Its been a while (about a decade...how time flies!!!) since i took to playing the market. For the newbies, you can check some of the plays below:

In 2010: http://m.wazua.co.ke/for...aspx?g=posts&t=5551

In 2011: http://wazua.co.ke/forum.aspx?g=posts&t=10373

In 2012: http://www.wazua.co.ke/f...sts&t=16435&p=3

In 2013: http://www.wazua.co.ke/f...spx?g=posts&t=21940

In 2014: http://www.wazua.co.ke/f...spx?g=posts&t=27288

Those were great years with eye popping and market beating returns. When the Hague duo took over, i warned many that the Kibaki economic era was about to be replaced by market stagnation and depression which sadly did happen.

I moved out of the market and pursued my professional interest but lately, after examining the market, am shocked by some of the prices to book value (PBV) and price per earnings (P/E) at the NSE.

Its clearly a good time to buy for any value investor(hard to see things getting worse).

Tommorrow will mark the start of Playing the Market, 2024.

As usual, i will pick a stock and highlight why i think its the strongest buy based on a careful analysis.

Happy Hunting.

Awesome. Looking forward to this

First Play 2024: Diamond Trust Bank

Key Statistics:

Price: Ksh 49.30
Book Value per share: Ksh 256.80
Price to book value:0.19 (Industry Mean is 0.7)
P/E Ratio: 2.2 (Industry Mean is 3.5)
Dividend yield: 10.1% (Industry average: 10.7%)
Dividend pay out ratio (2022): 23.1% (Industry average: 40.3%)
Trailing Return on Equity(As at Q3, 2023): 10.02% versus industry average of 18.8%
Trailing Return on assets: 1.29% versus industry average of 2.6%
Non Performing Loans at 12.43% versus Industry average of 15%

Diamond Trust Bank is an undervalued sleeping giant trading at an incredibly low price to book value of below 0.2 (about ¼ of industry average). It is also trading at a P/E of about 2 which is almost half of the industry average. The undervaluation of the DTB share is partly due to its low return on assets and return on equity which is about half the industry average. The 2023 Q3 results however showed an improving picture on the two metrics which may signal the sleeping giant is starting to awaken.

The Q3 results also showed that the NPL for Diamond Trust Bank was lower than industry average (12.43% versus 15%) indicating more prudent lending by the bank.

Going forward and in anticipation of the 2023 Full Year Results, DTB can deliver above average results based on its Q3 results to a projected EPS of 25-28 for 2023. This would be just slightly lower than Stanbic Holdings (Ksh 30.75 for 2023 but trading at Ksh 119.50 showing just how undervalued the DTB share is suffering). The bank has had a conservative dividend pay out policy (about 21% in 2021 and 23% in 2022) but the DTB Chairman of the Board, Mr Linus Gitahi is quoted as stating that this dividend pay out will rise gradually as the bank balances between pay out and reinvestment into the business (the bank is investing in both branch expansion of 20 branches per year since 2022 and improving on its digital banking delivery).
If the growth in pay out continues on the same trajectory, a dividend pay out ratio of 25% for 2023 can be projected. That projects to a possible dividend payment of Ksh 6.25 – 7.00 for 2023.

Diamond Trust Bank can be both a short-term play with about 20-25% upside potential or a long term play as its ROA, ROE and Dividend Pay Out Ratio improves and starts approaching the market pricing of Stanbic Holdings. The expansion drive (40 branches in 2 years since 2022) and investment in technology is also anticipated to start bearing fruits from 2024 which may see sizeable growth in the bottom line.

Happy Hunting

Good call.
I have held onto this one for a while. I added a few at 45-50 but not enough to make a huge difference to my ABP.

DTB has a very low DPR (23%) but there is pressure on them to increase it.

On steroids today!!! Streets are clearly listening to you!!!

More like 9x (11% DY)

ABSA 14 v 1.55
NCBA 44 v 4.75
DTB 55 v 6.00
I&M 22 v 2.55
Equity 49 v 4.00
Coop 15 v 1.50 [smack 10x]
SCBK 195 v 29 [an outlier at 15%]

The RoE for DTB is awful vs peers. Everyone is above 15% while DTB is 9%.
Also the lowest DPR (excl HF and KCB)

I don't remember CIC paying dividends in the last few years

For CIC sale of Kiambu land to settle big brother co-op's loan should also help. With current interest rates it helps to have more cash less or nil debt.

Let me join in and share mine

Key Play For 2024
Kenya Power
The stock that everyone loves to hate.
FY23 EPS: (1.64)
Current Share Price: 1.6
P/E rato: NIL
Dividend pay out ratio: NIL

Tail winds
1.New tariffs – Average charge per unit will be up by at least 40% (consumption charge excluding FCC,FERFA,IA etc) this goes directly to KPLC. Margins doubled at half year as compared to the 2022 election tariff. 2nd half % growth will be lower since new tariffs commenced on April.

2. EPRA approved recovery of 6.5bn for tariff cut extension. Half of it will be in FY24 so that’s an extra 3.2bn

3. Heavy recovery of forex charges – In FY23 there was a 5bn charge in the cost of sales related to unrealized forex costs that wasn’t recovered due to lack of dollars for payment. KP had to eat up the cost. Currently in FY24, H2 forex recoveries as of April are already 40% higher than H1 indicating heavy recoveries in H2.

4. $/Ksh rate – If by June 30th the rate of dollar to ksh sticks to 140 and below, there will be very little unrealized for losses for the year. Assuming costs don’t skyrocket and gross profit at H2 is similar to H1, EPS should be approx 5 when rate is at 150, 3 when at 160 and sinks into losses past 170.

5. Cashflows – For the past 2 financial years KP has had really amazing cashflows. Now sitting at almost 20bn as at Dec 2023. I expect at least 2bn in interest income

6. Transfer of assets to Ketraco – KP CEO & CFO revealed they rarely revalue their assets eg land. Hence valuations are very highly muted. The transfer wipes out 80bn in debt. Commercial debt stands at 36bn. I wonder if this will trigger a forex loss recovery that has accumulated to over ksh20bn. Either way less interest charges and unrealized forex loss charge.

7. Good rains – From November to date, the more margin rich hydro power is being dispatched over thermal. There is more curtailment of wind & geothermal in favor of hydro. Wind is low margin.

8. Debt recovery – Defaults are over 35bn and there was a provisions charge of 2bn. A tender was issued in Feb for this. Each billion counts in the bottom line.

9. New management – New board, new ceo, more minority shareholder representation. The stalemate is over and things can get moving.

10. Presidential directive – All commercial state corporations should provide 80% of profit after tax for payment of dividend. It’s a long shot but if KP even issues something small, share price will skyrocket. CFO revealed the new board was asking him to budget something for minority shareholders.

11. No major power plant – No jump in capacity charges which are KP’s biggest COS charge.

12. IMF is watching like a hawk


Headwinds
1.ksh – each drop means added costs

2. Loans repayments – Biggest consumer of cash. Moratorium from govt is expiring

3. Government – Any directive can sink the ship

4. Procurement theft – This is where the biggest leakage is. Major projects = major theft. Currently, we have meters and more last mile.

5. Capital gains tax – Transferring assets to Ketraco may trigger a huge capital gains tax.

6. Negative working capital - its shrinking but just doesn't look good on the company.

7. New debt from world bank $300m interest free. It will ease cashflow pains but more unrealized forex losses again.

My target price is 3+ by June 2025 but this is highly dependent on the performance of the ksh. I will jump ship past 170. My current cost basis is 1.55, a price it has stuck to since the onset of the pandemic. So the downside risk is kind of muted. Not planning to hold long term because power utility growth is just 3 - 5% annually

Please criticize my overly optimistic view.

I have been burnt so many times by GoK-controlled firms, including KPLC, that I decided to stay away. The numbers, on paper, look very good but that's where it usually stays. On paper!

Good luck.