Mavuno Securities

Mumias: No longer sweet?

Following the second round of sale of shares in this company, the share price has taken a dip as those who bought at the offer price of Sh.49.50 started selling their shares. With sellers exceeding buyers the price sunk all the way to Sh.41.75 yesterday. It would seem that recent negative sentiments expressed by professional money managers on valuation have also cooled the market somewhat. I'd expect over the next 2 weeks the price will remain under pressure as those looking for a quick profit scamper. Thereafter the share will start to look attractive to investors.

In my view the current selling is opening a window of opportunity, particularly for those with a desire to hold large blocks. With a sugar deficit in the country, coupled with efficiency improvements on the cards for Mumias and low per capita consumption levels this company is still in an attractive position. The share price may now be getting into the zone where the serious buyers should come in.

ODM Kenya and the exchange

Various ODM Kenya luminaries have been quoted in the press saying the market activity seen today is drug money being laundered. More recently they say on coming to power after this year's election they will reverse all IPOs (or more specifically government sale of shares) undertaken under the present government. This is a troubling trend and has grave implications for property rights in this country going forward. I hope someone points out the great damage to the economy if these statements are seen through.

I'll speculate how the reversal can be achieved. One way is to buy all the shares back and revert to full government ownership. I'm not sure if this would be the best use of resources given that our hospitals and schools still need plenty more supplies. Another way would be to just nationalize the companies, ignore the current shareholders and just move in. Just have a look at Zimbabwe and see what that idea did to the economy.

I hope these are just statements made in the heat of the moment and nothing more. We are in an election year, politicians will be shooting from the hip and all manner of statements should be expected. My view is carry on with your life, do your thing as reason will prevail as the dust settles after this year's election.

CFC: Was someone in the loop?

Isn't it interesting that the share price rose steadily ahead of the announcement of the merger with Stanbic? Did anyone notice how many shares changed hands. If you've read the cautionary released by CFC, the price for the deal is to be determined in part by the 30 day average upto 18 Jan (inclusive). That is the period shaded in the chart alongside. Could there have been a leak?

It is important to note that these things are very difficult to keep under wraps even in the most sophisticated markets. Also it is very hard to prove that the rise in the share and increased activity is solely due to insider trading. It could all have been a rather innocent coincident.

PS: I'm not a techie so forgive me for the quality of the image. As I go along I'll figure out how to present clear, crisp images. Anyone with ideas on how to post an MS Excel generate chart feel free to educate me.

EABL half year results 2006 (Sh.148.00)

On Feb 23 EABL will reveal its 6 months (Jul-Dec 06) performance after the close of trading. I expect the numbers to be quite interesting and if the market pays attention should push the share price higher. Two things in my mind strike me as important:

1. Like it or not this government has placed significant emphasis on shoring up our rural economy. If you assume 60% of the population is to be found here, then any efforts in this regard will only be music to mass market companies. Rural farmer incomes have been improved through price support mechanisms and market guarantees. Add to that the subsidy provided to these families through free primary school education (and there is talk of extending it to secondary schools now). You can thus start to see the case of higher disposable incomes across the country. Remember Safaricom stated that the record profit announced recently was achieved thanks to increased new connections in the rural area? I think EABL is benefiting from this same factors and volumes in Kenya particularly must have seen some lift.
2. Another factor is a tax reduction on unmalted beer announced at last year's budget. The bottom line effect was to reduce the retail price per bottle of beer to the same as a bottle of coke. Now imagine how many of our rural folk would be enjoying a bottle of Citizen or Senator instead of Chang'aa? Combine this factor with the improved disposable incomes.

Well on the afternoon of 23 Feb, after the exchange stops trading we shall finally know. Methinks there is still a growth story here and we are still in the early days of an extended period of growth.

CFC Bank

Last week management announced that it had entered merger negotiations with Stanbic Bank, while Standard Bank of South Africa the parent of Stanbic has reached an agreement to buy out leading shareholders of the company. The resulting merger and take over will result in the creation of a new and relatively large commercial bank - listed on the NSE. Standard Bank has operations in insurance services as well as commercial banking in South Africa, while its international operations are dominated by banking operations. Standard Bank has set its sights on becoming a leading emerging market bank and in the processes has identified some key markets including Kenya and Nigeria in Africa.

The deal as agreed includes a price worked out as the average price over a 4 week period prior to the announcement. This market has just not learnt how to read a company announcement - for control Standard Bank did not pay more than the market price. So why on earth would anyone want to pay Sh.368.00 the close price or worse still Sh.900.00 per share? CFC at Sh.120.00 was already expensive well beyond its peers ..... In the end it will be good for market players to burn their fingers now and in future start paying greater attention to fundamentals. CFC is a great business, CFC the share at current prices is a poor investment. If only we could short sell in Kenya!

The Trip

As we got ever closer to D Day the list of things to do continued to grow wildly. Packing was horrific, the movers did not arrive untill 1:30PM. All morning was spent packing stuff in cartons and it is amazing how much stuf we gather in our lives. Surely human beings are a wasteful lot. Anyway the truck eventually got there and loaded up until 7:30PM. Back breaking stuff. Later we handed over keys to the buyers of our home and slouched off to a hotel for the night. Early in the morning of Wed 20 Dec 06 we hit out for Botswana got to the border crossing called Martin's drift at about 4:00PM and were on the other side at about 6:00PM - I was later to learn border crossings are a pain! From here we headed towards Francistown in N Botswana, a mining town and got there at 8:00PM. The drive was pleasant no major incidents to talk of. I'll have to continue this later.