Smartbiz Africa - Top Financial News

CURRENT ISSUE: 43 September 24, 2008 - October 3, 2008

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CONTENTS

	SMART TIPS

A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. This is an advanced trading strategy with many unique risks and pitfalls. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short. Novice investors are advised to avoid short sales.

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SEVEN SMARTEST MOVES TO PLAY THE MARKET

BY PERMINUS WAINAINA

Zain's Wonderful World

Incubated and Clicking in IT Business

10 Steps to a Great Marketing Plan

Use Girl Power to Grow Business

Here are seven fatal mistakes investors make when trading in stocks. They should be avoided at all costs. Browse through the list and be alarmed at the ones you have been committing or do not know about.

1. It’s No Party

Trading in stocks is a serious business. It is not something that you do merely for fun. If you are looking for excitement, thrill and fun, then a casino is the right place for you. Stock market is not a game of poker that you bet your money in and wait for the wheel of fortune to stop at your number. And just in case it doesn’t, you groan and try to recover your losses as fast as you can. While it is human nature to crave what one has lost, it is not the right strategy at the stock exchange. The mantra is not to panic, be calm and patient and wait for the next big opportunity. Do not do anything in a hurry, even if index sheds 200 points in a day and your portfolio value goes down 20%.

2. Hope, Wish, Fear, Pray

You are not in a temple to hope, wish and pray and neither have you been shoved into a crusher that you fear of something unthinkable. These four-letter words spell doom for you. Markets have their very own system of moving up and down. No matter how much you hope, wish, fear or pray they will behave as they have to. A losing trade will not turn into a winning one as an answer to all your hopes, wishes and prayers. When you are wrong, just add another word to your vocabulary — get out (of the losing trades that you are in).

3. Trading Money You Can’t Afford to Lose

If you happen to be an inveterate gambler, I have no advice to give. However, if you are not, please do not trade with the money you cannot afford to lose. You should not use money from an existing business, college or school fee, or for that matter money borrowed from someone. If you know that the money you have invested in stocks is not meant for it and there’s a risk involved, you may trade out of fear and emotion and will not apply logic.

4. Trading Plan

Money does not come by itself. One has to earn it through a well-devised plan and by its successful execution. If you are a trader, ask yourself these questions: Do I have a set of rules that tell me what to buy, when to buy and how much to buy, not just for the next trade, but also for the next 10 trades? Before I enter a trade, do I know when I will take profits out of it? Do I know when I will get out if I am wrong? You cannot be successful if you cannot answer these questions clearly and concisely.

5. Out of Control

One often tends to let the losses grow too large. Though no one likes to take a loss, taking a small one in time circumvents situations where one is forced to take in large losses later. If you think great traders never lose, you are wrong. They may have lost, but they have an uncanny ability to recover quickly from a string of losses, bounce back at the next available opportunity and exit profitably. Human psychology is that having faced a series of losses, big or small, one loses hold of the winning trade as well. You should not get affected by such fear: give ample time and room to profitable trades.

6. Exit plan

An escape plan is important. It’s surprising that most traders do not have a clear exit plan and are unable to get out of a bad trade. They resort to the hope, wish and pray method. They need to be told that markets behave as they have to and one has to accept his/her fault. The easiest way to keep a bad trade from turning into a real bad one is to fix a limit before you get in.

7. Flirt With All. Have No Favorites

While trading in stocks, there should be no favourites. Getting fascinated and falling in love with a stock or two is a sin. If you constantly trade in your favourite stocks you ignore other profitable trade opportunities. Just flirt with stocks — attachments are a big no because such tendencies can be suicidal in terms of trading.

Now walk tall, you have become a master trader.

Perminus Wainaina is the CEO of Concept Advisory Services, an investment adviser and stocks agent for African Alliance. He can be reached at perminus@conceptadvisoryservices.com

Published Online: September 24, 2008

AS PROFITS DROP, PORTLAND LOSES SHINE


BY SMARTBIZ REPORTER

East African Portland Cement company recorded a 36 per cent drop in its pre-tax profit for the year ending June 30, 2008 as exposure to a foreign currency loan took a toll on its earnings. The cement manufacturer recorded a pre-tax profit of Sh715 million against Sh1.1 billion recorded in the year to June 30, 2007. The reversal in fortunes came despite the company having a 48 per cent increase in its operating profit — Sh1.1 billion against Sh757 million recorded in 2007. By holding a Japanese yen-denominated loan, the Athi River-based cement firm recorded a Sh345 million unrealised foreign exchange loss against a gain of Sh517 million recorded in the year to June 2007. The loss was as result of the Kenya shilling weakening against the Japanese yen, with the translation of the loan balance increasing the amount of loan payable in local currency. The company obtained a Sh1.7 billion yen-dominated loan in 1996 to expand its production capacity, but due to strengthening of the yen over the Kenya shilling, the loan snowballed to stand at Sh4 billion by 2005. The company’s long-term loan currently stands at Sh3.8 billion. It has for the last one decade unsuccessfully tried to retire the loan to mitigate the losses. However, being a government-to-government arranged loan, possibility of earlier retirement of the loan has been elusive. “Price adjustments were however not sufficient to offset inflationary cost increases in fuel, input prices and distribution cost,” the management said. The company is set to commission its new clinker expected to increase its production to meet rising demand for cement locally and regionally. The construction of the new clinker was initiated last year at a cost of Sh1.8 billion. “The additional cement milling capacity will be commissioned in December this year while the coal conversion plant will replace furnace oil in due course,” the statement added. . With stiff competition from Athi River Mining and Bamburi, the stock is good for short-term buyers, given that a drop in profitability might cause a decline in stock value.

Email: editor@smartbizafrica.com
Published Online: September 24, 2008

BUY THESE FIVE STOCKS BEFORE THEY RISE


BY PERMINUS WAINAINA

Mumias Sugar Last week the stock hit a low of Kshs7.85 against an average of Kshs12 for the last five months. Picture this, with the share appreciating to its original price of Kshs12, this will translate to over 50% return. This is a favourite stock for the retailers and we are bound to see the positive price push in the short-term. Highly recommended for speculators. Equity Bank Two months ago, the stock was a darling for retail investors, hitting a high of Kshs325. With the bearish run the price has come down to an average of Kshs195. At a price below Kshs200, the share is attractive to institutional investors who had been put off by the high PE (price earning) ratio of 45. At the current price-earning ratio of 28, there will be many takers. Access Kenya This is one stock that should not have been ‘corrected’. The company is the leading internet service provider for the corporate market with a 40 per cent market share. This year it has launched two key new services: a managed IT service for corporate customers, and a residential broadband offering. No wonder the share has been recovering by the maximum 10 percent. Happy for those who got in at Kshs25. The average price for the last five months has been Kshs33 and is an achievable target. Centum It is a solid long-term buy based on its valuation discount to the market. Their investment portfolio being a blend of listed and non-listed companies should re-rate as the Nairobi Stock Exchange market picks up and the economic background begins to improve. NIC Bank NIC Bank maintained the strong half-year earnings tempo for Kenyan banks, propped up by foreign exchange and fees and commissions income, even as interest earnings showed signs of strain within the same period. It is a good medium-term buy.

Perminus Wainaina is the CEO of Concept Advisory Services, an investment adviser and stocks agent for African Alliance. He can be reached at perminus@conceptadvisoryservices.com
Published Online: September 24, 2008

MARKETS

NSE GAINERS
Most Active	Price	Change
Eveready	4.60	4.35
Centum Investment	20.25	3.70
EACABL	34.00	2.94
National Bank of Kenya	50,00	2.00
Mumias Sugar	8.05	1.86

MIXED OUTLOOK FOR SAFARICOM SHARE

BY STEVE BIKO

Upon listing, most retailers sold in the first week, leading the price to fall from Kshs8 to Kshs7. Over the four months of trading, most of the speculators have sold out, which have been mostly picked up by long term investors, and there should be a low supply of shares as the market starts recovering. It is the biggest and most profitable company East Africa. It is a stable company with good management and solid plans for the future, so there should be no wild fluctuations in its earnings in the next few years, or situations that the management hasn’t foreseen.

Growth Prospects

It has diversified from its core business of mobile telephony, and is currently a virtual monopoly in the fast growing local money transfer (M-Pesa) business. We should expect to do most of our utility payments using MPesa. Safaricom has applied for international money transfer using the Vodafone network abroad. This would enable the transfer of hundreds of billions of dollars to and from Kenyans in the diaspora through Safaricom.

It is one of the top players in the fast growing internet industry in Kenya, and owns 25% of the Eassy submarine cable. It has a huge market share (80%) in the communication industry. Mobile phone penetration is still far from saturation, and the average amount spent by an individual subscriber is expected to keep rising for years to come.

It has been growing consistently despite competition and should continue to do so despite new entrants in the market. There exist barriers to switching from the Safaricom network, and this should protect its market in the face of competition. This includes the inconvenience to inform all the people who have your current number of the change, including some who have no mobile phone and have your number memorized or written in an address phone book.

Weaknesses

Safaricom will be forced to keep its prices low to compete in an industry fast becoming filled with new entrants. However, due to economies of scale, it will have the highest markup on revenue and thus will feel the pinch much less than its competitors. It will have to significantly increase its advertising budget this year to deal with new players as well as the newly relaunched Zain and Orange. The advent of affordable and quality Twin Sim phones might threaten its stranglehold on the market. This will make it easier for GPRS network users to have two lines in a phone, thus sharing between the two lines. However, the current Twin Sim phones are very expensive.

At this time Safaricom is unable to offer unlimited internet and this is most likely because it would result in network congestion. This makes it hard to have post-paid internet clients and increases the risk of migration. It will be easier to expand the network rather than to look for clients, which is what the competitors will be doing. Also Safaricom can’t spread abroad and get neighbouring countries’ market share like banks. However, if the international money transfer request is granted, the international money remittance business will rival the mobile call in terms of earnings, and it’ll be an international company.

This is a good stock for the short to the medium term investor.

Steve Biko is a director at Hildago Finance. He can be reached at hidalgofinance@gmail.com

Published Online: September 24, 2008

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