Nigerian companies dominate this year’s list of the best-performing stocks in frontier Africa. In fact, domination may be an understatement. First, second, and third place all went to Nigerian stocks, and all but four of 2012′s 10 biggest gainers hail from Africa’s most populous nation.
Here’s a list of the Sub-Saharan stocks (not including South Africa) that have gained the most in US dollar terms since the start of the year.
(Note that performance was measured as of December 14, 2012, and each stock has averaged trade volume greater than $10,000 per day over the past 30 days. I excluded less liquid firms from the list.)
10. Ghana Oil +78.2% (Ghana)
Ghana Oil (GOIL) isn’t directly involved in offshore oil drilling along the Gold Coast, but it does operate Ghana’s second largest network of gas stations. Thus, the rising incomes of Ghanaian consumers mean increased fuel purchased at the pump and more cash spent on snacks at GOIL’s mini-markets.
The company opened five new filling stations this year; expanded its aviation fuel business; and increased its sales to the shipping industry. The moves paid off handsomely. Operating income for the first nine months of 2012 surged 28%, and investors took note. The stock now sports a trailing PE ratio of 14.2.
9. United Bank for Africa +78.5% (Nigeria)
Pan-African bank, UBA, rewarded its investors handsomely this year. The Nigeria-based lender now operates in 19 countries across the continent and has grown profits by 461% during the first three quarters of 2012.
How did it do it? By writing off fewer loans than the previous year and through some profitable currency trading. While this isn’t bad news, it would be nice to see more growth in loans and deposits, both of which are growing rather anemically.
8. Bralirwa +83.5% (Rwanda)
Rwanda’s largest brewery poured out profits in 2012 by selling more beer and at higher prices. Net income soared 45% during the first half of the year on a 22% increase in sales and a substantially reduced interest burden.
The company, which also holds the license to bottle and distribute Coca-Cola products in the country, is investing heavily in future growth. It recently added a new bottling line to its soft drinks plant, upgraded its brewery, and nearly doubled its fleet of delivery trucks.
7. Access Bank +90.7% (Nigeria)
Access Bank posted some eye-popping earnings figures this year. Over the first nine months, net interest income jumped 67%, fee and commission income increased 19%, and earnings per share more than doubled.
Loan and deposit growth, however, has been pretty stagnant, so 2013′s profits probably won’t be as impressive. But with its shares trading at just 5.6x trailing earnings, even nominal earnings growth could make this upstart bank a darling of Nigeria investors this year, too.
6. British American Tobacco – Kenya +98.4% (Kenya)
East Africa’s largest cigarette manufacturer and tobacco-grower, BAT Kenya, lit it up this year thanks to a big increase in profitability (and its dividend payout). In the first half of 2012, the company grew operating profits 24% by keeping overhead costs in check. It also boosted capital expenditure in an effort to lift production.
5. GlaxoSmithKline Consumer Nigeria +98.7% (Nigeria)
After growing earnings 12% over the first nine months of 2012, GSK announced that it would up its stake in its Nigerian subsidiary from 45% to 80% at a price of NGN48 per stub. The Nigerian Stock Exchange requires that at least 20% of all firms’ shares be listed on the exchange.
It was a big vote of confidence in the company, which has enjoyed 21% growth in sales of consumer healthcare goods over the past four years.
4. Uchumi Supermarket +150.8% (Kenya)
Quite the redemption story, Kenya’s star stock this year was a Kenyan grocer that, just a few short years ago, went bankrupt and was delisted from the Nairobi Securities Exchange. Now, the company is back, and while its share price has been volatile, investors are bullish about the company’s expansion into Tanzania and Uganda. They were also intrigued by a new dividend payout.
If the company is to continue its outperformance, it’s got some high expectations to meet. Uchumi will need to justify its PE ratio of 19 with improved growth in EPS.
3. Diamond Bank +158.4% (Nigeria)
After posting a loss in 2011, Diamond Bank put up great numbers in 2012. Over the first nine months, management more than doubled operating profits, and investors obviously liked what they saw. Even after its 158% US dollar gain, however, the stocks still trades at just 4.2x trailing earnings.
Moreover, unlike its peers on this list, UBA and Access Bank, Diamond Bank actually appears to have laid the groundwork for exceptional performance in 2013. The bank increased its lending to customers by 38% over the past 12 months and deposits have surged 29%.
2. Cadbury Nigeria +159.5% (Nigeria)
Bouncing back strongly from a 2006 accounting scandal, the confectioner posted sweet returns in 2012 on the back of 34% earnings growth through the first three quarters. But the company actually registered a decrease in revenue and operating profit during the same time period, so these earnings gains may prove ephemeral. Management is banking on new marketing efforts of its Bournvita line and increased promotion of parent company Kraft’s products to boost the top line in 2013.
1. International Breweries +172.5% (Nigeria)
Frontier Africa’s best stock this year is a second-tier Nigerian brewer. Standing in the shadow of the much larger Guinness Nigeria and Nigerian Breweries, International quietly expanded its brewing capacity and sold lots more beer. How much more? Over the first nine months of 2012 sales soared 39% and earnings more than doubled. Nigerian investors took note and now anticipate an inaugural dividend payout.
The company now sports a PE ratio of nearly 50 and administration expenses are remarkably high, but this is definitely an under the radar stock worth watching in 2013.
What Do You Think?
There you have it, 2012′s best African stocks. Did this list surprise you? In the weeks ahead, we’ll be asking some market experts which stocks they think will be among 2013′s top performers. Do you have any predictions? Let us know in the comments!
[Disclosure: I own shares of Ghana Oil.]