Monday, December 18, 2006

Mumias Offer for Sale Extended to Dec 22 2006


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.