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