Tuesday, August 15, 2006

East African Cables – a case of whitewashed graves

East African Cables – a case of whitewashed graves

By the close of business Friday, investors and speculators were going gaga about some hitherto nondescript cable manufacturer called East African Cables.

The issue was that a firm that was priced at 27 shillings only in 2004 was trading at 535 and priding itself as the most highly traded share in the NSE. What was interesting was that since an investment club called Tran century that is closed linked to the first family and their friends, took over the firm from Nashud Meralli, the share price has rallied high beating all odds to lead at the NSE. (Merali is himself a very shrewd business man and deal hunter and when he dumps a share you better do!)

What beats one is that nothing has changed fundamentally since the acquisition. However the new owners toast a new MD as the source of all their success. They also say that the construction boom has contributed to their positive outlook. The truth however is that their main customer is the perennial poor performer KPLC. Since there have not been any major new KPLC lines or connections, this argument is difficult to place. Also competition from cheap imports should have put paid their profit prospects.

Again when one looks at the PE ratio for the firm, it is a staggering 50 % + this coupled with the fact that most firms in the NSE in the same category are not rallying this much leaves a bitter taste in the mouth.

Another factor that is worrying is the fact that in a week the stock almost doubled its value from 330 to 576. On one particular trading day, rumour has it that the trade was book trade and not actual. Meaning that one particular stock broker brought the order to the floor, bid the price then re-purchased it. This is a case of price fixing. Cases of price fixing are normally dealt with by putting a ceiling on the percentage appreciation that a particular stock can gain. However the crooks found a way of getting away with it by announcing a share split.

That brings us to another bone of contention! Share splits are not only done to make share ‘affordable’ it is also done to increase share base. That is if the firm is doing well enough the warrant such a move and indeed if there is clear room for expansion.
Again at 330 per share, I am not convinced that the share was too expensive to warrant a split. We should have started discussing splits when the share hit 574. Did some one know it would reach 574 and start plotting for a split or was someone ‘pushing’ it to 574 to justify a split? Of course artificial shortage has been created by the principal shareholders who will benefit greatly in the case of split. They have simply held onto their stocks while creating all the hype and rumour that is currently causing us sleepless nights trying to get onto the EAC register.

In view of the foregoing it would be safe to conclude that there is massive insider trading and price fixing. This is pure fraud. But the question is who is this who can do this and still get away with it without getting the CMA on their backs?

My speculation is that those close to the power of the day have probably found a way of making money ahead of the general elections through otherwise ‘legitimate’ means. That’s stealing from Kenyans without actually being seen as a thief. Instead of the traditional KANU way of getting money from state corporations, these guys will pick select stocks, hype them, speculate on them, cause artificial shortage them sell them to fund managers and make their money. Unfortunately most fund managers are gullible and do not bother to research on fundamentals. Some pension trustees also push their fund managers to act with the crowd and rush to buy stocks which are openly over priced.

Problem is, the regulators sleep on the same bed with the perpetrators. All one can do therefore is to be extra vigilant


  1. This comment has been removed by a blog administrator.

  2. i wish that post wasnt deleted by the author so that i can get a feeling of what others feel!

  3. This stock might hit a low of even 40 considering the current trend. maybe, maybe it will rise again once they become scarce again..what do you think?


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