Botswana's Tourist Trade Roars

Wide-open skies, teeming wildlife, well-developed infrastructure, and a stable political scene combine to make Botswana one of Africa’s fastest growing tourist destinations.

How fast?

The World Travel & Tourism Commission estimates that the US$486 million industry will grow by 7% in 2007 and 5% annually over the next ten years. Over 23,000 Batswana work in tourist-related jobs. That’s over 4% of the country’s total employment.

Chobe Holdings, listed on the Botswana Stock Exchange, operates smack dab in the middle of this industry. The company operates luxury lodges and tours in Botswana, Namibia, and Zambia.

You can see the region’s tourist boom reflected in Chobe’s bottom line. Earnings increased an average of 96% annually from 2003-2006. Its stock price increased 346% in US$ terms over the past three years. The company now trades at a P/E ratio of 17.

Disclosure: Ryan does not own shares of Chobe Holdings.

To learn more about Africa’s stock markets, check out the Investing in Africa newsletter.

Election No Poisoned Chalice for New Nigerian Prez

So far so good for Nigeria’s new president, Umaru Yar-Adua. The election that brought him to power can only charitably be described as a farce. But his administration appears to have been on a roll since then.

First, an increasingly cynical Nigerian public showed little appetite for organized protest of the election results. Then he stared down a union-organized general strike against what most economists believe is a much-needed fuel price hike. Finally, his main opposition in parliament, the All Nigeria People’s Party, has decided to join his government.

Nigerian investors seem to like what they see. The Nigeria All Share Index is up 23% in US Dollar terms over the past three months.

Investing in Africa

IPO Tracker: First Discount House, Dangote, and more

Malawi
First Discount House looks to be headed for a listing on the Malawi Stock Exchange in August. The financial services firm will use the IPO proceeds to enter Malawi’s merchant banking market.

Nigeria
Dangote Sugar Refinery won the IPO of the Year Award as presented by Africa Investor magazine. The $450 million listing was 300% oversubscribed.

South Africa
Hulamin, an aluminum processor, debuted on the Johannesburg Stock Exchange (JSE) yesterday. Management expects to double sales over the next decade as they expand their 2% share of the global rolled aluminum market.

Diamond miner, Rockwell Diamonds, is shooting for a joint listing on both the Toronto and Johannesburg Stock Exchanges in September. The miner operates along South Africa’s middle Orange River and is noted for unearthing gem-quality stones.

In a tricky little reverse listing, Telepassport, a telecom cost-cutter, will join the JSE via Cenmag, an already listed holding company. Cenmag will sell all of its existing assets to make way for Telepassport’s operations. I was unable to locate a time-frame for this transaction.

New Biz Takeover Law in Zimbabwe?

The government of Zimbabwe released plans for the “indigenization” of the country’s publicly owned companies today. If the draft legislation becomes law (which it likely will), the government will disallow mergers and acquisitions that don’t result in majority-ownership by “indigenous” Zimbabweans. In Zimbabwe, the term “indigenous” refers to all races that were discriminated against prior to independence.

It’s unclear how this will all play out on the Zimbabwe Stock Exchange. I have not checked, but I presume that few listed companies currently meet this criteria. The market was down only about 1% today.

Perhaps investors took solace in the fact that the proposed law does not appear to demand immediate compliance. It may only pertain to major business deals going forward. A more likely explanation for the calm response is that Zimbabwean investors have nowhere else to go. The ZSE is the only investment vehicle that manages to keep up with the quadruple-digit inflation.

There’s no argument that black Zimbabweans endured severe discrimination before independence, and they continue to bear the legacy of this. But I see little good that can come of this legislation. What minuscule attractiveness Zimbabwe still held for international investors will surely dissipate.

Neighboring South Africa uses a system of incentives to entice public companies to increase black ownership. The program is not perfect, but it is surely less chilling than Zimbabwe’s Indigenization and Economic Empowerment Bill.

Investing in Africa

Pesa Tu on Access Kenya IPO

Many of you are probably already aware of the ongoing Access Kenya IPO.

Please check out Pesa Tu's very helpful prospectus summary and analysis here.

For the complete prospectus, click here.

www.investinginafrica.net

Reform and Prosper

File this one under: Confirmation of the Obvious. It turns out stock market reforms are indeed a pretty good thing for pretty much everyone concerned.

World Bank researchers recently released a study on the long-term impact of market reform measures like insider trading laws, automated trading systems, and allowing foreign investment. They found that each reform correlated with increased levels of market capitalization, liquidity, and capital-raising.

The findings should be heartening to Nairobi Stock Exchange (NSE) investors. Why? Because the NSE recently launched an automated trading system, and privatization of Kenya’s state-owned companies continues apace. Moreover, Kenya’s Capital Markets Authority (CMA) has just proposed a raft of reforms to the rules governing the NSE. These regulations include increased penalties for insider trading, disclosure requirements for brokers, and investors’ indemnity insurance.

So, according to this research, the good times on the NSE could roll for quite a bit longer.

But Kenyans may find another of the study’s conclusions rather more bittersweet. The more successfully a market reforms, the more attractive its participants become to the global market. Safaricom, anyone?

www.investinginafrica.net

Africa's Crude Awakening

A few months ago, I posted a link to John Ghazvinian's article, The Curse of Oil. His book on the subject, Untapped: The Scramble for Africa's Oil, has just been released. It looks like quite an informative read.

Slate posts several excerpts from the book here.

Via Africa Unchained

Kelly Group, South Ocean to List on JSE

South African investors look forward to two major new listings on the Johannesburg Stock Exchange in coming months.

The Kelly Group, South Africa’s leading provider of temporary staffing and business process outsourcing, plans to debut on the JSE in April. The company has benefited from South Africa’s strong economic growth along with increasing global demand for outsourcing services.

In recent years, Kelly’s been growing revenue at a 20% clip. Operating income was up 67.5% during the most recent fiscal year. No word yet on how large a chunk of the company will be offered to the public.

Next, the South Ocean Electric Wire Company will begin a private placement of 45-49% of its share capital by the end of this month. The $100 million firm benefits from South Africa’s infrastructure boom. Its revenue tripled in the most recent fiscal year.

Upon conclusion of the listing, the company’s CEO will retain 23% of the shares, while the Taiwanese Hong-Tai Electric Industrial Company will hold 22%.

Thanks to Sean's Investment Review for the heads up on both of these new listings.

www.investinginafrica.net

UK Guardian Reports on Kenyan Market Boom

Word of the Nairobi Stock Exchange's performance has begun to reach international media outlets. Read the Guardian's article here.

Do stories such as these portend the end of the Kenyan bull market?

www.investinginafrica.net

HFCK's MD Announces a Rights Issue

by Coldtusker

Brief History
For most Kenyans, residential mortgages have always been synonymous with the Housing Finance Company of Kenya (HFCK). Other smaller firms included EABS & S&L (a KCB subsidiary). Recently, banks like Barclays & StanChart have entered the market.

HFCK had an IPO in 1990, followed by Uchumi in 1991. Both firms were financially stable at the time. Then their paths diverged dramatically.

HFCK suffered during & after the "Goldenberg Scam" years as interest rates shot through the roof. Goldenberg had accelerated monetary expansion thus leading to high inflation. Read Milton Friedman's theory on the link between Monetary Expansion & Inflation.

The new CBK Governor, Cheserem, favoured using short-term but high-yielding T-Bills to mop up the excess liquidity to control runaway infaltion. The unfortunate side-effect was the shift of deposits at Financial Institutions to T-Bills.

HFCK made long-term construction & real estate loans was faced with a asset & liability mismatch. They paid much higher interest rates for short-term deposits but were unable to pass on the entire "increase" to their customers.

Ironically, Uchumi under the brilliant manager Suresh Shah, saw the opportunity & invested its surplus cash in T-Bills at rate exceeding 70%!

The asset-liability mismatch & the related increase in interest rates led to extremely high default rates at HFCK. The increase in NPAs & Bad Debts depleted HFCK's Capital Reserves. At various times during this period, HFCK was in default of CBK's Capital adequacy ratios. Nevertheless, for political reasons, HFCK (just like NBK) was never put under statutory management by CBK.

Since then, HFCK has used the courts, a long, expensive & laborious process, to bring some defaulters to the negotiating table. This resulted in a better quality Loan Book & Balance Sheet. Nevertheless, the path to "acceptable" profitability has been long & hard.

There was speculation in 2005 that one of the larger banks e.g. BBK or SCBK will buy out HFCK but nothing came of it.

2006 was a turning point for HFCK with the appointment of a new CEO & considerable interest from Trans-Century (a buy-out fund). Furthermore, it is no longer on CBK's watch list & HFCK profitability through 3Q 2006 is much higher in 2006 vs 2005.

HFCK plans a Rights Issue in 2Q 2007 to:

• Strengthen its Share Capital
• Expansion into core banking with a strong focus on mortgages
• Meet Basel 2 requirements
• Position itself for expected building boom in Kenya.
• Counter competition from other banks e.g. Barclays, StanChart, KCB

Bottomline

There are no firm details as to the amount to be raised but it will probably be at least KES 1 Billion. An interesting outcome will be the diminished influence of the government (assuming it relinquishes its Rights) while setting in motion the possibility of a takeover.

The 2007 Index of Economic Freedom

The Heritage Foundation’s 2007 Index of Economic Freedom has just been released. The report ranks nations according to their relative freedom across 10 different categories (e.g. property rights, taxation, corruption).

How did Africa fare? Not so well, I’m afraid. Economic freedoms in Africa as measured by the Heritage Foundation actually declined a bit since last year. And Sub-Saharan Africa ranked last of all global regions in 7 of the Index’s 10 categories.

Some individual African countries did move up in the rankings. Mauritius, Namibia, and Nigeria all significantly increased their scores. But all did this in part by curtailing workers’ rights. I’m not at all convinced that this represents true economic improvement. "Labor freedom," the euphemism that the Heritage Foundation uses for lax labor laws, was not included as a variable in previous reports.

Any, for what it is worth, here are the top five most economically free nations according to the report:

1) Mauritius
2) Botswana
3) South Africa
4) Namibia
5) Uganda

And the five least free:

36) Chad
37) Guinea-Bissau
38) Angola
39) Republic of Congo
40) Zimbabwe

www.investinginafrica.net

IPO Watch: Stanbic Uganda Share Allocation

It’s official. The Stanbic Uganda IPO resulted in a 200% oversubscription. Investors applied for more than $118 million worth of shares, but only $39 million was on offer.

So it appears that there will be many disappointed punters. But by and large they won’t be Ugandan. All but 36 of the 15,488 individual Ugandan share applicants will receive all the shares that they applied for. Their stakes were capped at roughly $80,000.

Foreign investors, on the other hand, will have their IPO stakes capped at 109,500 shares. This equates to $4,255 or Ksh307,850. The 21,000 foreign applicants were allocated 48% of the total shares offered.

It could have been much worse for non-Ugandans. A $4,000 stake is actually heftier than I’d expected. Still, there will be some $60 million worth of foreign currency that will be looking for a new home.

Refunds will begin to be sent out on January 19. Stanbic Uganda shares will begin trading on the Uganda Securities Exchange on January 25, 2006.

www.investinginafrica.net

Malawi Jumps on SME Exchange Bandwagon

Not to be outdone by neighboring Zambia, Malawi has decided to launch its own alternative stock exchange for small and businesses.

Read all about it at Steve Brown's "A Look Into Business in Africa."

www.investinginafrica.net

Commodities Exchange for Ethiopia

Traders take note. Ethiopia aims to launch a commodities exchange in September of this year.

The Ethiopian Commodities Exchange (ECEX) will be fully automated and provide daily-indexed prices on the following goods:

• Coffee
• Sesame
• Haricot beans
• Teff
• Wheat
• Maize

The market is an attempt to bring order and transparency to the agricultural sector, thus making it more efficient. Studies estimate that only a third of the grain produced by Ethiopian farmers makes it to market. I’m guessing that the farmers themselves consume much of the remainder, but apparently there is significant surplus that is not utilized.

The ECEX will electronically connect 10 different warehouses throughout the country, establish 20 remote trading sites, and 200 electronic information boards in various rural areas. It is hoped that these initiatives will level the playing field between producer and purchaser. Smallholders will know what their produce is actually worth on the market, thus preventing them from being taken advantage of. It should also allow them to make more efficient cropping decisions.

Dr. Eleni G. Medhin heads the project. She has contributed a number of very thoughtful pieces on the nature of markets to the Ethiopian press recently.

www.investinginafrica.net

ColdTusker's Nairobi Stock Exchange Review

The NSE Index has risen over the 6000 mark but unless someone can tell me the guts of its composition and how it is calculated, I would not place much faith in it...

IMHO, the Index should be weighted according to market cap and should reflect additional firms in the industrial sector since KenGen, Mumias (increased float) and Eveready have come on board in 2006.

Financials also need greater representation as Equity is a new listing and Family Finance might join the board. Furthermore, KCB has a greater float in 2006 after the rights issue.

The importance of the insurance sector should also be recognised with Jubilee or KenRe being included in 2007.

Agriculture plays an important role in Kenya but the coffee sector has suffered and tourism is more important thus include TPSEA but decrease the percentage of agricultural firms. If Sarova lists in 2007 then TPSEA should be a component of this important sector.

Views of Individual Firms

KPLC - It has shot out of the gate in 2007 in heavy anticipation of a bonus. The good rains will help increase the product for sale while decreasing dependence on expensive thermal power. The pricing battle between KPLC & KenGen continues. The solution is simple (but not populist)... let KPLC charge more for the product (i.e. pass on the extra costs from KenGen to the ultimate consumers!).

CMC - Another bloomer while investors wait for a bonus. The need to replace 14-seater matatus with new 25-seaters will benefit CMC. A robust economy especially in agriculture will enable tractor sales to increase further.

BOC – It’s rather idiotic to have BOC on ice/suspended from trading for over 6 months! It has performed rather well in spite of the drought in early 2005 & the price for BOC is expected to rise when trading resumes.

Carbacid – It’s also rather idiotic to have Carbacid on ice/suspended from trading for over 6 months! It has performed rather well but until the CMA and/or the tribunal decides on its fate regarding its acquisition by BOC, the shareholders are stuck if they want to sell. The good news is that since it is well managed the firm's shareholders do benefit from larger profits & dividends while trading is suspended.

Banks - How will the new banking law affect them? I think the Donde law is populist & like most populist ideas... stupid... I will post on it some time. The assets in the sector have risen strongly but there is a risk of over-expansion of credit. The court system can't cope with the caseload in an effective and efficient manner.

KQ - The price has lagged & stuck at sub-120/- but if you believe in its long-term expansion - despite the competition - then the stock seems fairly valued.

Cons:
Hedged fuel prices if hedged at $70+ levels
Competition
Local routes e.g. fly 540 & East African Safari
Regional routes e.g. VIA Uganda & Ethiopian
International e.g. Virgin (UK) & Jet (India)

Pros:
Lower fuel prices (25% is not hedged) & oil was at $56 on 10 Jan 2007
New planes - greater capacity & more fuel efficient
Increased destinations/frequencies in 2007 including Paris & Delhi
Code share with Air Mauritius for Australian bound students & tourists
Precision (49% owned) is growing fast

The PE & PEG for many firms on the NSE are getting out of whack (IMHO) but there are a few stocks that seem price laggards even with decent performance e.g. KQ.

The government will have a "liberal" monetary policy in 2007 since the elections are coming up but the effects will be felt in 2008. This could include higher interest rates and a weaker shilling. Thus, banks could benefit.

IPO Watch: More for the NSE?

The Kenya Capital Investment Group posted a nice list of 2007's potential new listings on the Nairobi Stock Exchange. Check it out IPO fans!

www.investinginafrica.net

IPO Watch: Kenyan Investors Stalk Safaricom Shares

Brace yourselves for another Kengen-style IPO frenzy. Kenya’s most profitable company, Safaricom, is headed for a listing on the Nairobi Stock Exchange this year.

Safaricom is the larger of Kenya’s two cellular providers, boasting 5.3 million subscribers. It is a joint venture of government-owned Telkom Kenya (60%) and Vodafone.

As I write, the Kenyan government is in the midst of negotiations with Vodafone, that, if successful, could fast-track the IPO. At issue appear to be the size of the stake offered to the public and Vodafone’s “pre-emptive” rights over the sale of shares.

In any event, the company’s future looks bright. It will soon launch a new service called M-Pesa. M-Pesa will allow people to send and receive funds via their mobile phones. Initially, the service will only be available in Kenya, but Vodafone promises that it will eventually go global.

This could be truly revolutionary for the African diaspora. People could send money home to family or friends with just a few clicks of their mobile phone.

www.investinginafrica.net

Nigeria: The Curse of Oil

While not directly related to equity investing, I found this article too provocative not to share. Worth reading as we approach presidential elections in Nigeria.

The Curse of Oil


www.investinginafrica.net

IPO Watch: ZANACO to List 25% Stake on LuSE

The first part of Zambia’s National Commercial Bank (ZANACO) privatization is now complete. The Netherlands’ Rabobank will acquire a 49% shareholding in the company for an undisclosed sum.

(Rabobank is increasing its exposure in southern Africa. It already has a stake in a Tanzanian bank and will shortly be investing in Mozambique.)

When the transaction is finalized, a 25.8% stake of ZANACO will offered on the Lusaka Stock Exchange (LuSE). The Zambian government will maintain a 25% holding.

Founded in 1969, ZANACO is Zambia’s largest consumer bank with 50 branches countrywide and net assets of $384 million. Rabobank would like to see the bank increase expansion into the country’s rural areas.

www.investinginafrica.net

LuSE to Welcome Small Companies

The Lusaka Stock Exchange (LuSE) has just received permission from Zambia’s SEC to establish an exchange for small and medium-sized companies. The new exchange will provide a welcome alternative to high-interest bank loans for small, growing companies.

South Africa (Alt-X), Kenya (Alternative Investment Market Segment), and Mauritius (Development & Enterprise Market) already have exchanges set up for the similar purpose.

No word yet on when it will launch or on what companies plan to list.

www.investinginafrica.net

New Ugandan Finance Newsletter

Do you have an interest in Ugandan finance matters?

James Abola’s Akamai News is a new monthly that covers topics ranging from the impact of war to the Uganda Securities Exchange. Take a look at the most recent edition here.

James currently offers this fine resource free of charge. To subscribe, simply send an email to akamai.uganda@gmail.com.

www.investinginafrica.net

IPO Fever Grips USE (but not local Ugandans?)

The Stanbic Bank (Uganda) listing appears to have been 3x oversubscribed. So, many investors will likely receive fewer shares than they applied for, but the final allocation will not be released for at least two more weeks.

The billion-share listing represents a 20% stake in the bank, a subsidiary of South Africa's Standard Bank Group.

According to local brokers, most of the demand for shares came from overseas Ugandans, Kenyans and investors as far afield as the US and UK.

The Uganda Securities Exchange is one of Africa’s more sleepy ones. I’m hoping this IPO stimulates more interest in the market among local Ugandans.

www.investinginafrica.net

Tanzanian Exchange Goes Automatic

The Dar es Salaam Stock Exchange (DSE) automated today, putting an end to the “open-outcry” system, and hopefully allowing for an increased volume of shares traded.

“We no longer need the (trading) bells, but we will miss their sound and the shouting,” the DSE’s CEO was quoted as saying.

The Automated Trading System (ATS) was installed by the same Sri Lankan firm that automated the Nairobi Stock Exchange earlier this year.

I’d be interested in hearing comments from Kenyan investors as to how they think the ATS has changed the NSE for better or worse.

www.investinginafrica.net

Private Equity Firms Hungry for South African Firms

Private equity firms have been snapping up some of South Africa’s most well-known companies recently. Financial giant, Alexander Forbes, looks to be bought by the Actis Consortium at a 16% premium to current market value. Grocery chain, Shoprite Holdings, will likely go private at a slight discount to its current price. And fashion retailer, Edcon, is rumored to be sold to private equity investors in a $3 billion deal.

So, the Johannesburg Stock Exchange may see some of its blue chips disappear next year, and South Africans are debating the pros and cons of the trend. Business Day ran a nice article on the implications of the private equity surge.

www.investinginafrica.net

Nigeria: Cadbury Nigeria's Cooked Books

by Ryan Shen-Hoover

Candy and drink-manufacturer, Cadbury Schweppes, found out that life really is like a box of chocolates last month. It didn't know what it was getting when it upped its shareholding in Cadbury Nigeria earlier this year, and it turned out to be a lot worse than a coconut creme. It discovered “significant and deliberate” earnings overstatements at Cadbury Nigeria going back to 1997.

It only came to light when Schweppes retained PricewaterhouseCoopers to review the accounts. Cadbury Nigeria’s previous auditors were Akintola Williams Deloitte (AWD), who incidentally also failed to discover financial improprieties at Nigeria’s Afribank.

Cadbury Nigeria will likely record a loss of $15 million on the year, and CEO Bunmi Oni and his finance director were quickly sacked for their roles in the scandal. (Ironically, Oni’s peers had recently selected him as one of Nigeria’s most respected CEOs.)

Needless to say, Cadbury Nigeria shares have been hit hard on the Nigerian Stock Exchange. They immediately dropped 5% of their value (the maximum allowed in one trading day). As of this writing they are down over 26% since the scandal broke.

The fact that such shenanigans could carry on undiscovered for such a long period is disturbing. Sadly, it will reinforce perceptions of Nigeria as hopelessly corrupt. But with US$ returns of 36% over the past year, foreign investors will find the potential rewards of investing on the NSE hard to resist.

I personally, however, would be wary of firms audited by Akintola Williams Deloitte.

www.investinginafrica.net

Kenya: A. Baumann & Co. Shares Spike

by Coldtusker

A. Baumann & Co, a machinery-supplier traded on the AIMS Board of the Nairobi Stock Exchange, was up a massive 241% (yes, that is correct) on a trade of only 400 shares today. The high was 45/- whereas the weighted average price was 37.50 compared to the prior price of 11/-.

I am not aware of any financial announcements that would have caused the 10% rule to be set aside but I will post any additional news as it becomes available.

A. Baumann and its former controlling owners have been embroiled in multiple lawsuits in various countries. The parties involved included Kamlesh Pattni (of Goldenberg scandal fame), Ketan Somaia (wheeler dealer when Dan Moi was president).

ABCO had to dispose of its Ugandan assets after it lost a case involving guarantees that one of the prior Boards had made using assets belonging to A.Baumann (U) as collateral. Earlier in 2006, a Hans Krumeich ended up wresting control of ABCO from the previous owners.

ABCO’s year-end is March 31 2006, but I have not come across any financial results for the 2005-6 year.

www.coldtusker.blogspot.com

Kenya's Eveready Offer Beats Expectations

by Coldtusker

Whereas most pundits were expecting a lukewarm subscription rate for Eveready Batteries (EA) since the manufacturer is not seen as a growth story in a market faced with counterfeits & imports, the attractive price (not value) of KES 9.50 spurred a massive oversubscription (+800%) primarily driven by retail investors.

The first day of trading (Dec 18 2006) showed a modest gain to KES 11/- due to a goof by the error-prone Nairobi Stock Exchange (NSE). We hope that the error is not repeated. The ATS system allowed for a mere 10% movement in price thus limiting the first day price gains to 10%. Sensing the goof-up, brokers only transacted 13,100 shares.

The 2nd day (Dec 19 2006) saw a huge increase in price to range between 18/- to 28/- but with a weighted average price of KES 19.15 with almost 630,000 shares trading.

The meager share allocations across thousands of shareholders mean that there will be lots of shares available in the near future as speculators cash in. The long-term price trend will depend on future profitability.

The performance of Kenyan IPOs and Offers for Sale (OFS) is encouraging private firms to look to the NSE as either a potential source of equity or partial divestiture.

www.coldtusker.blogspot.com

Kenya's Sasini Announces Bonus & Split

Coldtusker

Kenya’s Sasini Tea & Coffee has resolved the following per their announcement:

• 1:5 Share Bonus
• 5:1 Share Split

This will equate to 1 "old" share equalling 6 "new" shares after both the shareholders & CMA approve the resolutions.

Tea prices have been firmer in 2006 vs. 2005 but the KShs has gained vs. the US$ which remains the primary currency for Tea sales.

Coffee prices are substantially higher in 2006 vs 2005 but there has been a smaller harvest due to drought earlier in 2006.

Sasini has launched its own brand of Tea into the local market while they can now sell coffee through a second window i.e. directly to Buyers without having to go through the auction.

The Year End Results (30 Sep 2006) are not available at the moment.

www.coldtusker.blogspot.com

Mumias Offer for Sale Extended to Dec 22 2006

Coldtusker

As widely expected, the Mumias Offer For Sale (the shares being sold are currently owned by the Government of Kenya) has been extended to Dec 22, 2006.

It seems that retail investors had opted out - or were less than enthusiastic - for the following reasons:

• Price is 49.50 - retail investors like shares priced at less than 20/- for purely psychological reasons, witness the Eveready oversubscription
• Offer price was only 10% lower than the prevailing market while expectations were a 20% discount i.e 45/-.
• Eveready OFS refunds - There was a massive oversubscription thus funds were tied up until refund cheques can clear.
• Xmas Season - Cash is scarce coz of holiday bills & vacations
• P/E Ratio is high (16x) but further profit growth is expected in 2006-7.
• EPS for 2005-6 was 2.99
• Rains in late 2006 will increase cane production thus sugar production
• New revenue streams (ethanol, carbon credits & power) will commence in 2009

IMHO, there will be an oversubscription from Institutional Investors even if the Retail Investors do not apply for the shares in sufficient numbers.

If Mumias can execute the following projects, in a timely manner, then there is potential for growth (above the inflation rate):

• Lobby the government to extend the restriction on imports from COMESA
• Purchase & rehabilitate other sugar millers prior to the COMESA imports deadline
• Build a new power plant - sales of electricity to KPLC
• Build a plant to manufacture ethanol from Bagasse - lobby the government for favourable terms for the sale of ethanol
• Commence sugarcane production in the Tana Delta region

Kenyan Retail Investors are a fickle lot. They do not want to participate which will leave a few individuals, institutions or foreign investors end up buying a good chunk of MSC. When MSC does well in the years ahead, these Retail Investors (& idiots posing as MPs) will complain about the "domination" by "foreigners"...

This scenario took place in EAPCC - when LaFarge stepped in as the White Knight to buy out the "unallocated" Rights. Diageo had to do the same during EABL (then KBL) Rights Issue.

www.coldtusker.blogspot.com

The Malawi Stock Exchange Gets Another Broker

FDH Stockbrokers Ltd., a wholly owned subsidiary of First Discount House, will begin serving Malawi Stock Exchange investors early next year. It will be the third brokerage firm participating in the market - the others being Stockbrokers Malawi and Trust Securities.

Thomas Mpinganjira will manage FDH. He comes with an impressive resume. He has served as CEO of Stockbrokers Malawi and helped to set up the Malawi Stock Exchange itself. The staff is equally impressive. One staff member is a former CEO of Trust Securities.

MSE investors should welcome another entrant to the stock brokerage industry. And the growing market should be able to support an additional broker. The MSE frequently sees more than $100,000 worth of shares exchange hands per week.

www.investinginafrica.net

Olympia Expands Its Home Improvement Portfolio

Coldtusker

The Players:

• Olympia Capital Holdings Limited (OCHL) - quoted on the Nairobi Stock Exchange
• Olympia Capital Corporation (OCC) - quoted on the Botswana Stock Exchange
• Plush Pty (PP) - S.African manufacturer, importer & fitter of Blinds & Window Accessories
• Kalahari Floor Tiles (KFT) - Manufacturer of PVC floor tiles based in Gaborone, Botswana. It also has an Industrial & Commerical Cleaning Chemicals division.

OCHL is a 53% shareholder OCC, which is a 100% shareholder of KFT.

OCC acquired 74% of Plush Pty - a S.African manufacturer, importer & fitter of Blinds & Window Accessories. Plush is among S.Africa's largest firms in this this sub-sector of Window Treatments.

The acquisition will be consolidated into OCC for accounting purposes. OCC is consolidated into OCHL's Financial Statements thus vaulting OCHL into a KES 1 Billion (sales) company.

OCC has continually stated it expects to grow via acquisitions while the core PVC tile business (KFT) is used a cash cow. KFT has one of only two PVC Tile plants in the Southern Africa region.

KFT expects sales (& profits) to grow as S.Africa accelerates construction in readiness for the 2010 World Cup. This is the first World Cup to be held in Africa & S.Africa wants to make sure it showcases the event.

To correct the injustices of the apartheid years, S.Africa is expanding its housing stock - primarily in the middle & lower-income housing market - to accomodate the growing urban population.

OCC acquired 74% of PP using Bridge Financing through a combination of bank debt, internal cash (via KFT) & funds from Kenyan Investors.

OCC plans a Rights Issue in Feb 2007 to repay the Bridge Financing. OCHL's management plans to maintain the 53% ownership in OCC by raising funds through Rights Issue in 1Q 2007.

KFT expects to continue acquiring other Botswana-based businesses in the Chemical/Cleaning Manufacturing sector.

OCHL expects to install a new PVC Tile plant at the Nairobi factory in 2007 to increase its current capacity.

The price of OCHL has been fluctuating but has broken out of the KES 15-17 band. It reached a high of 40/- since the PP acquisition was announced. Price on 13 Dec 2006 = 32/-.

OCC trades on the Venture Capital Board on the BSE but is expected to move to the Main Board after the Rights Issue.

OCHL trades on the Main Board (Industrial & Allied) of the NSE.

www.coldtusker.blogspot.com

The Latest From Nairobi Stock Exchange BlogVestors

Did you attend the Kenya Diaspora Investment Forum in London this past weekend? If so, I’d love to hear your feedback. If not, you can download all of the presentations here. Also, read Gathunuku’s take on the event.

Other stops in our brief tour of Kenya Investing Blogs:

- Pesa Tu outlines the limits to East African Breweries’ (EABL) growth.
- Odegle Nyang sees lots of Kenyan investors interested in the Stanbic Uganda IPO and Bankelele is one of them.
- ColdTusker analyzes the Kenyan tea industry.
- Riba Capital discusses the Eveready IPO share allocation.

www.investinginafrica.net

Denied: Ghana Blocks Cal Bank Takeover Bid

There was drama on the floor of the Ghana Stock Exchange last week. Nigeria’s First City Monument Bank (FCMB) attempted a hostile takeover of Cal Bank, one of Ghana’s largest financial institutions.

It all began on November 30, when the Commonwealth Development Corporation sold its 8% stake in the bank to an unknown buyer. Soon thereafter, it appeared that the International Finance Corporation (IFC) and Prince Alwaleed of Saudi Arabia would also unload their shares – totaling an additional 29% of the bank.

Cal Bank’s management worked quickly to block the deal, apparently with the aid of the Central Bank of Ghana, which claimed that regulatory approval had not been given to the transaction.

The Central Bank’s intervention troubled ThinkGhana, a public policy organization. The group released a statement saying that the Bank did not have the authority to void the deal, as it was the domain of the SEC. They further cautioned that the Bank’s actions could inhibit foreign investors’ participation in the market.

A spokesperson for the SEC reported that the deal was in contravention of regulations. Unfortunately, I have not been able to determine what these regulations are specifically. It does however appear that this case could have a chilling effect on foreign investment on the GSE.

The events are also an indication of the level of competition in the Nigerian banking sector. Big banks have not only been forced to gobble up their domestic competitors, but they are looking to snap up assets outside the country too.

www.investinginafrica.net

Botswana Telecomm's Privatization to Commence Soon

Even in Africa, telecommunications companies face increasingly stiff competition and a tougher regulatory environment. Case in point is South Africa’s Telkom.

Investors who haven’t given up the sector entirely, however, may just want to keep an eye on Botswana Telecommunications Company (BTC). The firm is due to be privatized next year, and we may eventually see some shares (25-30%) offered to the public.

BTC’s income rose nearly 18% this past year on a 7.4% revenue increase. Over the past few years it has posted an ROE above 16% and an ROA above 10%. It currently boasts about 130,000 line connections and is aggressively pursuing DSL customers.

The first stage of BTC’s privatization will see a private partner assume a 40-49% stake in the company. This will happen in the first quarter of 2007. It’s not yet known whom this partner might be, but Telkom and Germany’s Vnet are rumored to be interested.

BTC may find the post-privatization landscape rather more challenging than the existing one. Competitors will be allowed enter the market almost immediately after the privatization is complete. And I anticipate that competition over the DSL market will be fierce.

At the right price, however, BTC could make for an attractive asset. We’ll keep you posted on any news of shares hitting the Botswana Stock Exchange.

www.investinginafrica.net