Kausha wrote:Me suspects Jonah amesuka chini. Low prices favor KK big time. Margin is absolute. Watch the first half results of 2015 and you will understand why.
I am with you on this.
1) Low(er) prices = low(er) needs for financing the same cargo/volume thus reducing the financing costs. Financing Costs should drop 30-50% on the same volume sold YOY i.e. lower financing costs per liter vs 2014.
2) Low(er) prices = high(er) margins on a % basis since the margins/liter remain the same YOY.
3) KK-specific. Lower debt levels (from sales of properties, better debt collection, lower levels of credit, positive cashflow) should lower the cost of financing in 2015.
4) Interest Rates - They have dropped since 2013. Unfortunately not sub-10 but from the 18s to the 14s for many larger firms. I understand that many large firms are paying 12-ish [look at EABL's 3-yr bond] so KK may benefit from this trend. Some like MRM paid off their bonds by refinancing with banks.
5) Volumes will grow with the increase in number of vehicles & lower prices. 20,000 vehicles are registered in Kenya monthly. KK also picked up some station in Rwanda.
6) KK-specific. They dumped low-margin businesses e.g. Jet-A1 which should help them improve margins in 2015.
That said, KK faces challenges in Uganda with the rapid depreciation of the UGX and the anti-competitive market in TZ.
Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett