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Infrustructure Bond Investor Vs KCB Share Investor
Rank: Elder Joined: 2/26/2008 Posts: 4,449
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Two investors in the NSE at this bear period take the following investment actions: -
(a) Bond-Investor
He/She bought into an over-subscribed 'risk free' infrustructure bond and was expecting 6.25 % risk free return on the first semi-annual payment based on a 12.50% p.a payable semi-annually on the outstanding principal amount.
This presents a 6.25% semi-annual return - assume a June payment. Decides to retain his investment here for another 18 months.
(b) KCB-Investor
Bought KCB shares at the beginning of this week at Ksh. 15.35/= looking for the dividend payout of Ksh. 1/= per share on the payment date 29-May-2009.
This presents a guaranteed 6.38% return,at the same bond semi-annual date,inclusive of a maximum 2.1% buy transaction cost. Also decides to retain his investment here for another 18 months.
Your thoughts
What do you think are the prospects of these two investors at the close of June and after the subsequent 18 months?
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Rank: Chief Joined: 1/3/2007 Posts: 18,098 Location: Nairobi
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KCB look fine now but be insolvent in 6 months (look at Citibank or HBOS or Northern Rock). Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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KCB never bought credit default swaps....so dont compare to HBOS etc I would rather put my money into KCB Business opportunities are like buses,there's always another one coming Business opportunities are like buses,there's always another one coming
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Rank: Member Joined: 2/12/2008 Posts: 345
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@vitu... Are you in kenya? You are seriously comparing kcb's financials to citi or HB...whatever..?? Amazing.
The race is not always to the swift..nor the battle always to the strong..nor food always to the wise..nor riches always to the intelligent..favor is not always to the skilled..or learned..but time and chance happens to all. Ecl9:5..
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Rank: Elder Joined: 5/27/2008 Posts: 3,760
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Your argument relies on selling KCB xd at the buying price. Will this be the case? I rather think not,I suspect it will be higher.
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Rank: Elder Joined: 2/7/2007 Posts: 11,935 Location: Nairobi
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On the outside,the bond will give you 12.5%......Guaranteed.....On the inside and outside,KCB will give you infinite possibilities............The riskier,the better......KCB. Guka wa bijuti... Nothing great was ever achieved without enthusiasm.
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Rank: Member Joined: 2/12/2008 Posts: 345
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Assumin longterm investin? Minimum holdin 1year? Otherwise u could trade on trends of both bond n kcb share.
The race is not always to the swift..nor the battle always to the strong..nor food always to the wise..nor riches always to the intelligent..favor is not always to the skilled..or learned..but time and chance happens to all. Ecl9:5..
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Rank: Member Joined: 6/17/2008 Posts: 294
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KCB
But you shall remember the LORD your God,for it is He who is giving you power to make wealth,that He may confirm His covenant which He swore to your fathers,as it is this day. Deu 8:18
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Rank: Elder Joined: 2/26/2008 Posts: 4,449
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The case presented at the 6 month drawline only offers the guranteed. The bond has a guaranteed semi-annual payment whilst KCB has a guaranteed dividend payment..the 18 month window period is to allow for the subsequent possibilities..
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Rank: Veteran Joined: 11/21/2006 Posts: 1,590
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Its all risk appetite,but I'd take KCB anytime. And yes as vv says,KCB could be down and out in 6 months. Its called a liquidity crisis-all it'd take is a bigger player than Deyani to commit fraud and run-off to Outer Hebrides. Or KCB could go to Ksh30 in the next 18months. www.mjengakenya.blogspot.comSehemu ndio nyumba
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Rank: Chief Joined: 1/3/2007 Posts: 18,098 Location: Nairobi
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@jammo & kularaha. KCB may not have bought CDSs but the question asked was returns over 18 months... Now... the issue is that if KCB is hit by a few more Tritons then its profits (& div) gets wiped out. For 'safety' GoK bonds beat KCB hands down. If you want a guarantee then GoK bonds. If you want growth (divs + capital) over 2-5 years then KCB shares. I am a little leery about KCB's loan loss provision. I think it is too low. Could they have adjusted the terms to bring NPLs down? Or not used the strictest definitions? Nevertheless,I am confident that KCB will recover the Triton cash. Why? Coz the GoK will cover the loss whether giving KCB the cash or giving them special bonds (like NBK got). On the last point I am relying on a blogger who made a great argument at www.coldtusker.blogspot.comGreedy when others are fearful,Very fearful when others are greedy - to paraphrase WB Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Veteran Joined: 7/3/2007 Posts: 1,634
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Over six months it is hard to tell for sure. I would say the bond Over 18 months plus,KCB certainly,for all the reasons given. Plus inflation. If inflation rises your 12.5% guaranteed return on the bond is toast. Not the same KCB which would be likely to rise in value - historically a rise in inflation tends to positively correlate with rise in stock markets as buyers desert bonds in search of higher returns. Winner – KCB. For Vitu,who argues that KCB could collapse,that could happen,but this fact can not be used with any confidence on an 18th month time horizon. In any case a KCB collapse would be a black swan event,one so momentous as to - perhaps - be preceded by a collapse of the state. If that happened your bond would go south too. "The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth." (Niels Bohr)
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Rank: Member Joined: 2/20/2007 Posts: 359
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KCB is solid! Simba anytime it goes below 20!
@Vituvingisana; I totally beg to differ. African banks r conservative (but,I am not too sure EB is conservative enough) and do not engage in speculations such as sub-prime morgages and debt swaps,commodities,currencies and off-shore securities. Moreover,Kenyan home/house values cannot fall to levels witnessed in the West due to massive under-supply - thus they are reliably valuable collatteral.
@MainaT; historically,Kenyan banks deal with liquidity issues by cutting back on loans and investing primarily in govt papers,which they are doing - esp KCB n BBK. Kenyans deal with liquidity issues by saving instead of investing - a plus for banks - coz jobs become unsecure.
KCB regional expansion into regional Economies that can only look up from years of war,will hedge against local decline in profits.
Someone said Triton was brought down by the liquidity issues; no,quite the opposite,they had open credit lines but speculated in oil buying at peak prices and then oil prices crushed = bust!
MainaT is right,a few companies with KCB huge loans going bust can mess the bank in 6 months! That is why I have been wondering just which manufacturers and exporters owe KCB big money.
But this should not worry investors too much as KCB cannot be allowed to collapse. There would definitely be a govt bail-out in case of big trouble - like they did with NBK.
In sum,
1. risk on KCB is minimal.
2. speculation on anything other than land can be high-risk!
When buying shares,ask yourself,would you buy the whole company?
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Rank: Member Joined: 2/12/2008 Posts: 345
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@vituvingi.... u'd rather copy paste coldtusker ..otherwise ur argument is based on suppositions at best n should be dismissed!
The race is not always to the swift..nor the battle always to the strong..nor food always to the wise..nor riches always to the intelligent..favor is not always to the skilled..or learned..but time and chance happens to all. Ecl9:5..
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Rank: Elder Joined: 2/26/2008 Posts: 4,449
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My risk taking was duly rewarded. Sold KCB at a profit of 26% net of commissions in just 3 months as compared to waiting for 10 months to receive the 12.5% guaranteed return the Infrustructure Bond would have given me after 6 months.
A 4% profit on 2009 Q1 is not something I invested with KCB for in the short-mid term. I've duly invested with AccessKenya and its price is already headed North.
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Rank: Member Joined: 6/25/2008 Posts: 6
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I realise that I may have come to the party a bit late but here is my Kshs.0.02.
The relationship between Risk and Return may be stated thus: for assuming a higher level of risk,the sophisticated investor ought to demand a higher rate of return!
With all due respect,I suspect that the returns you have given us have not been adjusted for Risk (and Taxes for capital gains (?) and dividends vs this infrastructure bond).
I suspect that the picture with Risk Adjusted Returns would be quite different especially so in your first scenario! (Comparing Return per unit of Risk for the two investments)
It has been proven in other markets: that in a Bear,Bonds over a 1 to 3 yr period,have significantly outperformed Equities.
Indeed,the prudent investor/portfolio manager would do well to have at least 65cents to the Shilling invested in bonds right now,while keeping an eye on interest rates of course (re National Budget)
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Rank: Elder Joined: 2/26/2008 Posts: 4,449
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Nice formulae,I'll check it up thank you!
But...in just 3 months...(for stocks) and 6 months (for the bond)......
KCB: 26% return vs Bond: 6.25% return
AccessKenya :50% return vs Bond: 6.25% return
Equity Bank 51% return vs Bond: 6.25% return
How will these figures comparatively be in December? ...I'll hold save for KCB which I've since cashed out in favor of SK and sitting on an aggregate 50% return.
Boss,I'm satisfied with the stock gains whichever formula you apply.
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Infrustructure Bond Investor Vs KCB Share Investor
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