Broken Integrity

What would you do if you discover that your so much cherished investment that you’ve been thinking is safe with your ‘trusted’ broker is not actually there has the CDS statement has been indicating? You don’t have to imagine, because this is the exact nightmare that hundreds of NSE investor are going through. And it doesn’t matter if your stockbroker is one of the few investment banks or the many shaky brokers constantly under CMA’s red list.

Seeing shareholders turning the Barclays Bank AGM into a cry session against unscrupulous brokers was a really sad turn of events. It’s now clear that the NSE, once the symbol of renewed confidence in the Kenya’s investment markets and a darling of all, has been turned into a shell by shameless brokers (owners and employees) who lack any sense of integrity and professionalism in their duty.

I see Uganda Securities Exchange (USE) turn to the electronic shares system, with investor having CDS accounts instead of share certificates, and I shudder. The advent of the same system at the NSE was just but the beginning of the investors’ troubles. Unlike with the physical certificate system the CDS gives brokers a pass to trade in clients shares without their knowledge.

A CDS statement indicating a cash balance is a magnate for brokerage employees to forge documents and defraud clients. Even worse is a case where the statement is forged to indicate that an investor has shares in his account when in real sense the shares don’t exist. The shareholder never receives dividends from companies he’s purported to have invested in nor does he get invited to the firm’s AGM. This happened a lot with Nyaga clients before it went down.

Nothing could be worse to an investor than discovering your investment that has lost over 60% was further pinched by your ‘trusted’ broker/investment banker (after moving two brokers – one collapsing and another being bought out by a bank). Brokers’ integrity at the NSE at the moment is at its lowest and so is investors’ confidence.

Will the perpetrators of these scams ever be prosecuted? Or investors will continue to be given lip service from CMA and NSE on what measures are being taken to bring back sanity to this ‘ponzi’ market? Micah, you’ve been served.

Magazine Review: HOST Africa

Yesterday I was privileged to receive the premiere issue of HOST Africa magazine from my good friend Ken (thanks). Went through it in the evening and thought a small review on it won’t hurt. The magazine focus is mainly on the hospitality and tourism industry and all its stories are skewed towards these. The magazine goes for Ksh.350 (≈US$.4.50) per copy.

The first issue cover story is on fibre optic and what it means for businesses in Africa, particularly Kenya with the landing of SEACOM at the Kenyan shore next month. The issue also features a story by Lee Simon, an award winning kitchen designer and the author of “The Restaurant Dream?” (a must read for food lovers) among other writers (both local and foreign).

Great topics such as hotel security, reinventing Kenyan tourism and brand changing in the hotel industry, have been discussed (even a review of my favorite traditional delicacies hotel – Amaica). For a start I think these guys at Mondeas ltd. have done a great work. I will be waiting for their follow up issues in the coming months.

To subscribe check their website at www.hostafricamagazine.com or email host@mondeas.com

Investing in Re-opened Bonds

The demise of the NSE has seen Central Bank of Kenya (CBK) become the biggest beneficiary with bonds and bills being over subscribed every other week. Late last year government reduced the minimum initial investment amount in treasury bills to Ksh.100,000 from Ksh.1,000,000. CBK has now resorted to reopening of bonds issued in the previous years. Last moths CBK reissued a Ksh.7 billion 5-year bond that was successfully subscribed and is now planning to reopen a 15-year bind that was issued two years ago (07).

Reopening of securities is a common practice in the developed markets. This is done when seeking to eliminate bond market fragmentation (existence of too many but small outstanding bonds scattered everywhere in the secondary market). Fragmentation leads to unstable and uncertain bond prices and reduces free trading due to few investors (who buy and hold bonds reducing liquidity)

When a bond is reopened, an old bond is offered to the market on a date other than its original issue with a view to increasing its outstanding amounts and expanding the original amounts. On reopening investors are offered the same instrument (bearing the same features as the existing bond – same maturity date n coupon rate) except for offer date, offer price and yield.

Requirements to participate in a reopened bond are the same as those of any government securities auction i.e. you need to have opened a CDS account with CBK and complete the application form with all the details has specified in the prospectus.

Centum: A Close-up

Centum Investment just impresses me with their over-optimism (if there is anything like that) when it comes to their dwindling performance and aggressive investment plans. Despite its Full-Year 2008 profits dropping 64% (to Ksh.313.2 million; investment income dropped by 33% to 392 million) and making some unwise investments in Uchumi and RVR (Rift Valley Railways), the investment firm is going forth with an aggressive 5 years plan (2009-2013) and has announced a Ksh.2 billion bond issue.

It has already appointed transaction advisors for the issue set to open in three months time and is seeking regulatory approval for the same. cash raised in the bond issue will be invested in regional securities (both public and private) taking advantage of the investment opportunities created by the global recession that has seen value of securities dropping significantly as foreign divested.

The firm had issued a profit warning earlier in April indicating that it expected its full year profit to fall by up to 80% mainly due to an 84% drop in the value of its holding in RVR. The bear run at the NSE further eroded gains realized by the firm from publicly listed shares. Its current portfolio is valued at about Ksh.6.4 Billion from Ksh.8.67 billion in at its peak in 2006.

Dividend Hunting at the NSE

Over the recent weeks NSE firms have been releasing their full year results for 2008 and most of them have announced dividends for their shareholder. In this bear NSE the only thing we have now is dividends that we can take advantage of. In developed markets its called dividend investing, which focuses on identifying solid companies with a record of growing dividends each year and buying their stocks expecting that it will continue declaring dividends.

One thing that investors need to know when dividend investing is that it’s particularly different from normal value investing, where one invests in a stock considered undervalued with an expectation that it will rise to its true value or higher. And a combination of the two can yield some very good results:

Dividend Investing + Value Investing = Great Returns

Dividend investing focuses on identifying solid companies with a record of growing their dividends each year; and an expectation that it will continue into the future (almost speculative). This sounds so short sighted, but history has proved that stocks that pay constant/growing dividends have always out-performed those that don't.

Dividend investing is usually associated with the bear market since dividend yields are considered relative safe in down markets.

Signs of a Dividend Stock

There are several things to look out for in a stock before considering it a dividend counter:

• Dividend yield doesn’t mean much. dividend yield (annual dividend divided by the current stock price) simply indicate if the stock price is low or high, which is based upon current stock price and historical dividends thus not capturing the actual facts at a particular time.
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• A company that has a history of paying a consistently growing dividend is better than one that pays a consistent, but steady dividend. And the consistent but flat dividend is better than a company who has had to cut its dividend.
• Cash flow is King. When it comes to dividend investing net income does not mean much. Cash pays dividends so operating cash flow per share is more important. Consistency of the cash flow is also important. A company that generates a steady or growing operating cash flow is better able to fund a dividend than a company that cannot consistently generate cash. A company’s dividend coverage ratio (operating cashflow per share divided by the expected annual dividend). If this ratio is 1.0 or better, there can be a relatively high degree of confidence that dividends will be paid in the foreseeable future.
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• The stronger the balance sheet the better. Stronger here meaning less bank debt. A company with no bank debt has a stronger balance sheet because it can borrow if necessary to support operations and the dividend if need be.

Firms at the NSE that I consider to be dividend stocks include EABL, BAT, Standard Chartered and Total among others. If you're looking for something that pays you a steady income stream, just like fixed securities (bills and bonds) you might be better off with a stock that offers a high dividend.

Tweak Post

After contemplating this for a while I finally decided to change my blog template and do away with too much junk the old one carried. I picked this new look from Btemplate, a free blogger templates resource (I’m Kenyan; we don’t pay for things we can get for free – ‘Sare’). Only problem with this great looking templates is that the back end sign-in bar disappears and you have to go through other normal blogger sites to get to your own back end (so if you get me trespassing, I’m just trying to get into my own house). Hope it will serve me well.

Suicidal Fan:
Just learnt that a die-hard Arsenal fan hanged himself after Man-U beat them to the UEFA final. Sad happenings indeed…but is it worth it?

More beer: SABMiller Plc, the world’s second- biggest brewer, plans to build its fourth factory in Tanzania at a cost of $55 million by November, boosting beer production by 22 percent. The firm, through Tanzania Breweries (owns 52.8% stake), is also spending about $24 million to upgrade its Arusha and Mwanza breweries.

Trump coming to Kenya: US property tycoon, Donald Trump, is one of the 44 parties interested to invest in the multi billion shilling Nairobi Golf City development located on a 73-acre land that currently belongs to Kenya Railways. Other interests are from Commercial Bank of Africa, Associated Motors, Spencon International, TPD Serena, Premiere Flour Mills and Actis.

Prepaid power: KPLC is set to commence the first phase of the prepaid metering project. This will see consumers shift from the current postpaid system, giving them control over power consumption and avoiding several inconveniencies from the electricity monopoly supplier (sigh)