guru267 wrote:@VVS would you then agree that the Buffet quote below relates very strongly to KK??
VituVingiSana wrote:6. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."
The "business with bad economics" being oil marketing in Africa..
Yes. This is why I am watching 1H 2013 very closely. No matter how good or smart Segman is, if the industry is being suffocated by Price Controls, it wil die. As for the 1.5bn writeback... it is just that, a writeback [not cash] but it will anchor the (perceived) earnings in 1H 2013. What I want to see is the Cashflow Statement for KK.
There will be 2 line items to discount:
1) Writebacks [1.5bn hedge]
2) Property Sales
Both are non-recurring items that cannot & should not be used to judge the future earning potential of KK.
Positive EBITDA is good but what of Financing Costs? I expect high financing costs in 1H 2013 as the CBR (& bank lending costs) remained high. So my 1.5bn PAT is NOT for 1H but FY.
2H 2013: KK has always issued Commercial Paper which saves them a little off bank ODs. At their levels of borrowing, it adds up. Even more significant was the intention to borrow in USD vs KES/UGX/RWF. Since the fuel purchases are priced in USD there is a plus that KK can pass on the cost of USD fluctuations. And limited hedging i.e. no more naked hedges.
The OMCs contracts will KPRL expired at midnight. No more buying from KPRL which could increase margins per litre from KES 5-10. Nice! Caveat: I expect GoK to screw OMCs on this one for political reasons.
Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett