a field guide to African stock markets Thu, 23 Oct 2014 10:55:09 +0000 en-US hourly 1 Is There Hidden Value in Stanbic IBTC? Thu, 23 Oct 2014 10:53:09 +0000

Stanbic IBTC is Nigeria’s best-performing bank stock. Its share price has climbed 40.5% this year and 55.4% over the past twelve months. Is it nearing the end of its run? Or is the market offering investors a discount to the bank’s real worth?

Here, Godfrey Mwanza, CFA shows us how he values the company.

Stanbic IBTC Holdings Plc (STANBIC) is a financial service holding company in Nigeria with subsidiaries in banking, stock brokerage, investment advisory, pension and trustee businesses. Its three main business areas are corporate and investment banking (CIB), wealth, and personal and business banking (PBB).

Stanbic is a member of the Standard Bank Group (SBK) of South Africa which has a 53.2% stake in the company. Stanbic operates 180 branches and serves over one million customers in Nigeria. Total assets were NGN 907bn (USD 5.6bn) as at 30 June 2014 making it the country’s 12th largest banking group.

Godfrey Mwanza, CFA

Godfrey Mwanza, CFA

Nigeria’s Banking Industry

Nigeria has a very low level of banking penetration compared to other frontier African countries, let alone global emerging markets. According to World Bank data, in 2013, Nigeria’s private credit to GDP was 11.8%. Much lower than South Africa (156%), Kenya (40%), Ivory Coast (18.5%), Uganda (15.5%), and Zambia (14.6%) to name but a few.

Over the next five years, the IMF expects the Nigerian economy to grow at 15% per year in nominal terms. Banking assets (primarily credit to the private sector) should in principle grow at a faster rate than that as penetration of banking services increases.

And what are you paying for that growth potential?

Well, the average forecast returns on equity for the nine Nigerian banks in our universe for 2014 is 18.7% and they trade on a price to book of roughly 1.20x 2014 forecast shareholders’ equity. Using the formula for justified price to book [PB= (roe-g)/(r – g)], assuming a conservative 5% terminal growth rate (g) and that the 18.7% ROE is sustainable over time, a 1.20x price to book implies a required rate of return of 16.4%, far higher than the 12.2% yield you will get from a 10 year Nigeria government bond.

The whole sector is cheap. You are paying little for potentially massive growth.

But when you look closer, what is most interesting about Nigerian banks is the extreme dispersion of valuations amongst individual stocks. For instance, Skye Bank trades at a 72% discount to that 1.20x average. And Stanbic IBTC trades at a 122% premium.

This has led to many analysts to recommend a sell on the stock on the basis that it is expensive. However, there is more to the Stanbic story than meets the eye and despite the stellar outperformance this year (price return of 45% year to date versus -6.5% for the Nigerian All Share Index  -11.7% for the Nigerian banking index) I think a closer inspection will reveal that there is still hidden value in the name.

Picking Stanbic IBTC Apart

To find this hidden value, it is necessary to break the group into its three main operating units (wealth, CIB, and PBB), value them separately and sum up the parts.

The Wealth Business

Stanbic’s wealth business comprises their market leading pension administration, trusteeship and asset management. The business has 1.3 million retirement savings accounts and assets under management (AUM) of NGN 1.4trn (USD 8.8bn). AUM has grown by 36% per year for the last five years and makes up 35% of national pension fund assets of UDS 25bn which are a paltry 4.8% of GDP (compared to 90% in South Africa, 41% in Botswana, 17% in Kenya or 7% in Zambia). In 2013, wealth contributed 50% to PBT in 2013 versus 17% in 2008.

There are two main methods used to value an asset management company. A price earnings ratio is suitable for stable annuity-type asset managers whereas market cap/AUM is more appropriate for hedge fund types of asset managers which can have volatile earnings.

I took a sample of 10 asset managers from developed and developing countries and found that over the last decade they have traded at a median price to earnings ratio of 17.43x. I personally do not see why a market leading asset management business in fast growing Nigeria should be any different. But, to be conservative, I apply a 15x earnings multiple on NGN 9.8bn, my forecast for 2014 wealth earnings. The business unit achieved roughly NGN 5bn already in the first half of 2014.

I am comfortable with a 15x earnings multiple because I expect earnings growth to be faster than 15% for the following reasons.

  • First, it is conservative compared to the 29% per year growth over the last four years and there is still much room for growth in the sector.
  • Second, unless you assume Stanbic loses market share or Nigerian pension fund assets as a proportion of GDP decline, AUM should grow at least in line with nominal GDP or 15%. Indeed it should grow faster. As with banking assets, increased penetration implies growth potential faster than the economy. Recent policy changes also lend credibility to this faster-than-GDP growth argument. In July this year, the Nigerian president signed the Pension Reform Act 2014 into law, which repeals the Pension Reform Act, no. 2, 2004. The Act increases the minimum rate of pension contribution to 18% of monthly emoluments from 15%, with 8% contributed by the employee from 7.5%, while the employer contributed 10% vs. 7.5% previously. This clearly increases the monthly pension accretion to the pension fund administrators.

When we put all this together by multiplying forecast earnings by 15 and dividing by the total number of Stanbic IBTC shares, we arrive at an estimated value for the wealth business of NGN 14,65 per share.

Valuation of Stanbic IBTC's Wealth Business
Forecast Profit After Tax (2014)NGN9.76 bn
Value of Business at 15x EarningsNGN146.5 bn
Shares in Issue10 billion
Value of Wealth Business per ShareNGN14.65
Corporate and Investment Banking (CIB)

Corporate and investment banking includes corporate lending, treasury (global markets), investment banking, stock broking and custody services.

Stanbic’s reporting is excellent and in the annual report you can see balance sheet and income statement segmentation per business unit. Based on this, one can calculate that CIB earned a 31.2% return on equity in 2013 and is in line to earn roughly the same in 2014 based on 12 month trailing CIB earnings.

To value CIB, I use a relative valuation methodology again but based on price to book rather than earnings. I ran a regression with the price to book as the dependent variable and return on equity as independent variable for a sample of twenty-three banking assets listed on the African continent in markets such as Nigeria, Kenya, Tanzania, Mauritius and Botswana. The result shows that a bank earning 30% return on equity should trade at 3.4x book.

But 30% ROE is an incredible feat and one can rightly argue that it is not likely to be sustainable. Further, on closer inspection, we find that Stanbic’s returns are accentuated by non-interest revenue particularly in foreign exchange trading, which most bankers will tell you is a choppy line item.

A DuPont profiling shows that if Stanbic’s CIB was a standalone bank, it would be a below average net interest income earner per unit of assets. However, on a transactions income basis, CIB is a market beater by some margin (5.8% versus 2.7% industry average).


3.4% of the 5.8% non-interest revenue profitability per unit of assets is derived from fixed income, money market and foreign exchange trading and while FY13 was particularly rewarding for Stanbic’s treasury desk, the average per asset profitability for that unit is 2.76% over three years and 3% over five years. This is remarkable when you compare it with an average of 0.38% and 0.41% average for Access (ACCESS), Guaranty Trust Bank (GUARANTY), Zenith (ZENITHBA) and First Bank (FBNH). Although the larger size of their balance sheets means there is a drag on that.

If CIB’s profitability in trading alone fell to the industry average of 0.41% then the CIB’s return on equity falls to 10%. I assume trading profitability falls to 1.6% (a mid-point between 3.4% 0.4%), bringing non-interest revenue / total assets to 3.9% which is still higher than the average. I assume the bank will maintain its competitive advantage in foreign exchange trading on the back of its track record and its associations with the international powerhouses of Standard Bank of South Africa (the ‘go-to’ bank for SA corporates expanding into the continent) and ICBC Bank of China.

Reducing non-interest revenue profitability to 3.9% lowers FY13 return on equity to 18.2% from 31.2% and, based on the regression, a bank earning 18% ROE in Africa should trade at a price to book of 2.30x. Applying this multiple to CIB’s net asset value as at 2013 results in a value per share of NGN 14.04.

Valuation of Stanbic IBTC's Corporate and Investment Banking
Net Asset Value (2013)NGN 70.18bn
Value of Business at 2.3x Book ValueNGN 161.4bn
Shares in Issue10 billion
Value of Corporate and Investment Banking per ShareNGN 16.14
Personal and Business Banking (PBB)

PBB is the retail arm of the group’s business. It provides services to customers in personal markets, high net worth individuals and commercial, small and medium scale enterprises. Products include mortgage lending, asset finance, card products, lending and bancassurance.

This is the newest business segment and it is only just breaking even (only 70% of branches are profitable up from 58% last year) due to substantial investment in branches, banking systems and staff. This makes it difficult to value. In cases like this I prefer to back out the valuation implied by the market price. The chart below illustrates my process.

Valuation of Stanbic IBTC's Personal and Business Banking
Current Market CapitalizationNGN 310bn
Fair Value of Wealth Business (from above)NGN 146.5bn
Fair Value of Corporate and Investment Banking (from above)NGN 161.4bn
Implied Value of Personal and Business BankingNGN 2.1bn

The market is thus valuing Stanbic’s PBB business at NGN 2.1bn (roughly USD 13m).

Now I don’t know exactly what the PBB is worth, but I think it’s a lot more than USD 13m. Especially when you recognise that the business has NGN 285bn (USD 1.7bn) in assets, NGN 198bn (1,207bn) in deposits and already earns NGN 25bn (USD 154.6m) in revenue which is growing at 32% a year (1H14 vs 1H13).

The Bottom Line

It’s difficult to say exactly what PBB is worth and any judgement about its value requires a view about management’s ability to scale up by growing their customer base and sweating their investments. But if market prices are any indicator, PBB should be worth 4 to 10 times this implied value, suggesting a 12% to 33% upside to Stanbic’s current price (NGN 31.00 at this writing). I would expect that earnings results showing continued improvement in PBB profitability will provide the catalyst for the stock to make its final run towards fair value.

The risks to this scenario are model risk, unsustainable CIB profitability and failure by management to execute on their PBB strategy.

What Do You Think?

Does Stanbic IBTC look like a bargain to you? Or would investors be better off with another one of Nigeria’s bank stocks? Let’s hear your thoughts in the comments!

Godfrey Mwanza, CFA is a Fund Manager with Barclays Africa Group. The views expressed here are his own and not necessarily those of his employer. As of this writing, he did not own shares of Stanbic IBTC.

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Does Britam Kenya Still Have Room to Run? Wed, 15 Oct 2014 21:59:43 +0000

British American Investments Company – Kenya (BRITAM) has made investors very happy this year. The stock is among the Nairobi Securities Exchange’s best performers, posting a dazzling 94.7% return.

Now the shares trade a shade below 2.5x their book value. Is that too rich a price? Or is there some upside left?

In order to answer that question let’s begin by taking a closer look at the business and how it makes money.

Insuring East Africa

While it does operate a small asset management business, Britam Kenya is, first and foremost, an insurance company. It sells everything from life insurance to fire, marine, and medical policies. Kenya is its primary market, but it also operates in Uganda, South Sudan, Rwanda, and Malawi. Over the past five years, the company has grown its net premium revenue at a 22.7% clip.

Like all insurance companies, it invests the cash that it receives from customers until it needs to pay it out in the form of claims or other expenses. This investment capital is known as float, and it’s where the real magic happens.

Britam invests its float in a combination of real estate, government securities, and stocks. It also owns a 21% stake in Housing Finance Company of Kenya (HFCK).

When these investments perform well, Britam becomes the virtual equivalent of a cash machine. Such has been the case over the past 12 months. After accounting for the change in fair value of all the company’s property and equity investments, the company generated comprehensive income of Ksh3.48 per share. That’s a 30.1% increase over the prior 12-month period.

Value Check on Britam Kenya

One way that I quickly assess the value of a stock is to imagine that the underlying company suddenly stops growing. Forever.

Britam Kenya: Room to Run?

Photo by Wayan Vota

What’s the most that I would be willing to pay for a stock if it continued to generate the same level of earnings per share in perpetuity?

In such a case, the stock’s earnings can be viewed very much like the interest payment on a long-term bond.

The stock’s earnings should “yield” as much as a long-term bond would. Otherwise, there’d be no point for me to buy the stock. Thus, the prevailing long-term bond rate is my required rate of return.

To illustrate, let’s assume that Britam’s growth stagnates. Year after year for the foreseeable future, it averages comprehensive income of Ksh3.48 per share.

To find out how much such performance would be worth, we can simply divide the annual earnings (Ksh3.48 per share) by Kenya’s 10-year bond rate, which currently hovers around 12%.

If we do so, we arrive at a value of Ksh29.00 per share.

Kshs3.48 / 0.12 = Ksh29.00

So, in the event that Britam’s earnings froze at current levels, investors who buy at a price of Ksh29.00 per share would realize a 12% annual return.

Priced for Stagnation

How does this calculated value compare to the current price of the shares on the Nairobi Securities Exchange?

Well, as of this writing, you can buy Britam for Ksh29.50 per stub. Interesting, huh? So, essentially, Britam is priced for zero earnings growth in perpetuity.

I’ll gladly take that bet.

Even if the company’s earnings were exceptionally high over the past 12 months, I’m guessing Britam, with its steadily rising premium income and a large investment portfolio (which it could simply invest at a 12% rate of return if it chose to), will find ways to grow earnings over the long-term.

Thus, for patient investors, the shares appear to offer value — even after nearly doubling in price over the past ten months.

What Do You Think?

I’d love to hear your thoughts on Britam Kenya. Am I too enthusiastic about its prospects? Or do you agree that it looks like a bargain? Share your take in the comments!

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Is Nigeria’s 7-Up Bottling Company a Bargain? Thu, 09 Oct 2014 10:42:13 +0000

You don’t have to spend much time in Africa to realize that Coke has the upper-hand in the continent’s cola war. The bright red signs with the cursive lettering seem to be everywhere.

But Coca-Cola’s (KO) African dominance is being challenged, and Nigeria’s 7-Up Bottling Company (7UP) is one of its fiercest competitors.

7UP bottles PepsiCola, Mountain Dew, Mirinda, and AquaFina in addition to its namesake brand. It operates nine bottling facilities and some 200 distribution centers across the country.

Founded (and still controlled) by the Lebanese El-Khalil family in 1959, the company’s profits surged 125.3% during its 2014 fiscal year. Sales increased 21.5% thanks in part to an innovative marketing strategy that included a giveaway of one minute of mobile airtime on every bottle cap. Efficiency gains helped widen the operating margin from 8.6% to 11.7%.

This outstanding performance made investors very thirsty for 7UP shares. The company’s stock price has risen 107% so far this year.

So, is the valuation too frothy here? Or is it time to gulp down some shares?

Let’s take a quick look.

7UP Valuation: Refreshing or Sickly Sweet?

7UP currently trades at a price-to-earnings ratio of 13.3 and offers a 1.7% dividend yield.

Is that a fair price?

To get a sense of a stock’s potential and downside risk, I often look at how well the underlying company has grown its book value (or shareholders equity) over time.

Over the past two years, 7-Up Bottling Company grew its book value at an annual rate of 24.5%. That’s fantastic. It means the net asset value of the company increased by well over half in just 24 months. It’s no wonder investors took note!

As long-term investors, however, the question for us is what sort of growth rate we can expect from the company over the next five years. A 24.5% rate would be excellent, but such rapid growth is exceedingly difficult to sustain for very long.

7 Up Bottling Company

Photo by Ben Freeman

So, let’s dig deeper into our financial statement archive and calculate how quickly 7UP’s book value grew since March 2004 — over ten years ago. When we do so, we find that shareholders equity grew at an annualized rate of 16.8% without any injections of new capital.

That sounds like a rate we can reasonably expect the company to match over the next five years.

If it should do so, 7UP’s present book value of N30.43 per share will grow to roughly N66.15 per share by October 2019.

N30.43 x (1 + 16.8%)^5 = N66.15

Many companies trade at a substantial premium to their book values in order to account for their growth potential.

As you can see, with a current share price of N147.73, 7UP is no exception. It’s price-to-book ratio is 4.85.

N147.73 / N30.43 = 4.85

But investors haven’t always been so optimistic about the stock’s prospects. In fact, just two years ago, 7UP’s price-to-book ratio was only 1.98.

A Pessimistic Scenario

So let’s put together a pessimistic set of assumptions.

What kind of return would we get five years from now if:

  1. 7UP’s growth slowed to 16.8%,
  2. management decided not to raise the dividend from its current N2.50 per share,
  3. and a market mood swing reduced the price-to-book ratio to 1.98?

To find out, we multiply our estimated future book value (N66.15) by 1.98, and add five years worth of dividends.

N66.15 x 1.98 + (N2.50 x 5) = N143.48

Now, compare this result to the current share price of N147.73.

Not much difference, is there? So, even if growth slows and the market falls out of love with the stock, we can be fairly confident that the stock will be at least as valuable five years from now as it is today. The biggest downside risk is missing out on a better opportunity. Not bad.

An Optimistic Scenario

And what if the market is more bullish five years hence?

Suppose 7UP’s price-to-book ratio is 6.0 – the same multiple currently sported by shares of PepsiCo (PEP) on the New York Stock Exchange. We end up with a total future value of N409.40

N66.15 x 6.0 + (N2.50 x 5) = N409.40

That’s an annualized return of 22.6%. Most investors would be delighted with a tall glass of that sort of performance.

So, in my view, based on the recent performance of the business, its growth prospects, and market valuation, 7UP Bottling Company offers significant upside potential with limited downside risk.

What Do You Think?

Where do you think shares of 7-Up Bottling Company will trade five years from now? Is the stock a bargain? Let’s hear your thoughts in the comments!

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Here’s Why Co-operative Bank of Kenya Stock Popped 12% Thu, 02 Oct 2014 10:41:37 +0000

When Co-operative Bank of Kenya (COOP) announced last week that they were hiring global consulting firm, McKinsey & Company, for advice on improving operational efficiency, investors took notice. The stock has jumped 12.4% since the news appeared.

So why are investors so excited? How much scope does COOP — Kenya’s fifth-largest bank in terms of market capitalization — have to streamline its operations? And how might such restructuring impact the bottom line?

First, it’s important to note that COOP isn’t the only Kenyan bank to call in “The Firm.” Less than a month ago, Equity Bank (EQTY) also revealed that it had asked McKinsey to advise it on strategy. And, in 2011, KCB Bank Group (KCB) brought them in to assist with a restructuring that eventually slashed the bank’s management payroll by 42%.

Quite simply, McKinsey is very good at what it does, and its growing roster of blue chip clients in East Africa is testament to this.

To get a sense of what they might be able to do for COOP, let’s take a look at how well Kenyan banks presently manage the cost of doing business.

The chart below shows each Kenyan bank’s cost-to-income ratio over the first six months of 2014. We calculate the cost-to-income ratio by dividing total operating expenses by total operating income.

Kenya’s Most Efficient Listed Banks
CompanyCost-to-Income Ratio
I&M Holdings39.1%
Standard Chartered Bank Kenya41.2%
NIC Bank46.1%
Diamond Trust Bank Kenya48.1%
Equity Bank52.0%
CFC Stanbic53.6%
Barclays Bank Kenya54.4%
KCB Bank Group57.6%
Co-operative Bank of Kenya58.4%
Housing Finance Company Kenya61.9%
National Bank of Kenya73.9%

Judging from the data above, it would seem that McKinsey’s consultants have lots of fat to trim at COOP.

The bank keeps less than 42 shillings as pre-tax income for every 100 shillings it generates in the form of net interest income and fees. Meanwhile, the lean, mean banking machine that is I&M Holdings (IMH) keeps nearly 61 shillings for each 100 shillings of operating income.

If COOP could cut its cost-to-income ratio to 50% (a level that remains well above its most efficient peers), it would result in a 20.1% boost to pre-tax profit. That’s nothing to sneeze at.

Co-operative Bank of Kenya

Photo by Meaduva

But how realistic is it to expect such a reduction in expenses?

Salary Costs at Kenyan Banks

Well, for most banks, the biggest cost of doing business (apart from interest expense) is staff compensation. Thus, this is what McKinsey will likely try to slash first.

The table below compares the proportion of operating income that each Kenyan bank spends on staff salaries and compensation.

CompanyStaff Cost-to-Income Ratio
I&M Holdings17.2%
Diamond Trust Bank Kenya17.4%
Standard Chartered Bank Kenya18.8%
Equity Bank21.2%
NIC Bank21.3%
CFC Stanbic23.3%
KCB Bank Group25.0%
Co-operative Bank of Kenya25.0%
Barclays Bank Kenya28.0%
Housing Finance Company Kenya29.3%
National Bank of Kenya39.7%

As you can see, COOP’s wage bill isn’t nearly as bloated as that of National Bank of Kenya (NBK), but it’s not exactly svelte either.  The leanest banks on the list reap more than five shillings of operating income for every one shilling they pay out in the form of salaries. COOP gets just four shillings.

Look for this gap to narrow over the next year or two. If McKinsey can help COOP bring staff costs down to 20% of operating income, downsizing alone could boost pre-tax earnings by nearly 12%.

This will doubtless mean hardship for some of Cooperative Bank of Kenya’s 4,177 employees, but it will also give the bank more flexibility to lower its lending rates, putting growth capital within reach of more Kenyan households and businesses.

What Do You Think?

Did it surprise you that Co-operative Bank of Kenya ranks as one of Kenya’s least efficient banks? COOP shares now trade at a price-to-book ratio of 2.7. Considering the potential impact of cost-cutting, does the stock look like a good buy to you at today’s prices? Let’s hear your thoughts in the comments.

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Are Ecobank Shares a Bargain? Tue, 23 Sep 2014 14:04:15 +0000

Shares of Pan-African lender, Ecobank Transnational (ETI), have surged 7.1% in the month of September, blowing away the Nigerian Stock Exchange’s All Share Index.

Qatar National Bank’s purchase of a 23.5% stake in the firm triggered the big price move.

Now the stock trades at its highest point in over four years. Is there still value left on the table? Or would investors be better off looking elsewhere? Let’s take a closer look to find out.

A Very Big Footprint … and Growing

Ecobank boasts an unmatched pan-African presence. It operates in 36 countries across the continent and is expanding rapidly. Recent expansion activity includes a launch of operations in Mozambique and the procurement of a banking license in  Angola.

Note that the Togo-based bank’s operations are spread pretty thin outside West Africa, and Nigeria in particular. Of Ecobank’s 1253 branches, 1022 are in West Africa and nearly half are in Nigeria. Operations outside of West Africa account for less than 17% of group revenue.

But the mere fact that Ecobank has established a toehold in so many African economies, puts it well ahead of much larger competitors with pan-African aspirations.

Emerging From a Leadership Crisis

It wasn’t long ago that investors were clambering over each other to exit this stock. An executive director of the bank accused the former CEO, Thierry Tanoh, of pressuring her to mis-state the bank’s 2012 earnings and was subsequently fired. This led to a leadership struggle that lasted many months until the board finally voted to remove Tanoh in March of this year. He was replaced by deputy CEO, Albert Essien, a Ghanaian with nearly 25 years of employment at Ecobank.

The allegations of poor governance shown a global spotlight on how the bank does business. While this was a deeply disturbing development for shareholders, I take the view that the bank has emerged a stronger institution as a result of the turmoil and increased scrutiny.

Are Ecobank shares a bargain?

Photo by Gabriel Millaire

Powerful Partnerships

Now, with the entry of Qatar National Bank (QNB), Ecobank benefits from three important alliances.

QNB could prove to be a conduit to loan deals originating from the Middle East. And some analysts suspect that it will eventually make a bid to acquire the bank in its entirety.

Johannesburg-based Nedbank (NED) is looking to build its sub-Saharan footprint to keep up with its South African peers. Toward that end, it loaned Ecobank $235 million in 2011 which the bank can opt to convert into a 20% equity stake up until November 25. If it should do so, the partnership would likely accelerate Ecobank’s expansion in Southern Africa.

Finally, South Africa’s Public Investment Corporation, the government workers’ pension fund, controls an 18% stake in the bank. They’ve proved to be very involved in governance issues, calling for Tanoh’s ouster. I see them as an important watchdog of minority shareholders’ interests.

Improving Efficiency

It’s not cheap to launch banking operations in 36 countries in less than 30 years. And Ecobank’s shareholders have felt the pinch of expansion costs. The bank’s return on equity over the past 12 months is a measly 5.3% and the board opted not to pay out a dividend last year.

As the bank has scales up, however, expansion costs will like begin to take a smaller bite out of earnings. The cost to income ratio improved from 78.7% in the first half of 2013 to 76.2% in the most recent six months. Management hopes that its increased promotion of online and mobile banking platforms will drive further efficiency improvements in coming years.

Valuing Ecobank Shares

Ecobank has grown its net asset value at a 16.5% pace over the past five years, and its shares currently sport a price/book ratio of 1.2. If management is able to grow the bank’s net asset value at a rate of 15% over the next five years, long-term shareholders would realize an 11% annualized local currency return even if the price/book multiple drops to 1.0 and the board decides not to reinstate the dividend.

Given its roster of powerful shareholders and the groundwork it has laid — securing banking licenses across the continent — I think the above assumptions are on the conservative side. Are there bigger bargains out there? Yes. But I believe patient investors at today’s price of NGN18.10 will be well-rewarded over the next five years – assuming a larger bank doesn’t gobble it up before then.

Investors can purchase Ecobank shares on three different African exchanges, namely the Nigerian Stock Exchange, the BRVM, and the Ghana Stock Exchange.

What Do You Think?

Do Ecobank shares look like a good long-term buy? Let’s hear your thoughts in the comments!

Disclosure: Ryan holds a beneficial interest in shares of Nedbank through his work with Africa Capital Group.

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How to Collect Dividends When Investing in African Stocks Wed, 17 Sep 2014 18:05:48 +0000

When it comes to investing in stocks, most investors dream of big capital gains — share prices shooting through the roof.

But, according to Stocks for the Long Run author, Dr. Jeremy Siegel, dividends are arguably a much more important component of a stock’s investment return.

His research found that dividends accounted for roughly 75% of the US stock market’s total return up until the 1990s.

So, as a foreigner investing in African stock markets, it’s important not to discount the value of these company payouts.

This is easier said than done.

The Check is in the Mail … Arrgh!

Without careful preparation, non-resident investors will typically receive their dividends in their postal boxes, in the form of foreign-denominated checks.

These are a downright hassle to cash.

Trust me. I’ve got lots of firsthand experience.

I confess to having a safe deposit box full of uncashed dividend checks — denominated in various African currencies — that were mailed to my home address. Unable to cash them at my local bank branch, I’ve left them to molder there until I find time to deposit them.

So, if you plan to invest directly on a foreign stock exchange, how can you avoid ending up like me with a folder full of uncashed dividend checks?

1. Ask your broker to collect dividends on your behalf

Your first step should be to clarify dividend collection procedure with your local broker. When opening a brokerage account, ask them to collect your dividends and deposit them directly in your trading account, if possible. That way you can decide whether to reinvest or withdraw them at your leisure.

Many African stockbrokers do this as standard procedure. Still it’s important to confirm this arrangement with them in advance.

2. If your broker is unable to collect dividends, open a local bank account

Regulations in some African countries prohibit brokers from collecting dividends on their clients’ behalf.

Photo: Quiquemendizabal

Photo: Quiquemendizabal

Mauritius is one such country. Therefore, if you would like to be spared trying to cash a check denominated in Mauritian rupees at your bank’s teller window, you must open a Mauritian bank account.

This involves a bit of extra paperwork, but after it is set up, your broker will pass on your bank details to the share registrar, and your dividends will be deposited into the account where they can be withdrawn or transferred to your trading account.

3. If opening a local bank account is impossible, ask your broker for a nominee account

Opening a bank account in Kenya is not as simple as it is in Mauritius. As Belgrad Kenne of investment advisor, Phase One Associates, explains, “No bank in Kenya will open an account in absentia. They all require (by central bank regulations) a physical appearance (at a Kenyan bank branch).”

To circumvent this problem, Kenne says Kenyan brokers like AIB Capital allow foreign investors to open nominee accounts.

In a nominee account, all shares purchased by the investor are held in the broker’s name. The broker opens portfolio and cash accounts on each investor’s behalf. When dividends arrive, they are deposited into the investor’s cash account where they can either be reinvested or withdrawn.

If you opt to open a nominee account, clarify that you will retain full responsibility for buy and sell decisions on the account. You don’t want your shares to be traded without your authorization.

How to Deposit a Foreign Check

So, we’ve covered ways to make sure that you never receive a foreign dividend check in the mail. But what if you’ve already received one? How do you go about cashing it?

Unfortunately, I haven’t encountered any US banks that will cash checks denominated in African currencies. If you’re an account holder, however, most banks will offer to send the check to collections. There, the bank or a third party processor will attempt to collect on the check in US dollars from the issuing bank.

This process can take a long time. Sometimes months. On top of that, most banks will charge a fee for the service and the exchange rate you receive on the foreign currency isn’t likely to be very good.

I contacted a few banks to see how much they charge customers to clear foreign checks. Here’s what I found out:

BankForeign Check Collection Fee
Bank of America$0 (exchange rate may be 15-20% below prevailing rate)
TD Bank$7.50
Wells Fargo$75.00

[Note that I haven't seen currency conversion rates at TDBank or WellsFargo, so they may not be any better than Bank of America's.]

So, there you have it. The cheapest, most efficient way to collect dividends on African stocks from afar is to have your broker deposit them directly in your trading account, via a nominee account, if necessary. Doing so minimizes fees and hassle, and helps to ensure that you receive the best possible exchange rate when you eventually decide to repatriate your funds.

Your Turn

Have you struggled with this problem? What ways have you found to solve it? Let’s hear your thoughts in the comments!

Other Articles You Might Like

How to Invest on the Johannesburg Stock Exchange
How to Invest on the Nairobi Stock Exchange
How to Invest on the Stock Exchange of Mauritius

]]> 3
Tanzania’s Stock Exchange is Opening to Foreign Investors (4 Shares to Know) Thu, 11 Sep 2014 10:38:39 +0000

To me, Tanzania is one of Africa’s most exciting economies.

It’s got a young population that numbers nearly 50 million citizens – a figure that surpasses its charismatic neighbor to the north, Kenya.

It boasts a long history of peace and political stability.

Its government is committed to fiscal discipline.

Its blessed with a wide variety of natural resources, including offshore gas reserves that are being harnessed for both export and the provision of electricity. And it has a rapidly growing manufacturing base.

This combination of traits and trends creates an economy that the IMF believes will grow at least 7% this year and will maintain this pace in each of the next three years.

A Restricted Market

With all of this going for it, you would think that the Dar es Salaam Stock Exchange would be a darling of foreign investors.

But for many years, the government restricted levels of each stock’s foreign ownership to a total of 60% in, what I believe was, a misguided effort to protect and promote Tanzanians’ participation in the market.

Last month, however, the government approved the removal of this regulation in a move to invigorate the sleepy exchange. The change is expected to officially take effect before the end of the year.

4 Tanzanian Stocks to Get to Know

The change effectively opens five listed firms to additional foreign investors. Here are four that I believe are worth a close look.

1. Swissport Tanzania (SWISSPORT)

For many years, Swissport Tanzania (a subsidiary of Zurich-based Swissport International) has held the sole license to operate ground handling and cargo services at Kilimanjaro and Julius Nyerere International airports. It’s also just begun similar services at two smaller Tanzanian airports.

As the monopoly provider, Swissport has benefited from the growing number of flights and passengers coming in and out of the country. In the first half of 2014, flights handled increased 15%, leading to a 39% increase in net income.

Unfortunately for shareholders, growth won’t come quite so easy in coming years. The government is working to expand Julius Nyerere International, and with that expansion will come the licensing of a second ground handler.

Management is preparing for the arrival of competition by expanding its footprint to secondary airports and by constructing a second warehouse at its Dar es Salaam hub.

The shares presently trade at a multiple of 12x trailing earnings and offer a dividend yield of 6.6%.

2. Tanga Cement (SIMBA)

Dar es Salaam Stock Exchange

Photo by David Davies

Known as Simba Cement in the marketplace, Tanga Cement’s first and only plant was commissioned in 1980. It’s presently in the midst of the biggest ever expansion project. When it is complete, Simba will no longer be required to import clinker, the prime component of Portland cement. Thus, big cost savings are on the horizon, and the company expects to have excess clinker for export.

This development comes none too soon. Competition from imported cement drove Simba’s sales down in 2013, resulting in a 10% reduction in earnings per share.

But the company, whose majority holder is Afrisam Mauritius, generates lots of cash, has very little debt to speak of, and trades at just a smidge over 7x its 2013 earnings. The shares currently yield 3.0%.

3. Tanzania Breweries (TBL)

Tanzania Breweries is the country’s largest beer maker and a subsidiary of global beverage giant, SABMiller, which owns a 58% stake in the company. It operates four breweries throughout the country and holds partial ownership of a distillery and a brewer of traditional alcoholic beverages.

In spite of unreliable electricity and increased excise taxes, TBL managed to increase its revenue 10% during its 2014 fiscal year. Earnings surged 15% thanks to cost-cutting and a smaller debt load.

The share price is up very big since September 2013 (over 268%). This is likely due to speculation that the government would, in fact, lift restrictions on foreign ownership. It now trades at a trailing P/E ratio of about 24. This should give value investors pause, but it’s definitely one to keep an eye on in the event of a sell-off.

4. Tanzania Portland Cement (TWIGA)

Like its main domestic competitor, Simba, Tanzania Portland Cement (more commonly known as Twiga Cement) faltered when cheap imported cement flooded the market in 2013. Sales were also set back as a result of a major fire at its main electricity transformer which hampered production for four months.

But the company, which is majority-owned by the German HeidelbergCement Group, bounced back during the first half of 2014, with earnings jumping 41%.

Like Simba, it too is in the midst of expanding its operations and plans to launch a second cement mill later this year. It also launched a premium brand of cement, “Twiga Plus,” to counter competition from imported products. Management is also mulling the idea of constructing a solar photovoltaic power station to help cover its energy needs.

With a P/E ratio of 14.7, Twiga isn’t as obviously cheap as Simba, but it boasts a rock solid dividend yield of 7.2%.

What Do You Think?

So, there you have it. Four intriguing new shares to add to your Africa investment universe.

Do you invest on the Dar es Salaam Stock Exchange? Which Tanzanian shares do you think are poised to outperform the market? Let’s hear your thoughts in the comments!

Other Posts You Might Like

How to Invest on the Dar es Salaam Stock Exchange
How to Profit From Tanzania’s Quiet Rise
Africa’s 7 Hottest Economies (and How You Can Invest in Each One)

]]> 4
A Quick Introduction to 23 Recent African IPOs Fri, 05 Sep 2014 03:12:04 +0000

IPOs are exciting.

For most investors, they’re the first opportunity to participate in the growth of an up and coming business. IPOs stoke public interest in the stock market. And they provide reassurance to private equity investors that they can someday exit their own ventures in a similar fashion.

Let’s take a little time to get to know the companies that debuted on African stock exchanges within the past 12 months. You may find a few worthy of further research.

23 Recent African IPOs

1. Accelerate Property Fund (APF)
Johannesburg Stock Exchange
Market Cap: $345.4 million

Launched by a family of wealthy Bloemfontein real estate investors, APF owns a portfolio of 52 South African properties. More than two-thirds of them are shopping malls and retail units with the most prominent being the Fourways Mall in northern Jo-burg. It presently trades at a slight discount to its net asset value of R5.90 per unit.

2. Advanced Health (AVL)
Johannesburg Stock Exchange
Market Cap: $36.1 million

AVL operates outpatient surgery centers in South Africa and Australia. At the time of its R100 million IPO, the company had a total of just five facilities. The proceeds of its oversubscribed listing will be directed toward the development of an additional ten outpatient hospitals. Investors appear keen on the story and have pushed the share price 75% higher since their debut.

3. Alexander Forbes Group (AFH)
Johannesburg Stock Exchange
Market Cap: $1.06 billion

This South African asset manager originally listed on the JSE in 1996, but was taken private by private equity investors eleven years later. A big company, AFH’s R11.3 billion (roughly $1.1 billion) market cap ranks it among the South African exchange’s largest stocks. In coming years, it intends to expand its pension management and insurance business further into sub-Saharan Africa.

4. Ascendis Health (ASC)
Johannesburg Stock Exchange
Market Cap: $366.1 million

This South African pharmaceutical company made its first appearance on the JSE back in November. It raised some $44 million during its IPO for the purpose of acquisitions, specifically in the medical device sector. Management has made good on the promise thus far, quickly snatching up assets like Respiratory Care Africa and Pharma Natura. The market obviously likes the company’s growth. Its shares have risen 48% since the listing.

A new crop of African IPOs

Photo by CIAT

5. Atlantic Leaf Properties (ALP)
Stock Exchange of Mauritius
Market Cap: $25.1 million

ALP invests in listed and unlisted property companies in addition to its own real estate portfolio. It set up shop in Mauritius for tax reasons, but Europe is its area of geographic focus. Management sees particular opportunity in the UK, Germany, and France. The stock’s primary listing is on the Stock Exchange of Mauritius, but it also trades on the JSE’s Alt-X.

6. Attacq (ATT)
Johannesburg Stock Exchange
Market Cap: $1.33 billion

A real estate growth fund, ATT holds a variety of commercial and light industrial properties. Key assets include the Waterfall Business Estate in Johannesburg and the Bagatelle Mall in Mauritius. The company is making an ambitious move into Ghanaian and Zambian retail properties. So far, its strategy appears to be paying dividends. Attacq’s net asset value improved nearly 20% in the first half of 2014.

7. Caverton Offshore Support Group (CAVERTON)
Nigerian Stock Exchange

Caverton operates a fleet of helicopters and ships that provide logistics support to Nigeria’s numerous offshore oil and gas rigs. The rationale behind the $197 million listing was to broaden the company’s shareholding as it prepared to enter new markets in the region. Judging from the price movement since its shares hit the market, the listing also allowed lots of existing shareholders to jump ship. The stock dropped precipitously immediately after the May IPO and now trades 47% lower than its offer price.

8. Computer Warehouse Group (CWG)
Nigerian Stock Exchange
Market Cap: $77.9 million

With operations in Nigeria, Ghana, Cameroon, and Uganda, CWG is the largest ICT company to list on the Nigerian Stock Exchange. Providing IT infrastructure and support to banks has been its key area of focus. CWG systems handle 60% of all banking transactions in Nigeria. Its $86 million IPO in November 2013 was well-received initially, but after a lackluster start to the 2014 fiscal year the shares dropped 9% below the offering price.

9. Equites Property Fund (EQU)
Johannesburg Stock Exchange
Market Cap: $105.1 million

EQU owns a portfolio comprised mainly of industrial properties in South Africa’s Western Cape province. The REIT’s current tenants include Puma, Foschini, and Adidas. Going forward, management intends to quintuple in size over the next five years. To do this, it will geographically diversify its holdings to include warehouse properties in Johannesburg and Durban. EQU’s June 2014 listing attracted a 200% over-subscription.

10. Freedom Property Fund (FDP)
Johannesburg Stock Exchange

Unlike a REIT, which distributes the majority of its income to shareholders, FDP will plow its profits into growing its diverse portfolio of properties. Headed by a former director of heavyweight real estate firm, Growthpoint Properties, Freedom’s sharpest focus is on low and middle-income residential developments near mining towns. The market has beaten up FDP shares since their June listing, dropping from an IPO price of R1.00 per unit to just R0.50 today.

11. Infinity Trust Mortgage Bank (INFINITY)
Nigerian Stock Exchange
Market Cap: $39.1 million

An Abuja-based mortgage lender, Infinity listed on the NSE in December 2013. It plans to expand its footprint into other large cities, developing residential properties, and helping to address Nigeria’s huge housing deficit. The company is also one of a few key stakeholders in the Nigeria Mortgage Refinance Company, a new entity which will package mortgages into securities for sale to pension funds and other large institutional investors.

12. Lottotech (LOTO)
Stock Exchange of Mauritius
Market Cap: $136 million

LOTO operates the Mauritius National Lottery, which the national government uses to fund a wide range of community development programs in addition to debt service. With over 75% of Mauritians participating in the lottery, Lottotech has unsurprisingly put up stellar earnings numbers. Its net income more than doubled during the first half of 2014. And investors have taken notice. The company’s share price is up over 99% so far this year.

13. Madison Financial Services (MFS)
Lusaka Stock Exchange

A Zambian insurance company and asset manager, MFS listed on the Lusaka Stock Exchange this summer to, in part, allow the IFC, one of its largest investors, to make an exit. The broader base of shareholders after the IPO will also allow the company to obtain a deposit-taking license, clearing the way for it to become a micro-finance bank. The prospectus reveals an impressive record of earnings growth in recent years. Net income surged nearly 57% in 2013.

14. Maendeleo Bank (MBP)
Dar es Salaam Stock Exchange

A project of Tanzania’s Evangelical Lutheran Church, Maendeleo Bank opened its doors for the first time in August 2013 with a mission to provide banking services to under-banked communities. It launched its IPO in the same month, with the goal to raise sufficient capital to sustain its operations. The offer was oversubscribed and management opted to make use of a green shoe option which allowed them to sell 1.2 million additional shares. All told, the micro-lender raised $2.8 million and the shares are up 20% since the listing.

15. Mega African Capital (MAC)
Ghana Stock Exchange

With a market cap of just $8 million, Mega African Capital isn’t very big, but it is the first Ghanaian IPO since the 2008 listing of UT Bank. The investment company takes long-term stakes in publicly-traded African stocks. It’s got an experienced management team with an enviable track record. The partners helped set up and manage EPACK, a top-performing Ghanaian mutual fund.

16. Nairobi Securities Exchange (NAIR)
Nairobi Securities Exchange

This month, the NSE became the second African stock market to list its own shares. Management intends to deploy the capital raised during its heavily oversubscribed IPO on debt reduction and improvements to its IT infrastructure and product offerings. The exchange has seen its fortunes rise thanks to growing trade volumes. After accounting for non-recurring gains in the prior period, the NSE’s first half pre-tax profits climbed 46%.

17. Prima Reinsurance (PRIMA-RE)
Lusaka Stock Exchange

One of three Zambian reinsurers, Prima Re has grown steadily since its 2007 launch thanks to increasingly stringent underwriting requirements from large foreign competitors. Being closer to the ground, Prima Re believes it has a more realistic view of potential risks. Moreover, its small size allows it to take on risks that aren’t economically viable for larger reinsurers. The company’s $4 million IPO allowed it to meet new minimum capital requirements and provides it with the heft needed to take on larger deals.

18. PSG Konsult (KST)
Johannesburg Stock Exchange
Market Cap: $788.5 million

PSG Group spun this specialist asset manager and insurer off in June 2014 but retains a 63% stake. The company, which had for many years traded on the OTC exchange, grew its assets under management by 38% and its underwriting premium by more than 500% during its 2014 fiscal year. Shares of PSG Konsult also trade on the Namibian Stock Exchange after a secondary listing there in July.

19. Safari Investments (SAR)
Johannesburg Stock Exchange
Market Cap: $122.8 million

A retail-focused REIT, Safari owns shopping centers in lower income areas of South Africa’s Gauteng Province and is participating in the development of a waterfront project in Swakopmund, Namibia. Units of the company have retreated nearly 9% since the REIT’s IPO in April.

20. Seplat Petroleum Development Company (SEPLAT)
Nigerian Stock Exchange
Market Cap: $2.32 billion

Seplat holds a 45% stake in three big Nigerian oil fields. When it successfully raised $500 million during its April IPO on the Nigerian and London Stock Exchanges, it became the first upstream oil company to list on the NSE. Management intends to use the IPO proceeds to acquire onshore oil assets cast off by international energy companies eager to leave the Niger Delta region. The shares have fared well post-listing and are now up 18%.

21. Swala Oil and Gas Tanzania (SWALA)
Dar es Salaam Stock Exchange

Australia-based oil and gas explorer, Swala Energy, listed a 10% stake in its Tanzanian unit in July. The IPO was intended to allow Tanzanian investors to participate in the exploration and development of offshore natural gas reserves, and the $3.52 million raised will be used to fund seismic studies on promising gas deposits. Investors jumped at the opportunity. The offer was heavily oversubscribed and the shares soared 42% since listing.

22. Tharisa (THA)
Johannesburg Stock Exchange
Market Cap: $641.3 million

Based in Cyprus, Tharisa is a platinum and chrome producer that operates an open pit mine in Rustenberg, South Africa. It was forced to reduce its April capital raising by half due to negative investor sentiment concerning the industry, but the share price has more than held its own since then, rising by 8%.

23. Visual International Holdings (VIS)
Johannesburg Stock Exchange
Market Cap: $7.9 million

This Cape Town-based company focuses on the development of mid-range residential suburbs. It then sells the developments on to investors or adds them to its portfolio of rental income generating properties. Its premier property is Stellendale Village located just to the north of Cape Town. Management forecasts earnings growth of 19% over the long-term.

It’s Your Turn

Have I missed any recent African IPOs? Which ones do you find most intriguing? Let’s hear your thoughts in the comments!

Other Articles You Might Like

Is the NSE IPO a Bargain?
How to Invest on the Johannesburg Stock Exchange
How to Invest on the Nigerian Stock Exchange

]]> 9
5 Hot JSE Stocks That Even a Value Investor Can Love Thu, 28 Aug 2014 16:13:10 +0000

I hate to jump on bandwagons.

Whether it be clothes, sports, or the latest internet meme, I like to think I’m an individualist – unswayed by whatever or whoever is in vogue at the moment.

I bring this same contrary attitude to picking stocks and take far more pleasure in discovering a hidden gem than I do in piling into whatever hot share is grabbing headlines at the moment.

The Wisdom of Crowds?

When it comes to investing, however, a mountain of evidence suggests that running with the herd may be more profitable than bucking the trend.

Repeated studies confirm that stocks with momentum – those whose share prices have recently outperformed the market – tend to outperform those that haven’t. In other words, the winning stocks keep winning, and the losers keep losing.

The reason for this is still subject to some debate, but confirmation bias is the explanation that makes most sense to me. A critical mass of investors become “married” to their bullish view on a stock and ignore or reinterpret any data that runs counter to this image.

Thus, a snowball effect begins, where price increases beget price increases until hype eventually succumbs to reason and the share price retreats (or crashes) to more sober levels.

5 JSE Shares to Make the Trend Your Friend

The good news is that some stocks allow investors to enjoy price momentum while limiting downside risk. Their share prices have risen dramatically, but they still trade at down-to-earth valuations.

Here are eight high-flying JSE shares that fuddy-duddy value investors like me don’t have to be ashamed of owning. Each one has risen more than 25% over the past 12 months but still trades at less than 1.5x book value and a P/E ratio of less than 15.

Faddish JSE shares that are okay to love

Photo by Jeff Attaway

1. Telkom (TKG)
52-week Return: 157.0%
P/E Ratio: 6.8
P/B Ratio: 1.3

A beleaguered giant, Telkom once ruled South Africa’s telecommunications sector with an iron fist. After being stripped of its stake in mobile operator Vodacom, however, it struggled to survive.

Now, it’s in the midst of a turnaround.

New CEO Sipho Maseko has pledged to slash one billion rand of expenses over the next five years, reduced debt, and put some draining regulatory problems to rest. Investors like what they see and have made the shares one of the JSE’s best performers over the past year.

2. Steinhoff International (SHF)
52-week Return: 85.6%
P/E Ratio: 11.4
P/B Ratio: 1.5

This furniture retailer excited investors with a string of European acquisitions. The new operations boosted sales, consolidated market share, and improved profit margins. Now, with more than half of its revenue generated in Europe, the weak rand has given the company a big earnings boost. In recent months, it also reduced its ownership stake in KAP Industrial, a South African furniture manufacturer, and announced that it would pursue a secondary listing on the Frankfurt Stock Exchange.

3. Cargo Carriers (CRG)
52-week Return: 60.9%
P/E Ratio: 9.6
P/B Ratio: 1.1

Just as its name indicates, Cargo Carriers hauls freight and specializes in mining, chemicals, fuel, sugar and steel. It’s not been a particularly easy operating environment for the company in recent years, but CEO Murray Bolton and his team still managed to grow operating profit by nearly 36% in its 2014 fiscal year. A key acquisition in fast-growing, strategically-placed Zambia helped improve revenue, while the sale of surplus equipment and an unused airplane resulted in a much prettier balance sheet.

4. Sovereign Food Investments (SOV)
52-week Return: 50.9%
P/E Ratio: 12.6
P/B Ratio: 0.9

This is a poultry producer worth crowing about. Long-focused primarily on simply breeding and raising broilers, SOV is now venturing into value-added products, like breaded chicken patties and nuggets. It intends for these higher margin products to account for the majority of sales within the next three years. Recently modernized production facilities, a weak rand, and lower maize costs (thanks to the largest crop in 33 years) have also helped bolster profitability.

5. Mustek (MST)
52-week Return: 50.7%
P/E Ratio: 7.5
P/B Ratio: 1.0

South Africa’s largest personal computer assembler, Mustek, have been on a tear thanks to growing demand for the Acer, Lenovo, and Acer brands that it distributes. Management displayed its confidence in the business by repurchasing more than R20 million worth of shares from cash it had in the bank back in April. And a just-announced 22% boost to its dividend further sweetens the investment appeal.

What Do You Think?

Do you consider price momentum when analyzing potential share investments? How do you make sure that you’re not getting caught up in hype? Let’s hear your thoughts in the comments!

Other Articles You Might Like

7 Rock Solid South African Stocks That Pay Big Dividends
How to Invest on the Johannesburg Stock Exchange
A Complete List of African ADRs and GDRs


]]> 3
The Complete List of African ADRs and GDRs Thu, 21 Aug 2014 20:30:47 +0000

If you live in the USA or UK and are looking for the most convenient way to invest in individual African stocks, your best bet is to acquaint yourself with the growing number of African ADRs and GDRs.

Depositary receipts (DRs) represent the shares of a foreign company. Banks issue these receipts so that investors can trade shares of popular foreign stocks on their local stock exchange without the need to open a foreign brokerage account.

In the US, these instruments are known as ADRs (American Depositary Receipts). Everywhere else in the world, they are known as GDRs (Global Depositary Receipts). I’m not sure why us Yanks need to call them something different. Maybe we just like to think we’re special.

Convenient But With Limitations

Anyway, if you look closely at the list below, you will notice the following:

  1. The vast majority of African ADRs and GDRs are for South African companies. There’s a handful of Nigerian and Zambian stocks, but very few in relation to those headquartered south of the Limpopo River. Thus, investors who limit their African holdings to ADRs are overly exposed to the South African economy and its currency, the Rand.
  2. Most African ADRs and GDRs are very illiquid. Roughly half had no trade volume to speak of over the past 30 days, and very few average more than 10,000 shares traded per day. This can cause problems for investors. It’s not always easy to find a willing buyer or seller of the ADRs at the market price.
  3. Metals and mining companies are disproportionately represented among African ADRs and GDRs. Moreover, they account for roughly half of the ADRs with the highest trade volumes. This doesn’t help investors profit from one of the continent’s most attractive opportunities – the rising wealth of the African consumer.

So African ADRs and GDRs don’t yet offer investors broad exposure to African capital markets. They are, however, a nice way for investors new to the region to get their feet wet. And more sub-Saharan depositary receipts are sure to hit foreign markets soon. By my count, 24 new ADRs listed on US markets within the past two years.

Here’s a list of those currently available.

African ADRs and GDRs
Depositary ReceiptSymbolExchangeCountryIndustry30-Day Avg VolumeRatio DR:Ord
African Bank InvestmentsAFRVYOTCSouth AfricaSpecialty Finance3,4271:5
African Oxygen LimitedAFOXYOTCSouth AfricaChemicals01:5
African Rainbow MineralsAFRBYOTCSouth AfricaIron & Steel3,0411:1
Anglo American PlatinumAGPPYOTCSouth AfricaMetals & Mining3,7556:1
AngloGold AshantiAUNYSESouth AfricaMetals & Mining1,952,5301:1
Aquarius PlatinumAQPTYOTCSouth AfricaMetals & Mining7171:2
ArcelorMittal South AfricaAMSIYOTCSouth AfricaIron & Steel671:1
Aspen PharmacareAPNHYOTCSouth AfricaBiotech & Pharma2771:1
Astral FoodsA9UBerlinSouth AfricaConsumer Products61:1
AvengAVEPYOTCSouth AfricaEngineering & Construction01:2
AVIAVSFYOTCSouth AfricaConsumer Products61:5
Barclays Africa GroupAGRPYOTCSouth AfricaBanking2391:2
BarloworldBRRAYOTCSouth AfricaIndustrial Services2251:1
BidvestBDVSYOTCSouth AfricaDistribution - Consumer Staples1,4621:2
Blue Label Telecoms5TPBerlinSouth AfricaTelecom01:10
CashbuildC8JBerlinSouth AfricaRetail - Discretionary01:1
Clicks GroupCLCGYOTCSouth AfricaRetail - Consumer Staples6,2931:2
Clover Industries Ltd.1C7BerlinSouth AfricaConsumer Products01:10
Datatec LimitedDTCLondonSouth AfricaDistributors - Discretionary3,4021:2
Diamond BankDBPALondonNigeriaBanking01:100
DiscoveryDCYHYOTCSouth AfricaLife Insurance01:3
DRDGOLDDRDNYSESouth AfricaMetals & Mining80,1301:10
Element OneELETYOTCSouth AfricaMedia01:1
Ellies HoldingsELLHYOTCSouth AfricaHardware01:20
EqstraEQSHYOTCSouth AfricaIndustrial Services01:10
Evraz Highveld Steel and VanadiumHGVLYOTCSouth AfricaIron & Steel1,1741:1
Exxaro ResourcesEXXAYOTCSouth AfricaOil, Gas, & Coal1,1901:1
Famous BrandsFMBRYOTCSouth AfricaConsumer Products41:2
FirstRandFANDYOTCSouth AfricaBanking101:10
Gold FieldsGFINYSESouth AfricaMetals & Mining4,741,1371:1
Goliath Gold MiningWWRSYOTCSouth AfricaMetals & Mining17310:1
GrindrodGRDLYOTCSouth AfricaTransportation & Logistics01:10
Growthpoint PropertiesG5JABerlinSouth AfricaReal Estate01:2
Guaranty Trust Bank - Reg. SGRTBLondonNigeriaBanking15,6401:50
Harmony GoldHMYNYSESouth AfricaMetals & Mining1,700,5781:1
Hyprop InvestmentsH1LBerlinSouth AfricaReal Estate01:1
Illovo SugarILVOFOTCSouth AfricaConsumer Products4331:4
Impala PlatinumIMPUYOTCSouth AfricaMetals & Mining11,9621:1
Imperial HoldingsIHLDYOTCSouth AfricaRetail - Discretionary5,1971:1
InvestecITCFYOTCSouth AfricaBanking271:2
JD GroupJDGRYOTCSouth AfricaRetail - Discretionary611:1
JSEJSEJFOTCSouth AfricaInstitutional Investment Services1041:1
Kumba Iron OreKIROYOTCSouth AfricaIron & Steel21,6013:1
Liberty HoldingsLKGFrankfurtSouth AfricaInsurance01:1
Life Healthcare Group HoldingsLTGHYOTCSouth AfricaHealthcare Facilities & Services45,2761:4
Massmart Holdings LimitedMMRTYOTCSouth AfricaRetail - Consumer Staples1,0881:2
Mediclinic InternationalMCFFYOTCSouth AfricaHealthcare Facilities & Services9931:5
Merafe ResourcesMRAFYOTCSouth AfricaMetals & Mining01:40
MiX TelematicsMIXTNYSESouth AfricaSoftware38,0321:25
MMI HoldingsMPOHYOTCSouth AfricaInsurance171:5
Mondi LimitedMODLYOTCSouth AfricaContainers & Packaging01:2
Mr PriceMRPLYOTCSouth AfricaRetail - Discretionary1,7921:1
MTN GroupMTNOYOTCSouth AfricaTelecom48,5891:1
Murray & RobertsMURZYOTCSouth AfricaEngineering & Construction Services4,0771:1
NampakNPKLYOTCSouth AfricaContainers & Packaging9,0821:1
NaspersNPSNYOTCSouth AfricaMedia4,2201:1
NedbankNDBKYOTCSouth AfricaBanking3,7541:1
NetcareNWKHYOTCSouth AfricaHealthcare Facilities & Services31:10
NorthamNMPNYOTCSouth AfricaMetals & Mining01:1
Omnia HoldingsOHZFrankfurtSouth AfricaChemicals841:1
Pick 'n Pay StoresPKPYYOTCSouth AfricaRetail - Consumer Staples01:5
Pinnacle Holdings LimitedPNABerlinSouth AfricaDistributors - Discretionary01:10
PPC LimitedPPCYYOTCSouth AfricaConstruction Materials15,1211:2
Press CorpPESDLondonMalawiSpecialty Finance0
Randgold & ExplorationRNDXFOTCSouth AfricaGold Mining131:1
Redefine PropertiesREDPFOTCSouth AfricaReal Estate7001:10
RemgroRE7FrankfurtSouth AfricaFinancial Services431:1
ReunertRNRTYOTCSouth AfricaHardware291:2
RMBR8BBerlinSouth AfricaBanking1001:3
Royal Bafokeng Platinum7BFBerlinSouth AfricaIndust.Metals&Mining01:2
SanlamSLLDYOTCSouth AfricaInsurance6,7091:5
SantamRXWAOTCSouth AfricaInsurance01:1
SappiSPPJYOTCSouth AfricaForest & Paper Products3,6901:1
SasolSSLNYSESouth AfricaOil, Gas & Coal147,6971:1
Seardel Investment46SBerlinSouth AfricaApparel & Textile Products01:5
ShopriteSRGHYOTCSouth AfricaRetail - Consumer Staples13,5561:1
Sibanye GoldSBGLNYSESouth AfricaMetals & Mining769,7271:4
Standard BankSGBLYOTCSouth AfricaBanking15,3031:1
Steinhoff InternationalSNHFYOTCSouth AfricaRetail - Discretionary131:5
Sun International Ltd.RY1ABerlinSouth AfricaTravel & Leisure01:1
Super GroupSSGPYOTCSouth AfricaTransportation & Logistics01:5
Telkom SA SOCTLKGYOTCSouth AfricaTelecom1,5311:4
The Foschini GroupFHNIYOTCSouth AfricaRetail - Discretionary71:2
Tiger BrandsTBLMYOTCSouth AfricaConsumer Products2,8981:1
Trans HexTRHXYOTCSouth AfricaMetals & Mining01:1
Trencor LimitedT6JBerlinSouth AfricaTransportation & Logistics01:2
Truworths InternationalIUEBerlinSouth AfricaRetail - Discretionary01:2
VodacomVDMCYOTCSouth AfricaTelecom9,7541:1
Wilson Bayly Holmes-OvconWQ9BerlinSouth AfricaEngineering & Construction Services01:1
WoolworthsWLWHYOTCSouth AfricaRetail - Consumer Staples1,2221:10
Zambeef ProductsZAMLondonZambiaConsumer Products26,9011:20
ZCI LimitedCVEN ParisZambiaMetals & Mining4,7641:1
Zenith BankZENBLondonNigeriaBanking01:50
It’s Your Turn

Have I missed any African ADRs or GDRs? If so, let me know in the comments!

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