KenolKobil

We maintain a BUY recommendation on KenolKobil but lower our fair value to KES 11.51; representing a 29.3% upside. Our FV is primarily driven by our expectation of normalization in margins and more aggressive working capital management. Our margin estimates are guided by a focus of high margin retail business in the turnaround strategy (we forecast avg. GP margins of 5.7% versus 2.2% in 2012 and 5 year historical avg. of 5.4%). Better working capital management will also be realized from focusing on the retail business rather than the low margin consignment sales, in our view.

Whereas over our forecast period we estimate Total to grow its revenues faster than KenolKobil, this will primarily be driven by the low margin consignment sales. We think market shares would remain broadly close, with KenolKobil remaining the strong challenger in the Kenyan market. Despite the change in Group CEO, we do not see this as a negative for the business as most of the strategies are likely to remain the same, maybe even more conciliatory with specific industry stakeholders.

While we believe that there is significant hidden value in KenolKobil’s assets across the 10 sub-Sahara African countries in which it operates, we simply do not know their replacement cost/market value (management reverted to historical costing in 2010). In FY13, we forecast no dividend payment for the second year running.

Valuation and operational update.
We have changed our valuation approach from a perpetuity growth method, instead deriving the terminal growth by using an exit EV/EBITDA obtained as the sector median. This has enabled us arrive at different growth rates between the two listed oil marketers based on the WACC for each company. From our estimates for FY13, finance costs will take up over 80% of operating profits weighing down KenolKobil.

Exit from aviation business, asset sales of USD 60m and restructuring.
Reacting to KES 6.2bn net loss in 2012, KenolKobil commenced a restructuring program in 2012, laying off staff and embarking on business re-engineering (management guides the process will be substantially completed in 2013, though little information has been provided on key targets and costs linked to the process). Management also suggested in the latest AGM that they would raise as much as USD 60m from the sale of noncore assets. While we do not know what assets these could be, management also alluded to exiting the aviation business which has been unprofitable for the group- and these could be part of assets available for sale.

Strategic investor for KenolKobil still a possibility.
KenolKobil has steadily maintained that it was open for a strategic investor to accelerate its Africa expansion plan, even after the collapse of talks with Puma Energy. As Puma Energy is still interested in downstream assets, we would not be surprised by a re-initiation of such talks. We find KenolKobil attractive due to its expansive retail network, geographical reach (KenolKobil has assets in 8 countries; Burundi, Democratic Republic of Congo, Ethiopia, Kenya,
Mozambique, Rwanda, Tanzania, Zambia) and investments in storage facilities.

What can we expect from the new CEO?
We view the new CEO, Mr David Ohana as having the same fighting spirit as Jacob Segman- but probably slightly accommodating. KenolKobil has acted proactively in taking on government affiliated entities to protect its shareholders interests. The tone appears to have somewhat changed with the company settling a dispute with KPRL and withdrawing all cases the two companies had against each other. The company has an outstanding award in its favor of KES 5.2bn from Kenya Pipeline Company in a dispute which the oil marketer accused the pipeline company of unfair allocation of storage capacity running back to the 2007 Triton scandal. We expect the new CEO to arrive at a settlement, even if the company does not receive the entire amount received during arbitration.

(Source: Standard Investment Bank, 30.07.2013)

And BD joins the chorus - http://www.businessdaily...4/-/pijldl/-/index.html

Media and IB flagging the crowd... keyword crowd...

For slaughter?

And that somebody has been taken out... by big oil..

Total Kenya Heads for Biggest Gain in 16 Months: Nairobi Mover

Total Kenya Ltd., the unit of Europe’s third-largest oil company, headed for the biggest gain in 16 months after Standard Investment Bank Ltd. raised its recommendation on the stock to a buy from sell.

The shares advanced 9.6 percent to 16.50 shillings by 12:18 p.m. in the capital, Nairobi, the most on a closing basis since March 2012. More than 3.8 times the three-month daily average of shares were traded.

I'm learning to play along with the 'owners' of NSE... when its all bad news, buy. When the good news starts streaming in, sell.

If you can't beat them, join them

i have read the report and think the profit expectation for total is high but the support from the mother company trumps KK so if you have a long term view 2017 and beyond i would go for total.

all in all there are better sectors to invest in and which are likely to absorb the oil boom cash faster and more efficiently. The margins in this sector are still pitiful

Well. I guess I don't understand their analysis

@Kausha, still waiting for KK 1H13 results. late july is now gone and early august is going. whatz up