite well, though the weakening Uganda shilling eats into improved dividends.

In this IPO, retail investors from outside Zambia are not included, nor are there provisions for other country nationals except as international institutional investors. For Kenyans who take part, we are one of the countries who have double tax treaties with Zambia – hence reduced tax on dividends. However Celtel has never paid dividends as it has ploughed back all profits into operations.

Comparing mobile giants: it’s best to compare Celtel Zambia to Safaricom Kenya as they are both market leaders and backed by multinational mobile partners. Zambia is larger than Kenya, but with about 1/3 of the population (12 million) Celtel Zambia has about 1.9m customers representing 78% market share and covers 71% of the country (Cell Z and MTN are competitors). It had 2007 revenue of $252 million and an average monthly ARPU of $13 - similar to Safaricom’s (~800 shillings per month).

Beneficiaries: While the benefits of safcom went to the Kenya government, the benefits of this (sale of 20%) will go to Celtel parent. Stanbic bank are also going to do well as lead manager, distribution agents and one of the receiving banks. IFC owns 10% of the company and is expected to sell its shares after the IPO which itself costs about $5 million.

On offer: 1 billion shares on offer at 640 kwacha per share ($0.18 or Kshs. 11.50). The minimum subscription is 700 shares (about 8,000 shillings). Employees get a 20% discount on the price.

Directors: A Kenyan connection is former PS (part of 1990's dream team) and IFC executive Mwaghazi Mwachofi on the board of Celtel. It is refreshing got see that all directors other portfolios are listed in teh prospectus and that they have to declare that they have not censured/criticized by any regulator/ authority or been involved in bankruptcy, or liquidation.

Management fees: The company pays between 3.6% and 4.8% of annual revenue to Zain/Celtel parent. Safaricom pays Vodafone 0.5% of revenue and 6% of procurement costs as what has been a sensitive issue for the company but seems to be the norm with multi-nationals.

Stock exchange not retail or liquid: Zambian exchange appears not to be very liquid – it has 9 listed companies worth $100m, and $72m worth of deals were done last year in just 6,196 trades. The listing of Celtel should improve those numbers.

Looking Back: Annual reports

I found the annual accounts for Total East Africa (now Total Kenya) for the year 1990 and tried to compare the changes over the years. This is important as companies with over a hundred thousand shareholders (Eveready, Safaricom) will be considering cutting their costs soon until they are able to use e-mail for distribution.

comparing the 1990 and 2006 annual reports from Total

size: 1990: 20 pages, black & white, no pictures, heavy envelope paper
2006: 48 pages, glossy paper, all colour, lots of pictures

Financials: 1990 profit & loss (appears on page. 8), balance sheet (p.9), cash flow (p.10) followed by notes 11 – 15 (13 notes) – showing turnover of 3.1 billion shillings and pre tax profit of 237 million.

2006 P&L (appears on p.25), balance sheet (p.26), cash flow (p.27), followed by note page 29 – 44 (32 notes) - showing turnover or 38.0 billion shillings, and pre tax profit of 677 million.

shareholding: 13.7m ordinary shares 6/= dividend [total dividend of 84 million]
173m ordinary shares 2.50 dividend [total dividend of 435 million]

Chairman's statement
1990 ½ page
2006 4 pages

Auditors statement: 1990 - Murdoch, McCrae & smith; they issued a 1 page statement with two paragraphs, saying they examined books, and they are true in their opinion.
2006 Deloitte & Touché: 1 page statement with 6 paragraphs; explaining directors’ responsibility, auditors’ role, audit process, and finally their opinion that the accounts are true.

Other Formatting: what’s missing from 1990, that’s found in 2006? shareholder profile (p.22) mission & ,vision (p.2), directors bios & photos (2 pages), picture of key managers (1 page), management report (5 pages), company profile (4 pages), corporate social responsibility and adverting messages.

verdict: companies like Eveready can cut back on the ‘filler’ and give an annual report with just the basics to cut the postage cost in ½. Last year they issued a small size report that was short on ‘filler’ but financial, regulatory and governance changes have also contributed to the increasing size of corporate reports and resultant shareholder costs.

Regional banks and dueling websites

Diamond Trust Bank will this month ask their to approve
- participation of the bank in a rights issue of their Ugandan subsidiary
- Approve expansion to Burundi (odd or smart considering that other banks have focused on Rwanda)

dueling web sites

DTB new corp name have a new website but they should probably map /discontinue their old site or it may give the impression that its another company that doesn’t bother to update its website.

KCB who are also going to increase their capital to support regional expansion, and cross listing on the stock exchanges in Tanzania and Uganda, have consolidated their company to a group website, abandoning their kcb.co.ke

Also caught up in the confusion of domains between (.co.ke) and (.com) is the Safaricom IPO. The former is the official site, which applicants could use to apply online for shares. The government should have cracked down on transaction adviser - Dyer & Blair who opened the latter site and may have created some confusion. Though more active and up to date (even has a blog of sorts), the Dyer site attracted people who thought it was the official site and some confused investors have been logging in their to track their applications without realizing that it is not the official site

CMA gets teeth

After taking a public beating from almost everybody in the country (from the President down to school kids) the Capital markets Authority (CMA) has decided to announce how it will bite back with a raft of new proposals posted at its website

- Raises stockbroker share capital to 50 million shillings (~$800,000) from the current 5 million, while that of investment banks goes up to 250 million
- Bars people who have been convicted of an economic crime from being brokers - But since no one gets convicted of economic crimes in Kenya, how about being associated with a collapsed firm? The new law says anyone who previously worked at another firm must get clearance from the former (but what if it collapsed?).
- owner/ managers: Owners cant be day to day managers, and no one can own more than 25% of a broker/i-bank
- Brokers must also maintain lists of employees and keep better records absolutely!
- best of all they must publish half yearly financial results in the newspapers, and also get insurance cover equivalent to 5 x their daily turnover (good luck with that),

and some indigestion perhaps

But the CMA also gives itself a lot of work to do, and which it may not be able to keep up with:
- Brokers can't close office / or open one without notifying CMA
- brokers must report any overdrawn customer account within 24 hours
- Brokers will forward monthly accounts, and quarterly portfolio reports to CMA.

Also
- Investor compensation fund is now a CDS compensation fund (what’s that, and who runs it?)
- muzzles agents; agents can’t work for more than one broker

Other
- sad news: today's fatal plane crash in S. Sudan has a Kenyan connection
- New stockbroker is an old one renamed according to the business daily; some name changes work, others don’t

New media stocks at the NSE

Until Safaricom gets listed later this year, take a glance at Access Kenya and Scangroup - two recently listed, new media companies at the NSE. They both say they are market leaders (none of their competitors are listed), both set out to increase market share organically and by acquisitions, and their shares cost about 30 shillings ($0.48) each, three times their IPO prices.

This month, Access Kenya are gearing up for their first AGM since their 2007 listing, while Scangroup will be having their second; and while Scangroup (SG) will have a vanilla AGM (no special business), Access Kenya (AK) have a lot more going on as they will seek approval from their shareholders to;

- double their authorized share capital from 250 million to 500 million shillings (500m shares) [giving them capacity to acquire companies, split shares, or raise capital in future]
- allow the board of directors to acquire companies up to 200 million shillings (~$3 million) without having to call for an expensive extraordinary general meeting of shareholders
- allocate more shares for the company’s ESOP (employee share ownership plan)

How else do the two companies stack up?

vision:
SG vision - to be the leading marketing services company in Africa by 2010
AK vision - be the premier provider of high quality internet and other technology services to corporate and high end residential customers

shareholders : SG 44,193 ; AK 29,434 shareholders

2007 performance
SG: turnover of 4.7 billion, profit of 353 million, cash generated 165 million, assets of 900 million. EPS 1.48 and a dividend of 0.90.
AK: turnover of 882 million, profit of 171m (dividend of 0.30), cash generated of 133m, assets of 748 million (had 600m in cash, much of it unutilized from the IPO). They also have separate consolidated accounts that include the financials of Openview business systems which was acquired after the IPO.

Employee Retention key for new media companies:
SG: ESOP approval of 15m of the company's 160m ordinary shares. Staff costs were 561m including 7m to directors and key managers.
AK: ESOP that had 7.25m shares of 203m ordinary shares has been exhausted and another 2.75 to be added this year. Staff costs of 131m including 53m to key managers and directors,

Other
SG: Has a lot of subsidiaries, from acquiring customers and competitors whcih is part of their strategy. 64% of their revenue was from Kenya with the rest from Uganda and Tanzania. Their CEO was on CNBC Africa TV last month saying their focus the year would be expansions to Zambia, Ghana, Mozambique, and Angola – probably by securing contracts with mobile phone companies in those countries.

AK: was charged a management fee of 52 million shillings by subsidiary companies (shades of Sameer group companies?).
Also Access Kenya’s annual report is heavy on the marketing side with a special offer for shareholders to apply for Access Home - the fastest guaranteed residential broadband(Nairobi and Mombasa) for Kshs. 6,000 + VAT per month - a 20% discount for shareholders. One time costs include 8,500 installation and equipment of 25,000 (and VAT, though I thought all computers equipment was VAT free). An added extra for shareholders is that the package which (including 1st month) costs a total of Kshs. 45,820 (~$725) can be financed with an Equity Bank 1-year loan (but monthly repayments of 4,391 work the loan out to cost about 25%) – the offer runs till end of May , and installation to be done in June & July.