ICDCI Share Split

Kenya's ICDCI (Industrial and Commercial Development Corporation Investments) recently issued a share split in the ratio of 10 new ordinary shares for each ordinary share held. The additional shares have now been posted in shareholders' CDS accounts. The issuance of share certificates to those without CDS accounts will certainly take a while longer.

A 10:1 share split means that the number of shares that one holds is multiplied by the number of times the share is split. So, if a shareholder had 1 share, now he/she has 10. This is different from a bonus situation. In a 10:1 bonus, a shareholder with 1 share would end up with 11.

January Blues at the NSE

We are probably just now beginning to see a glimmer of hope that the January blues at the NSE are coming to an end. The bear-hug is at last loosening.

Two main explanations have been given for the dramatic decline in the NSE index in the last few weeks. One, that this is the usual January down-slide, following the extravagance of the end-of-year holidays and compounded by January's school-fees obligations. Two, that, besides, investors are holding on to their money in readiness for the expected series of IPOs in 2007. This second explanation is not all that persuasive.

A more persuasive second explanation seems to be the "Stanbic-Bank-Uganda-Effect." Clearly, the Stanbic Bank Uganda IPO swept a lot of liquid cash off the table. Most retail investors did not receive a refund -- having been fully allotted the number of shares they had applied for -- and so did not have the wherewithal to invest in other counters in January. Even more money was 'vacuumed" away by Mumias Sugar and Diamond Trust. Moreover, the continued low price of Stanbic bank Uganda (low in terms of Kshs) probably lured substantial cash to USE in January, to the chagrin of NSE mandarins. Who ever heard of the shares of the largest bank in a country selling at Kshs. 7.00 or less -- and that after a rise in market value of nearly 300% immediately following the IPO!

There are indications that savvy investors, with deep pockets, have continued to buy on the cheap, quietly, as the market has slid. These perhaps include the very same mandarins. And it has recently been noted that many of those who were allotted the full 109,500 shares of Stanbic -- and there seems to have been many more of these than first appeared -- went back to the market in January for more (for their corporate entities, if not for themselves individually, or both).

With time, all this mopping up of cheap supply has had the effect of slowing the index slide. And as end-of-January salaries and other income have become available to the retail investor, the makings of a new bull-run can begin to be discerned.

Milestone: First Day of Trading in Stanbic Bank Uganda Shares.

Reports indicate that the recently floated Stanbic Bank Uganda performed basically as expected on 25th January 2007, the first day of trading at the Uganda Securities Exchange (USE). The stock opened at Ushs 140 and closed at Ushs 205 (or Kshs 7.00) per share. That's not too far from three times the price at which it had been offered during the recent IPO, namely Ushs 70.00 (or Kshs 2.85). The likely future trend may be discerned when trading continues at the USE next week on Monday, Wednesday and Thursday.

In the meantime, you should visit your broker this coming week to pick your Stanbic certificate. If you had applied for more that 109,500 shares, a refund cheque is also waiting for you. CFC's Stockbroking Division in Nairobi is a case in point where certificates and cheques were already being released as of Friday 26th.

The Stanbic Bank Uganda IPO and the Lessons to be Learnt From It

By Mauri Yambo

Stanbic Bank Uganda has announced the results of its recent IPO, which ran from Friday, November 24th to Friday, December 22nd 2006. The IPO was part of the larger move by the bank to list all of its 5,118,866,970 issued shares on the Main Investment Market Segment of the Uganda Securities Exchange (USE) in Kampala.

A total of 37,449 investors applied for the equivalent of 3 billion shares. However, only 1,023,773,394 shares, representing 20% of the issued share capital, were involved in the IPO. These were offered at 70 Uganda Shillings (UShs) per share, the equivalent of Kenya Shillings (KShs) 2.85 or 4 US cents. The IPO thus attracted a 200% over-subscription. Out of the 37,449 applicants, there were 15,488 Ugandan individuals and 407 Ugandan institutions. There were, in addition, 20,091 non-Ugandan individual investors and 1,463 non-Ugandan institutions.

The prospectus had indicated that the objective of the Stanbic listing was, broadly, “the economic empowerment of the Ugandan public,” and more specifically the promotion of “share ownership particularly among the people of Uganda.” Preference was clearly going to be given to individual Ugandan investors. Not surprisingly, each Ugandan individual (some 15,452 individuals in total) who had applied for up to 2,150,000 shares has been allotted all the shares applied for. The remaining 36 individuals, who had applied for more, have also be allotted 2,150,000 shares each.

The other three categories of investors have been lumped together and each applicant has been allotted the shares applied for, up to a maximum of 109,500 shares. It seems that employees of Stanbic Bank Uganda have been treated along the same lines, even though the prospectus had reserved for them 1% of the offered shares – some 51,118,670 shares in all.

While Ugandan individuals bid for shares worth UShs 41.1 billion, non-Ugandan individuals applied for shares worth UShs 56.1 billion. And while Ugandan institutions applied for shares valued at UShs 30.7 billion, their non-Ugandan counterparts applied for shares worth a total of UShs 82.3 billion.

The allotment formula has ensured that the 10% shareholding which the Ugandan government was disposing of through the IPO has shifted into the hands of individual Ugandans. That did not happen by chance but by government design; but was ultimately made possible by the fact that enough individual Ugandans applied for the requisite number of shares. Thus, only the 10% offered by the Standard Bank Group of South Africa has been allowed to pass into the hands of the other three categories of applicants, including Ugandan institutions.

It is a distinct possibility that Ugandan institutions would have been used to keep “within Uganda” any portion of the 10% offloaded by the government which individuals might have failed to mop up. As it turned out, however, their participation has kept even more of the entire 20% on offer within Uganda – at least for now. Secondary market dynamics might significantly change this initial picture, and should not be interfered with by any authority. In any case, such interference cannot go on for long with impunity.

Available evidence suggests that most individual investors in Kenya had applied for between 1,000 and 10,000 shares. This means that each will receive all the shares applied for. For the first time since the KenGen IPO last year, there will be no refund cheque for such investors to queue for. They will still have to queue, though – for their share certificates. It is not clear how many Kenyan individuals applied for 109,500 shares or more, but the number is probably significantly greater than the 36 reported for Uganda. One suspects that most individual Ugandan applicants were also in the category of 1,000 to 10,000 shares. However, the next such offer might witness many hitherto small but determined investors bidding for up to a 30,000- to 50,000-share ceiling. This is how the East African securities market is going to grow – one interesting step at a time.

Stanbic Bank Uganda is refunding some UShs 140bn – the equivalent of KShs 5.7bn or US$ 81.5 million – to big institutional and individual applicants within and outside Uganda. That refund happens to be larger than the amount which the Kenyan government has just received from its disposal of 91,999,220 shares in Mumias Sugar Company, at KShs 49.50 per share. A large chunk of the Stanbic refund most likely is on its way back to Kenya, there to await the next IPO or to be endorsed to investment banks and brokers for the purchase of more Stanbic shares when Stanbic’s admission to the Official List of the USE takes effect on Thursday, 25th January, 2007 – the very same date when secondary market trading in the shares is scheduled to commences at the USE.

Those shares are likely to be trading at UShs 210 (KShs 9/-) or higher within a few days or weeks. And if that happens, at least 36 individual Ugandans will be “instantly” richer by US$ 184,550. But the other investors will not be doing badly themselves – in terms of their initial investments, if not relatively speaking.

A number of lessons will be learnt from, or reinforced by, the Stanbic IPO, which (incidentally inspired by the KenGen IPO) has emphatically set a new regional standard for offloading state-owned assets to the investing public. This is a standard very likely to be replicated in future Ugandan and Tanzanian IPOs – perhaps even more stringently in Tanzania.

The first lesson is that while the rich do get richer, the poor and the not so rich can also get richer! They can be visibly enabled to grow their own liquid assets even from very humble beginnings, and to be materially better off. When the ship sets sail, they can be on the ship – not forlornly waving at the water’s edge. Consequently, it must be government policy that the benefits of price discovery at the stock market quite deliberately accrue to individual investors in general – and to the small investor in particular and in full. Governments should not be in the business of making companies rich at the expense of the people. In large IPOs, therefore, an allocation formula which reserves a portion to institutional or big investors and thus necessitates refunds to small investors should be classified as an intentional economic crime.

Second, and related to the first, state-owned assets being disposed of through IPOs should in the first instance be offered to individual citizens. This does not lock out other investors. They should be at liberty to buy the shares when post-IPO trading begins at the stock exchange; and thus to be active, but not the only, participants in price discovery. In any case, IPOs are hardly large enough to satisfy the volume needs of institutional investors, and yet are small enough for them collectively, if permitted, to lock out small investors – long-term! This is true considering that while small investors do not typically hold on to their shares for long – unrelenting pressures on the household economy do not allow them to do so – large and institutional investors do!

Third, private sector firms should nevertheless have a free hand in designing their IPOs in order to protect their interests. Clearly, however, common sense must prevail here – as has happened in the Stanbic IPO, and in the Scangroup, Equity and Eveready IPOs before that. The interests of their various stakeholders, and the stock market as a whole, must also be taken into account.

Fourth, the book-building approach, successfully resisted by public opinion during the KenGen IPO, should never be allowed.

Fifth, in stock-market investing, there are many rules-of-thumb we should know, but these five are worth stating here: (a) the early bird catches the worm, (b) the long-term investor tends to recoup his/her short-term losses or costs, and to thrive, (c) your gains are in proportion to the risks you are willing and able to take, (d) the long-term security of investments comes not from owning shares in one or two companies, however solid, but in wide diversification; that is, in building a progressively larger portfolio, and (e) treat your portfolio with the same care and attention as the ardent pastoralist treats his or her livestock, and you will realize the same compounding effect.

Sixth, while we say, “THREE CHEERS TO UGANDA!”, it has not escaped attention that the biggest beneficiaries of IPOs continue to be the initial shareholders who remain with the largest chunk of a company after small investors and others have made it possible to discover its true value per share. In the Stanbic case, the IPO involved only 20% of all issued shares; but the market value of the other 80% will now be known, though it remains squarely in the hands of Stanbic Africa Holdings Limited, a subsidiary of Standard Bank Group based in South Africa. From this angle, the 20% offer looks pretty miserly – even usurious. Future IPOs should be placed at the 30% to 40% range.

Finally, the ordinary Kenyan investor in Stanbic will now have to learn to track his/her investment not simply in terms of market price, trading volume and P/E but also in terms of the foreign exchange implications of investing abroad. In a globalizing world, this is an aspect of learning that will come none-too-soon, and will be of great benefit in the long run. Indeed, Ugandan and Tanzanian investors, not to mention Somalis and Ethiopians and perhaps Rwandese and Congolese, already involved in the Nairobi Stock Exchange are generally farther up the learning curve than Kenyans in this respect. However, catching up should not be hard to do for Kenyans at home – who have hitherto been more insular.

NSE: Listed Company Announcements, 2007

Announcements From 1st January 2007 to 31st March 2007:

1. REA VIPINGO: First and Final Dividend of KShs 0.80 per ordinary share, announced on 8th January 2007. Closure of members’ register on 26th March 2007. Payment on 15th June 2007.

2. CMC: First and Final Dividend of KShs 2.30 per ordinary share, announced on 12th January 2007. Closure of members’ register on 31st January 2007. Payment on or about 5th March 2007.

3. CMC: Share Split in the ratio of 10 ordinary shares for every 1 ordinary share held, announced on 12th January 2007. Closure of members’ register on 26th February 2007. Posting date not yet announced.

4. UNGA GROUP: Half-year results for the period July to December 2006 announced on 26th January 2007. No interim dividend recommended despite an improved half-year. Profit per share – after tax and minority interests (held by Seaboard Corporation and Nampak Holdings Limited), but before appropriations – stood at Kshs 1.08 during the period, a 21.3% improvement compared to the Kshs 0.89 profit per share recorded for the same period the previous year. There were total of 63,090,728 issued ordinary shares (with a par value of Kshs 5.00 each) during the period.

5. KENOL: First and Final Dividend of KShs 2.25 per ordinary share, announced on 29th January 2007. Closure of members’ register, from 4.30 p.m. on 30th March to 13th April 2007. Payment of dividend on or about 23rd April 2007. Net profit after tax for the year ended 30th September 2006 was 6.6% lower than for the previous year.

6. CAR & GENERAL: Final Dividend of KShs 0.67 per ordinary share, announced on 31st January 2007. Books close on 23rd February 2007. Payment date, 28th March 2007.

7. MUMIAS SUGAR COMPANY: Interim Dividend of KShs 0.50 per ordinary share, representing 25% of the par value of an ordinary share, announced on 9th February 2007. For the same period the previous year, the Interim Dividend stood at KShs 0.75 per ordinary share. Books close at 4.30 p.m. on 9th March 2007 and remain closed up to and including 16th March 2007. Payment date, 9th April 2007.

8. EQUITY BANK: First and Final Dividend of KShs 2.00 per ordinary share for the year 2006, announced on 13th February 2007. Books close on 5th April 2007. Payment date, 20th April 2007. Year 2006 saw Equity Bank welcome its 1 millionth customer, compared to 155,000 customers in the year 2002. Customer deposits stood at KShs 16,337 million in 2006 (approximately US$235.2 million), compared to KShs 1,581 million in 2002. Profit before tax stood at KShs 1,103 million (approximately US$15.9 million) in 2006, compared to KShs 111 million in 2002. Shareholders’ funds rose from KShs 334 million in 2002 to KShs 2,201 million in 2006.

9. EQUITY BANK: Bonus Issue of 2 ordinary shares for each ordinary share held, announced on 13th February 2007. This will raise the number of issued ordinary shares from the current 90,564,550 to 271,693,650, each with a par value of KShs 5.00. Just last year, before its IPO, Equity Bank had a 10:1 share split. Book closure date related to the Bonus Issue is subject to CMA approval. The Bonus Shares do not qualify recipients for the First and Final Dividends just declared for the year 2006. In any case, CMA is likely to approve the Bonus Issue only after 5th April 2007, following, as expected, members’ approval of the Board’s recommendation at the bank’s Annual General Meeting (AGM). The AGM, only the third in the bank’s history, will be held at Kenyatta International Conference Centre, Nairobi, on 30th March 2007, starting at 10.00 a.m.

10. BAMBURI CEMENT LIMITED: Final Dividend for year 2006 of KShs 1.50 per ordinary share, representing 30% of the par value of one ordinary share, announced on 13th February 2007. Books close at 4.30 p.m. on 30th May and remain closed on 31st May 2007. Payment date for this Final Dividend, on or about 14th June 2007. The company’s 56th Annual General Meeting will be held at Nyali Beach Hotel in Mombasa on Wednesday 30th May 2007, starting at 3.00 p.m. The annual report will have been dispatched to shareholders from 30th April 2007. [Note: A First Interim Dividend of KShs 2.00 per ordinary share (40% of par value) was paid on 13th April 2006. A Second Interim Dividend, also of KShs 2.00 per ordinary share, was paid on 20th September 2006]. Total dividend payout for year 2006 thus adds up to 110% of par value (compared to 106% in 2005). In cash terms, total dividend payout in 2006 amounts to KShs 1,997 million, or approximately US$28,9000,000.00 (compared to KShs 1,923 million in 2005).

11. BAMBURI CEMENT LIMITED: First Interim Dividend for year 2007 of KShs 2.00 per ordinary share, representing 40% of the par value of one ordinary share, announced on 13th February 2007. Books close at 4.30 p.m. on 14th March and remain closed on 15th March 2007. Payment date for this First Interim Dividend, on or about 28th March 2007.

12. STANDARD GROUP LIMITED: Following CMA and NSE approval, Standard Group’s 65 million ordinary shares (par value KShs 5.00, or US$0.07) migrated at the opening bell on 13th February 2007 to the Main Investment Market Segment of the Nairobi Stock Exchange (MIMS), from the Alternative Investment Market Segment (AIMS). The company, owner of The Standard newspaper and Kenya Television Network (KTN), had been relegated to AIMS in 2002 after the introduction of new eligibility criteria for MIMS listing. These criteria are: (a) net assets worth a minimum of KShs 100 million (US$1.44 million); (b) share capital of at least KShs 50 million (US$720,000); (c) public shareholding accounting for at least 25% of issued ordinary shares; (d) at least 1,000 shareholders; and (e) profit recorded in at least three of the preceding five years. Standard Group is now among the companies listed in the Commercial and Services Sector of MIMS. This sector includes: Car & General, CMC Holdings, Hutchings Biemer (which is reportedly preparing to delist from the NSE), Kenya Airways, Marshalls (E.A), Nation Media Group, Scangroup (which had an IPO in the latter half of 2006), TPS Eastern Africa and Uchumi Supermarkets (in suspension since early June 2006).

13. SAMEER AFRICA LIMITED (Formerly FIRESTONE EAST AFRICA): Audited results for the year ended 31st December 2006 released on 15th February 2007. The report blames an “increasingly unfriendly business environment for manufacturing in Kenya” for its poor performance. Right-sizing and restructuring, following the termination of association with Firestone, led to non-recurrent expenses of over KShs 200 million in 2006. As a consequence, turnover fell from KShs 3.36 billion in 2005 to KShs 3.17 million in 2006. In stead of a profit after tax of KShs 204.7 million in 2005, there was a loss of KShs 22.3 million in 2006. Basic and diluted earnings per share fell from KShs 0.74 in 2005 to KShs -0.08 in 2006. The Board of Directors does not recommend the payment of a dividend for the year 2006. The company’s 38th AGM will be held at the company’s premises, off Mombasa Road in Nairobi, on Thursday, 29th March 2007, from 11.00 a.m. The notice for the AGM will be dispatched together with the Annual Report and Financial Statements around 5th March 2007.

NSE: Listed Company Announcements, 2006

Announcements From 27th September 2006 to 28th December 2006:

1. KENGEN: Final Dividend of KShs 0.55 per ordinary share, announced on 27th September 2006. Closure of members’ register on 17th November 2006. Payment on 1st February 2007.

2. KENYA POWER AND LIGHTING: Final Dividend of KShs1.50 per ordinary share, announced on 29th September 2006. Closure of members’ register on 2nd November 2006. Payment date not yet announced.

3. ICDC Investments: Final Dividend of KShs 4.00 per ordinary share, announced on 19th October 2006. Closure of members’ register on 4th January 2007. Payment on 22nd January 2007.

4. ICDC Investments: Share Split in the ratio of 10 ordinary shares for each share held, announced on 19th October 2006. Closure of members’ register on 4th January 2007. Posting date: 19th January 2007.

5. STANDARD GROUP: Bonus Issue in the ratio of one ordinary share for every 8 held, announced on 31st October 2006. Closure of members’ register: date not yet announced. CMA approval still awaited.

6. BOC KENYA: Final Dividend of KShs 4.25 per ordinary share, announced on 2nd November 2006. Closure of members’ register on 19th January 2007. Payment on 9th February 2007.

7. CITY TRUST: Final Dividend of KShs 3.10 per ordinary share, announced on 6th November 2006. Closure of members’ register on 5th December 2006. Payment on 12th January 2007.

8. DIAMOND TRUST BANK KENYA: Rights Issue in the ratio of one new ordinary share for every 8 held, at KShs 50.00 per share, announced on 20th November 2006. Commencement of trading in rights at the NSE: 27th November 2006. Last date for renunciation of rights by way of private transfer: 4th December 2006. Last date for trading in rights: 7th December 2006. Last date for acceptance and payment for the new shares: 19th December 2006. Announcement of Rights Issue results, update of members’ register and electronic crediting of CDS accounts with the new shares: 27th December 2006. Commencement of trading of the newly issued shares at the NSE: 29th December 2006. Printing of share certificates and notification of CDS account holders of acceptance/allotment: 3rd January 2007. Dispatch of share certificates for the new shares, where there are no CDS accounts, and printing of refund cheques: 4th January 2007. Dispatch of refund cheques, where applicable: 10th January 2007.

9. MUMIAS SUGAR: Offer for sale of 91,999,220 existing ordinary shares of par value Kshs 2.00 each held by the Government of Kenya at KShs 49.50 per share, announced on around 20th November 2006.Opening date of offer: Monday, 4th December 2006. Closing date of offer: Monday, 18th December 2006. This was subsequently extended by a week. Announcement date: Friday, 19th January 2007. Refund processing, electronic crediting of CDS accounts, dispatch of share certificates where there are no CDS accounts: beginning Friday, 19th January 2007. Commencement of trading of Offer Shares at the NSE: 10.00 a.m. on Tuesday, 30th January 2007.

10. SASINI TEA & COFFEE: Bonus Issue in the ratio of one ordinary share for every 5 held, announced on 18th December 2006. Closure of members’ register on 14th February 2007. Posting date not yet announced.

11. SASINI TEA & COFFEE: Share Split in the ratio of 5 ordinary shares for every 1 held, announced on 18th December 2006. Closure of members’ register on 14th February 2007. Posting date not yet announced.

12. EVEREADY EAST AFRICA: Final Dividend of KShs 0.60 per ordinary share, announced on 21st December 2006. Closure of members’ register on 11th February 2007. Payment on 30th March 2007.

13. NATION MEDIA GROUP: Special Interim Dividend of KShs 5.00 per ordinary share, which is equivalent to the par value of one ordinary share, announced on 28th December 2006. Closure of members’ register 5th January 2007. Payment on 31st January 2007.

Commentary: IPOs and Kenyan Politicians

Kenyan politicians must root for the small investor. It is in their best interest. There are now over 500,000 such investors. By election time later this year, their number will probably have reached 750,000, particularly with the expected Safaricom IPO. Most of these are young Kenyans, and there is a growing number of women among them -- who refuse to be left behind. Their recent involvement in the stock market will be one potent reason for them to vote one way or another at the next general elections. They will at last have something very tangible to protect, something directly and personally beneficial to them. That’s a lot of votes to lose, for those who rub them the wrong way!

The small investor is a very determined and perceptive lot. Determined because the poverty line gives them nightmares, and they are driven to stay above it – well above. Perceptive in that they have discovered two things. First, that a well managed stock market offers them the most promising opportunity for asset-building, on a scale which no politician has offered them since the heyday (some decades ago now) of land-buying groups; and for staying above the poverty line despite neglect by politicians. And they know that group land-buying, part of the old ethnicity, was essentially a kitchen cabinet project which politicians in many parts of the country did not have the motivation to emulate or counter -- and no discernible inclination to match for the benefit of their own constituents, as opposed to their own personal gain!

Second, that there is real “magic of compounding” in the stock market which politicians, themselves a perceptive lot, have all along known about and quietly enjoyed but which, left to their own devices, would rather not share with wananchi. We say: Keep this gate open! Share the planet!

It is one thing to fault the 2006 IPOs on the grounds that, starting with the “book building”scam attempted during the KenGen IPO, efforts were made to favour institutional investors (and some efforts succeeded, particularly in subsequent IPOs); or to query the mystery and illegal 5% holding by a third party in Safaricom; or to take measures to ensure that CMA and NSE do not “even think about it” in 2007 and beyond. But it is quite another and dangerous thing to make blanket statements of intention to repossess for the state, presumably by executive order or through a parliamentary vote, the shares which investors bought in 2006. Repossess and then do what? This would clearly be a case of repossess and dispossess. Dispossess for whose benefit?

In an election year, in which the margin of victory is unlikely to be larger than that witnessed during the 2005 referendum, it is highly risky and probably political suicide to make 750,000 individual investors highly nervous about the future of their hard-won, and now compounded, assets; or about the future of IPOs in general. Individual (or “small-holder”) shareholding is beginning to acquire the characteristics and passions of a new ethnicity, politician beware. It is a passion, indeed, that is sweeping the whole world – including the ex-communist states of China and Russia.

NSE Chairman's Statement on the Growth of Kenya's Stock Market

By Mr. Jimnah Mbaru

In the recent past, there have been political statements reported in the media questioning the source of the phenomenal growth of the Nairobi Stock Exchange (NSE) in the past three years.

These statements are misleading and do not reflect the economic and other dynamics that underpin the growth of the Nairobi stock market and the rest of the Kenyan economy.

The stock market and its index are the mirror of what is happening in the rest of the economy. In the past three years, Kenya has achieved substantial economic recovery, recording a growth rate of 5.8 percent and the growth rate this year is expected to be much higher. During the same period, share prices have appreciated to the extent that the NSE market index has increased from around 2,000 to over 5,500 points.

The factors driving the economy include renewed business confidence by domestic and regional investors, resulting from improvements in the domestic and regional environment. The international investors have also been attracted by the good rating of Kenya by Standard and Poor’s, the internationally acclaimed rating agency. Standard and Poor’s has rated Kenya’s foreign debt as investment grade B+, and domestic debt as BB-, which means that foreign pension funds can confidently invest in Kenyan equities and bonds.

The funds being invested in the stock market are a product of improved surplus incomes and prospects of economic recovery and rehabilitation of infrastructure such as roads, airports, water and railways to facilitate intra and regional trade.

Specifically, the main sources of funds for investment in shares and stocks include:

1) Increased individual domestic savings arising from increased incomes from the milk sector, sugar, maize and horticulture, among others. We must also bear in mind that many parents are no longer paying school fees for primary school education since the government implemented Free Primary Education, hence, their disposable incomes are higher.

2) Expansion in the size of funds held by pension funds following reforms that have been carried out by the Retirement Benefits Authority (RBA) since 1998. Previously, most pension funds were overweight in property investments and underweight in equities. Many of these pension funds are rebalancing their portfolios in line with RBA’s regulations, hence, their push into equities market. It should be noted that the size of the pension funds in now in excess of KShs 200 billion and continues to grow annually.

3) Increased in investments in securities by the National Social Security Fund (NSSF) as it tries to balance its portfolio as per the RBA guidelines. NSSF holds over KShs 50 billion mostly in real estate and Treasury bonds

4) Increased insurance premiums as the sector has become more aggressive in marketing innovative life assurance products such as funeral policies, travel insurance, education plans and mortgage protection policies among others. Insurance companies have also expanded with the neighbouring countries and continue to tap new premiums.

5) Increased retained earnings by the corporate sector following improved profitability. This is evident from the many companies that have achieved substantial recovery after years of depressed growth including Kenya Airways, Kenya Commercial Bank, Barclays Bank of Kenya, East African Cables and Mumias Sugar Company, just to mention a few.

6) Increased profitability of small and micro enterprises due to improved market conditions including competition and greater transparency in the award of government tenders.

7) Rapid growth in mutual funds and unit trusts, giving small investors an opportunity to invest their small savings in large, profitable firms. Some of these mutual funds include Old Mutual and British American unit trusts. Currently, these unit trusts hold over KShs 10 billion.

8) Substantial remittances by Kenyans in the Diaspora, who are remitting back to Kenya an estimated US$ 750 million – US$ 1 billion (KShs 50-75 billion) annually through Western Union and commercial banks. Most of these funds find their way into the stock market and the real estate, among others.

9) Increased inflows from international investors, including speculators, dedicated emerging market funds and hedge funds. Presently, international investors contribute about 15 percent of the stock market turnover. Most of these funds are remitted to Kenya through commercial banks who act as custodians for these investors. The Central Bank of Kenya keeps track of where these funds are coming from.

10) Availability of low interest rate and unsecured personal loans to individual investors and similar business loans to small and medium enterprises. The impact of this lending was demonstrated during the recent KenGen primary share issue.

11) First time investors in the stock market. The KenGen issue, for example, attracted 240,000 investors, of which majority were first time participants in the equities market. These new investors include the youth and students who are at home with financial assets, as well as trading on the internet.

These sources of funds have not just developed by accident. They have expanded because of the attractiveness of the Kenyan economy due to economic recovery arising from better macro-economic management, which is demonstrated by low fiscal budget deficit, low inflation, low interest rates and a competitive exchange rate. The Kenya Revenue Authority has also increased its tax collections from about KShs 200 billion in 2003 to KShs 375 billion in 2006. This increased tax revenue has contributed to less borrowing by Government from the money market, hence, the low interest rate environment.

Investors have also been attracted by the substantial profit growth of the companies listed on the Stock Exchange, which have benefited from the improved economic environment, expansion of regional markets and better business prospects in new markets such Rwanda, Eastern DR Congo and Southern Sudan. Indeed, the substantial price rise of shares of firms such as Kenya Airways, East African Breweries, Kenya Commercial Bank, East African Cables, Mumias Sugar Company and Bamburi Cement Company, among others, has been as a result of increased domestic and regional business growth.

The growth of the stock market has also benefited from a considerable shift in the business strategy of individual and institutional investors. There is a shift from less liquid assets like plots and land to more liquid investments such as equities, Treasury bills and bonds, both Treasury and Corporate.

The NSE has made its contribution in increasing investor confidence by modernizing its infrastructure. In 2004, it launched the Central Depository and Settlement Corporation (CDSC), which has significantly improved the settlement cycle. In 2006, the NSE installed the Automated Trading System (ATS), which was recently launched by H.E. President Mwai Kibaki. The ATS has eliminated inefficiencies in allocation of shares and delays in transfer of shares, hence, better price discovery on the stock market.

The dynamics being experienced by the NSE are not unique to the Kenyan economy. Other sectors of the economy including tourism, housing, agriculture and exports have experienced higher growth and future prospects remain high. Assets in these sectors have seen tremendous increase in prices and values.

As the economy continues to expand, and as the Government continues to privatize its parastatals through the NSE, the new investors both from Kenya and the Diaspora continue to patronize our market. This will lead to a deeper capital market which will enable profitable companies and Government to raise funds cheaply. Investors will also have a good opportunity to diversify their portfolios.

The NSE will continue to play its role to assist Kenya achieve its Vision 2030. I call upon all well wishers to join us and be partners on this journey to greater prosperity.





JIMNAH MBARU
CHAIRMAN
NAIROBI STOCK EXCHANGE
21st November, 2006

Commentary: Safaricom IPO

Everyone is waiting with great anticipation for the Safaricom IPO, expected sooner or later this year. Watu wanajitayarisha!

We at SharePlanet are going to be saying a lot in the coming days and weeks about the IPO, and others to follow.

For now, we wish to add our voice to the view that the offer must be large enough to satisfy the huge, even pent-up, demand for good, affordable stock among ordinary Kenyans.

Let us be bold about one thing: The Safaricom IPO must involve at least 3,000,000,000 ordinary shares, and preferably up to 5 billion shares. Only such a volume has the potential to mop up all the liquid cash flowing around from one small IPO to the next, as we all witnessed in 2006. The offer price must be pocket-friendly as far as the retail investor is concerned.

Let us be bold about another thing: priority must be given to retail investors -- to individuals applying for shares on their own, or even jointly. In reality, Safaricom is their creation. Safaricom cannot thrive simply on the goodwill of corporate entities.

Corporate entities claim to be legal persons, and to demand their own rights. Fair enough. In that case, however, let them be treated the same way as individual investors, in all respects -- not more, certainly, and not less.

The recent attempts, subtle and crude, to tilt allocations in favour of institutional investors have not escaped attention. The public will not stand for their continuation in 2007! After all, many of the so called "institutional" investors are little more that "a fistful of 'incorporated' individuals." Others, such as mutual funds, are essentially companies, typically controlled by a few, which have proceeded to attract into their fold, and to hide behind, "bundles" of elite individuals who can afford to open accounts with Kshs. 200,000 to Kshs. 500,000/-.

New Microsoft Link to Consumer Electronics, Content

By Andrew Simons (January 7, 2007)

LAS VEGAS -(Dow Jones)- Microsoft Corp. (MSFT) Chairman Bill Gates unveiled a cadre of new products and services Sunday night that he says will allow consumers to integrate their electronic products.

The new offerings are mostly connected with Vista, the software maker's latest version of its Windows operating system.

"This is by far the most important release of Windows," Gates said in his keynote. "It's also the highest quality."

During a speech kicking off the Consumer Electronics Show, the industry's annual confab in Las Vegas, Gates said consumers will have more connected experiences from their gadgets. The speech marks Gate's 11th appearance at the show.

Microsoft, which has aggressively pursued the consumer market with products such as its Zune digital music player and Xbox 360 game console, aims to play a big part in a wave of consumer dollars going towards electronics.

The company provided an update on sales of the Xbox 360. Microsoft said it has sold 10.4 million Xbox 360 consoles to date, and expects to sell 1 million Zune music players by June.

The show is expected to draw 140,000 people over four days.

Attendees received a peek at Windows Vista, which included more bells and whistles than the current version of Windows.

Among the products Gates presented is a line of new personal computers running Microsoft Vista, which will be available this month. Gates showed computers from Sony Corp. (SNE), Hewlett-Packard Co. (HPQ), Toshiba Corp. (6502.TO) and Medion AG (MDN.XE). The PCs have various new features, including touch screens and improved wireless connections.

Gates also showed progress on a new device the software maker is working on with HP CP called Windows Home Server. The device acts as a hub for a home with multiple electronic devices.

"This is for homes with multiple PC's or Xboxes," said Gates.

The device is due from HP in the second half of the year.

Gates also introduced a slate of services including a variety of Internet portals and features designed onto Vista, which he said will allow easier connections to entertainment content.

The services include what the company calls Windows Media Center Sports Lounge, a venture with Fox Sports, a division of News Corp. (NWS). It will allow viewers to check sports news, scores, statistics, and video coverage.

The services also include what the company calls MSN Soapbox, which allows users to upload and share personal videos. The idea could be similar to YouTube, which swept the Internet last year.

Other services include a NASCAR Motorsports content portal, which the company said will allow fans of auto racing to browse, sample, and purchase content; TurboNick on Windows Vista, allowing users to see content from the Nickelodeon channel on a personal computer or television; Showtime Interactive, which allows users to browse and view Showtime programming; and Vongo, a service that allows unlimited access for $9.99 a month to more than 1,000 movies and 2,200 total video selections, including concerts, television shows and live streaming programs.

Gates also unveiled Sync, a product which allows users to connect personal electronics - including mobile phones, portable storage devices and portable music players - to an automobile.

Sync will be included as an option in 12 cars from Ford Motor Co. (F) in the 2008 model year, including cars from Lincoln and Mercury, starting this fall. Under the deal, the option will expand to all Ford models by 2009.

"Our ambition is for you to have connected experiences 24 hours a day," Gates said.

This address had been rumored to be Gate's final speech at the trade show, but Microsoft confirmed that it won't be the last. Gates said last June that he will move to a part-time role at the company in July 2008.

Copyright (c) 2007 Dow Jones & Company, Inc.

Mutual Funds That Have Invested in Warren Buffett's Berkshire Hathaway

Everyone knows that Warren Buffett is one of the greatest living investors. Not for nothing is the guy known as the "Oracle of Omaha." Thing is, while shares of his Berkshire Hathaway holding company look relatively cheap in terms of their price multiples, ponying up the entrance fee might be a stretch: Berkshire's A shares (BRKa) currently go for around $110,000 a pop, while the B shares (BRKb) will set you back roughly $3,667.

Buffett groupies
The good news is that you can get access to Buffett and his portfolio of subsidiaries and equity holdings for smaller sums. How so? Via mutual funds that hold Berkshire shares in their portfolios.

FMI Large Cap (FMIHX), for example, recently had nearly 8% of its assets plunked down on Berkshire Bs. The fund rounds out its portfolio with the likes of Sprint Nextel ( NYSE: S), Tyco International ( NYSE: TYC), and TJX Companies ( NYSE: TJX). Oak Value (OAKVX), meanwhile, runs with a Berkshire slug that weighs in at almost 9% of assets and, if you invest via an IRA, has a $1,000 minimum. Buy shares of this puppy, and in addition to Berkshire, you'll be investing in a portfolio that recently held Harley-Davidson ( NYSE: HOG) and Oracle ( Nasdaq: ORCL), too.

What's that? Those funds don't provide quite enough Buffett for you? Not to worry: In the September issue of Motley Fool Champion Funds, we revisited the investment case for a fund -- my favorite of the Buffett boys -- that packs more than 16% of its assets into Berkshire Hathaway. Other holdings here include EchoStar Communications ( Nasdaq: DISH) and Duke Energy ( NYSE: DUK), and yep, this fund, too, can be had (via an IRA) for a mere $1,000.

In the interest of protecting value for our members, we tend to play our newsletter's recommendations close to the vest. But if you want the inside scoop on this pick and all of our others, no problem: Just click here for a free 30-day guest pass.

Fund your future
In the meantime, add "access" to the list of winning traits that make investing in a world-class portfolio of mutual funds a great way to begin -- and continue -- your career as an investor. In addition to the likes of Berkshire, funds also open the door to areas of the market that might lie outside your circle of investing competence.

If you're looking to dial up your exposure to, say, equities plucked from the world's developing economies or even those in your own backyard that hail from industries you don't fully understand -- biotech, anyone? How 'bout nanotech? -- terrific funds helmed by stock pickers who do understand them can be had, provided you know where (and how) to look.

Pricey picks with green managers are musts-to-avoid, for example, as are most funds that pack tons of assets into narrow areas of the market. Quick and easy diversification, after all, is another built-in advantage of well-chosen mutual funds.

The Foolish bottom line
Choosing well is what we strive to do each month at Champion Funds -- and so far, so good. Our list o' picks is up on the market by more than 10 percentage points since we opened for business back in March 2004.

That free 30-day guest pass I mentioned is just a mouse-click away, and you can use it to rummage through our archives, fund recommendations, and our members-only discussion boards. There's no obligation to stick around if you find it isn't for you, so go ahead and give Champion Funds a whirl. A world of market-beating stocks that you might not otherwise invest in awaits.

This article was originally published on Aug. 15, 2006. It has been updated.

At the time of publication, Shannon Zimmerman didn't own any of the securities mentioned above. Berkshire Hathaway and Tyco are Inside Value selections. Duke Energy is an Income Investor recommendation. You can check out the Fool's strict disclosure policy by clicking right here.

The Motley Fool is dedicated to Educating, Amusing, and Enriching all visitors to their website at http://www.fool.com/index.htm?ref=Yo.

You can become a registered Fool for Free:
http://www.fool.com/community/register/Register.asp?source=foolemail&ref=Yo

Food For Thought

Can Individual Investors Beat the Market?

That's a good question -- and the title of a now-famous academic paper. For most investors, the answer is an emphatic "No." At least not by any meaningful degree, but more on that later.

Fortunately, you have options. You can buy an index fund, something we recommend for a good chunk of your portfolio. That way, you essentially bet with the house. But indexing has its downsides, not the least of which is lost opportunity.

Let's take an example. Imagine that, on top of your core index holdings, you earmark an additional $50,000 as market-beating ammo. If that $50,000 earns 10% yearly -- something you might hope for from the Standard & Poor's 500 -- you'll have $336,375 after 20 years.

Sounds good, but wait.

How about an extra half-million?
If you can muster 15% instead of 10% with the more aggressive portion of your portfolio, you'll walk out of the gates with $818,327! That extra 5% per year gets you an additional $481,952. I don't know about you. ... OK, yes I do: We'd all love to grab half a million dollars extra.

Of course, that extra 5% doesn't do you much good if you don't get it. Sadly, most individual investors don't, for many reasons. Here are just two.

Never letting go. In The Courage of Misguided Convictions: The Trading Behavior of Individual Investors, Barber and Odean find that we are 50% more likely to sell a winner than a loser. Our tendency to avoid pain -- in this case, refusing to take a loss that already exists -- is just one psychological weakness that leads us to poor investing decisions.

That irrational exuberance. Another is a sort of self-perpetuating prophecy: We pursue exciting opportunities to the point where they are no longer such good investments. AMD ( NYSE: AMD) may have merit as a company, but was it worth a triple-digit P/Eback in 2005? Probably not. And that's one of the reasons the stock has dropped even as the company has grown earnings.

OK, it's smoky in here ...
But given the choice, where will you sit? At the table of visor-clad sharks or the one with the Hawaiian-shirted tourists? Sounds simple, but odds are you've been sitting down with the sharks in the stock market, playing a tougher game than you have to.

Lakonishok, Shleifer, and Vishny -- three professors I'll call "LSV" for short -- suspected as much. In 1994, the trio set out to investigate why certain types of stocks consistently tend to outperform. They started by dividing stocks, using a variety of factors, into two groups: Unloved, low-expectation nobodies -- value stocks. High-priced, high-expectation glamour stocks.

Picture shoelace makers and semi-regional banks versus, say, Infosys Technologies ( Nasdaq: INFY), CNET Networks ( Nasdaq: CNET), or Wind River Systems ( Nasdaq: WIND). Tell me, where do you think the sharks are playing?

So, how about that extra 5%?
Breaking stocks into a 10-group spectrum ranked by earnings yield (earnings divided by price, or E/P -- academics prefer to rearrange familiar measures to maintain an air of sophistication), the trio shows that the high-E/P value end of the spectrum bested the glamour end by about four percentage points per year.

That's not pocket change. And it wasn't news to many of history's greatest investors. The likes of Dodd, Graham, Buffett, and many others have espoused buying stocks with low P/Es. It's great to see confirmation of the low P/E ideology from both academia and investors past -- but there's work to be done.

You don't have to be Warren Buffett to notice that E/P, however powerful, is a simple, imprecise measure. LSV knew this -- in fact, the study aimed in part to expound upon a study (by Fama and French) that harped on the book-to-market ratio (B/M), a variable described by LSV as "not 'clean'" for its oversimplicity and inability to capture other forces -- namely, growth.

Investors gone wild
Indeed, growth is sorely missing from measures like B/M (again, an academic inverse of the familiar price/book value ratio) measure. So LSV gave growth special attention.

The trio again broke the universe into deciles, this time using a formula based on historical sales growth. Amazingly, value stocks -- the low-expectation, low-growth nobodies -- again walloped glamour, this time by 7.3 percentage points per year.

It's important to understand why. The gang explicitly rejected the knee-jerk academic explanation that if value stocks do better, they must somehow be riskier. Instead, they identified -- and politely termed "suboptimal" -- inferior behavior on the part of investors as the culprit.

Investors overpursue today's hot performers to the point that returns are no longer lucrative. And, to be more specific, LSV's glamour stocks are high-sales-growth stocks that don't have much in the way of assets or cash flows. In other words, stocks like Apollo Group ( Nasdaq: APOL), CA ( NYSE: CA), or (arguably) even eBay ( Nasdaq: EBAY), which have experienced strong sales growth in the past, wouldn't fit the "glamour" moniker. Moreover -- and I'm probably butchering once-eloquent thoughts -- investors don't adequately understand mean reversion, a concept best explained by analogy.

Odds are that a car going 100 mph on the freeway will be traveling closer to the speed of traffic five minutes later. Similarly, a driver clocked at 35 may be going slowly only temporarily (unless he's driving in front of me) and will, the odds dictate, also be traveling closer to the speed of traffic five minutes hence.

It's not impossible to make money in glamour stocks. In fact, some people make a killing in them. But it's a mistake to assume that current trends will continue indefinitely -- and clearly, the glamour table is a tougher game.

Now I'll drop the bomb
The real secret of the LSV study was the magic of combining factors. A portfolio favoring high (cheap) E/Ps and low growth outperforms its glamour opposite by 11% per year. Now that's astounding. Wouldn't you be eager to sit down at a card table knowing you had an 11% advantage?

And remember the study about individual investors failing to beat the market? There's more to the story, both good and bad. A precious handful -- the top decile -- of investors do beat the market, and nicely, earning "excess returns" of 0.12% to 0.15% per day. But that's largely offset by the bottom decile's 0.11% to 0.12% loss. In other words, for every couch potato investor doing well, one does poorly -- ironically, so poorly that we'd do well to sell short his favorite picks and profit from their declines.

Bottom line for you
If you're just jumping into the game, odds are you won't win. Your odds of consistently beating the market are about the same as those of consistently letting the market beat you. Of course, we'd all like to think we're in that special 10%, but with your retirement at stake, isn't a little honesty in order?

One option is to find someone in that 10% -- a proven top-deciler -- and keep him or her on a short leash. If you either (a) don't have the time, effort, skill, or inclination to beat the market, or (b) don't know anyone who does, I highly recommend you take a look at Tom Gardner.

Cheating off Tom makes all kinds of sense for the "bottom 90%" of us. Since he launched his Motley Fool Hidden Gems newsletter service in July 2003, Tom's picks have returned 47% -- a mind-blowing 26 percentage points above the S&P 500. If you like those odds, Tom is offering a no-obligation, 30-day free trial to Hidden Gems, full privileges included -- simply click right here to learn more.

This commentary was originally published on Jan. 14, 2005. It has been updated.

James Early owns none of the stocks mentioned in this article. CNET is a Rule Breakers pick. eBay is a Stock Advisor recommendation. The Motley Fool has a disclosure policy.

Word Picture Gallery

Heard casually at mid-morning of a rainy 4th of January 2007 in the cluttered lift lobby of the 10th floor of Loita House, Nairobi. One blue-collar (but really cheerful -- and hairless) worker to his three less talkative mates, while contemplating the grey cityscape (but more the ongoing heavy short rains):

"Imenyesha mpaka wadudu wanakufa!"

[Trans: "It has rained till the insects are dying!"].

Oh-my-God! The insects!

The 10th floor, if you didn't know, is where the head office of Dyer & Blair Investment Bank is located; though, when the full gang of those workers is through with the re-partitioning, we'll be talking of both the 9th and 10th floor. Jimnah Mbaru's empire is growing. Now Kenya, tomorrow Eastern and Central Africa -- and then to the Cape.

That talkative worker said a little more ... but that's for another day. Didn't hear anything about shares, though.

And then they were gone -- scattered to their various urgent tasks of re-doing (fanyaring, tengezating) Mbaru's empire.

Nation Media Group Limited Announces a Special Interim Dividend

On December 14, 2006, the Board of Directors of Nation Media Group Limited announced a special interim dividend, in respect of the 2006 financial year, amounting to 100% of the par value of its 71,305,260 issued ordinary shares, which are quoted on the Nairobi stock Exchange.

The special interim dividend amounts to Kshs. 5.00 (or US$ .072, per share, at CBK's mean exchange rate of Kshs. 69.4467 per Dollar on January 3rd). It will be payable on or about January 31, 2007 to shareholders registered at the close of business on January 5th. For purposes of preparing the dividend, the register will remain closed from January 8th to 19th, both days inclusive.

The total dividend payout will amount to Kshs. 356.5 million; and will be paid less withholding tax where applicable, which for Kenya residents stands at 5% and remains the final tax on dividends.

On January 3rd, NMG shares traded at the average price of Kshs. 312.00, down from the average price of Kshs. 314.00 recorded on January 2nd (this year's first day of trading).

List of Constituent Companies of the Nairobi Stock Exchange (NSE) Index

As of January 3rd, 2007, constituent companies of the NSE 20-Share Index were as follows:

1. Bamburi
2. Barclays Bank Kenya
3. BAT (K)
4. BOC Limited
5. Diamond Trust
6. EABL
7. Kakuzi
8. Kenya Airways
9. KCB
10. KPLC
11. Nation MG
12. NIC
13. Sameer Tyres
14. Sasini Tea and Coffee
15. Standaed Chartered
16. Total Kenya
17. TPS-Serena
18. Uchumi
19. Unilever
20. Williamsons Tea

How The Nairobi Stock Exchange Performed in 2006

The NSE closed year 2006 with a 42.10% gain on 2005. It rose from 3973.04 points at the start of the year to 5645.65 points at the end, based on the NSE 20-share index. Compared to the year's growth figures of a number of the more developed stock markets around the world, shown below, this was remarkable.

Even more noteworthy, however, was the growth in market capitalization in 2006. In local currency terms, this rose by 75.97%, from Kshs 448.1 billion to Kshs 788.4 billion. In US$ terms, the growth was even higher, from $6.2 billion to %11.4 billion -- meaning an 84.35% appreciation, or twice the rise in the NSE index! For the first time in its history, the NSE passed the US$ 10 billion threshhold in market capitalization in '06.

This performance in turn indicates that, with the steady appreciation of the Shilling against the Dollar in '06, there was in effect an 8.38 percentage-point premium for investors coming into the Kenyan market with Dollars. This should be icing on the cake for all non-resident investors, and in particular Overseas Kenyans. It should be more that sufficient incentive for those in the Diaspora to invest back home. For Kenyan investors at home, the message is clear: investing in the country is the real deal!

Clearly, however, there is a significant disconnect between the gains recorded in the NSE index (42.10%) and in NSE's market capitalization (75.97% in local currency and 84.35% in Dollar terms).

One inference from this is that an investment allocation strategy which had sought to track/mirror the NSE 20-share index would have achieved returns far below what was in fact possible. And this reinforces recent calls to overhaul the index, whose basis for calculation is the geometric mean, and to include more of the nearly 50 equities currently quoted on the exchange.

How Other Bourses/Indexes Performed in 2006:

1. India's Sensex Index: 46.0%
2. Hong Kong's Hang Seng Index: 34.20%
3. Australia's S&P/ASX 200 Index: 19.0%
4. Broad European Index of Leading Stocks: 18.0%
5. Paris Stock Exchange: 16.49%
6. Zurich Stock Exchnage: 16.0%
7. Milan Stock Exchange: 15.28%
8. London Stock Exchange: 10.50%
9. Nikkei 225 Index: 7.0%

Data Sources: nse.co.ke, news.bbc.co.uk, cnbc