For a long time, I used to shy off this counter. True story, I once bought it at Kshs 4 - kept it for a year and sold it at Kshs 3.

However, since TransCentury developed an interest in it, I have basically moved in and out and by and large made some good money on it. The bl***y counter had hit almost Kshs 70 at one point. Can you believe that?

Following Equity's and Britak's buy-in into the company, I became convinced that it was foolhardy not being in the counter, on a long term basis. This was (is) in spite of its rather high PE ratio.

Most analysts do not have have much time for it. In Dec 2009, I recall African Alliance deriding it as not being worth the price it was trading at. At that point it was trading at Kshs 15.60 and they had valued it at Kshs 11.73.

We have all seen how far it has come since then. I am convinced that if the Bond Issue is succesful, it will only get better. If interest on the bond @8.5% and the average mortgage at 15.5%, HF could conceivably increase its PBT by upto 200 million within the next 18 months. Overheads are unlikely to increase by much as they already have sufficient (currently under-utilised) capacity.

It is worth noting that its PBV is also the lowest among listed banks, which compensates for its high PE in a sense.

I would therefore wager that EPS could more than double from the current figure by year 2012. What will that do to the price? Tunapaa Juu, Juu..Juu...!!!

Over to you!

DISCLAIMER. I AM CURRENTLY INVESTED IN THE COUNTER, SO I AM NOT 100% OBJECTIVE.

@mwanahisa, just ask yourself this -

1.What happens if the bond is not succesful?
2.What if the bond is succesful but competitors lower their interest rate on mortgages to say 10% for the sake of argument?

Will the EPS still double as you suggest?

@Iborian.

As SureAlligator says it is extremely unlikely that HF Bond is not fully taken up. There is not too much paper to go around at that level of interest rates.

With regard to your second question? That is again unlikely. Look at history for precedents. Early on in Kibaki's presidency interest rates on govt paper went down to the 2% range. Interest rates on loans however remained high. So while net interest margins may fall, I can't see them falling to a level where HF would not at least break even.

Besides, we have a number of banks who issued bonds at even higher interet rates. Examples - Barclays Bank & CFC Stanbic. Since mortgages are long term commitments, these banks would hardly lower interest rates based on short term considerations.

@SureAlligator. HF did a 1:1 rights issue only 2(?) years back. They could hardly afford to come back to the market for more money from shareholders. They just do not carry the same weight as KCB. I think it would have been a better option - Equity and Britak would have been able to take up their rights + excess and finally taken full control of HF. Maybe this is still in the works.

While S&L could conceivably bully HF, I do think that there's enough to go round, so I do not think it will come to that.

Mwanahisa,

We want to figure out with you how your understanding of the company and how you concluded that its going places.

My first query is this, what's your understanding of the real estate sector. My interpretation is that it entails the developers constructing a property...people buy it with cash or a mortgage...the buyer could either decide to reside in the property or rent it out.

Am asking this because I need to figure out the business that HF is really in.

Regards

Equity seriously needs to get a hold of this company if they are to effectively compete with KCB. The dividends they are getting are nothing compared to what KCB gains from S&L. Plus I think Equity will revolutionise the housing sector (as they did banking) when they gain control of HF

guru, I think its only a matter of time. Didn't the chairman of the board get replaced? Just after HF refused a merger. Equity and Britak control like 36 %. Thats a lot. Though evidently short of a controlling stake. They should just mount a hostile takeover

Good question

The Average price today is at 27.75 with a new 12 month high of 29. This share sure is going places. I think the success of the bond was the catalyst.

Over to y'all.

Mawnahisa My friend

all you say is correct all on paper but you know well things here are good on paper but on implementation manaeno ingine and finally result ata ni ingine

undisclosed disclosure

yes we do hold hfck shares and we recommend it as a buy

Who's laughing now? I love this share! Meanwhile JS is languishing at 9.95.