a field guide to African stock markets Sat, 19 Apr 2014 21:45:03 +0000 en-US hourly 1 5 Deflation-Busting Zimbabwean Stocks (and 2 to Avoid) Thu, 03 Apr 2014 20:28:34 +0000


That mind-boggling, 23-digit figure was Zimbabwe’s rate of inflation in November 2008.

To put that in perspective, this means that the price of most goods and services was doubling every five days. Cash left in wallets lost measurable value with each passing hour and people needed armloads of the stuff just to buy groceries.

The government finally snapped the hyperinflationary cycle by scrapping the Zimbabwean dollar in favor of the US dollar. With new confidence that the value of their cash would hold its value, consumers began to save again.

But now, cruelly, it appears that price levels have shifted into reverse. On March 18, the National Statistics Agency reported that annual inflation for the month of February came in at -0.49%. Yes, Zimbabweans now live in a deflationary economy.

How on earth did this happen?

After years of decay to its agricultural and manufacturing sectors, Zimbabwe produces very little to export. This problem has been compounded by political turmoil and policies that force foreign companies to surrender control of assets, which reduce outside investors’ appetite for putting money to work in the country.

Therefore, with more money flowing out of the country than coming into it, the government is broke and the country’s finite supply of US dollars has become increasingly precious.

Rampant unemployment has left people with barely enough income to cover necessities, and businesses have been forced to reduce the cost of goods and services to entice them to surrender whatever disposable income they may have. This further erodes margins, which leads to more job cuts, and the vicious cycle repeats itself.

So, what does this bleak outlook mean for the Zimbabwe Stock Exchange?

As one might suspect, deflation’s not a great state of affairs for most stocks. Lower revenue typically means lower earnings which typically means lower stock prices.

The recent performance of the ZSE’s main index bears this out. It has dropped nearly 4% over the past 12 months and just shy of 13% so far in 2014.

But don’t despair. Zimbabwe investors can blunt deflation’s impact by avoiding certain sectors and concentrating their assets in others.


Photo by Extra Zebra

First, let’s look at some potential portfolio pitfalls.

Two Stocks to Avoid

1. Lafarge Zimbabwe (Website)

One of the root causes of Zimbabwe’s deflation is the dearth of industrial investment. Thus it stands to reason that companies which benefit principally from construction and infrastructure development will be facing a long, tough year in 2014. Profits at cement-maker Lafarge Zimbabwe plunged 24.5% in 2013 and management canceled the annual dividend. Investors reacted with a major selloff, and the shares sank like a concrete brick. They now trade 25% lower than they did at the start of the year.

Yet the company, which depends on the troubled mining industry for most of its sales, still trades at more than 21x trailing earnings in spite of the rocky road ahead of it.

2. Dairibord (Website)

Investors should also be wary of companies that produce staple foods for the local market. Dairibord is a prime example. Such companies must not only contend with food deflation of 2.2%, they must compete with imported South African products, which have become all that much cheaper thanks to a depreciating Rand.

Dairibord sold 8% less milk in 2013 than it did one year earlier, and it reported a $2.3 million earnings loss. The stock has already lost a third of its value in 2013, so most of the damage may already be done, but with no catalysts to the upside on the horizon, investors are likely better off waiting until the macro environment improves.

Five Stocks to Beat Deflation

Now that we’ve identified some portfolio pitfalls, it’s time to identify some safe havens. Here are five whose valuations should stay relatively buoyant in spite of deflation.

1. Econet Wireless (Website)

Zimbabwe’s largest telecommunications company looks like a great defensive investment. It maintains a near monopolistic hold on a product (wireless communication) that has become a necessity of life. Econet also boasts huge margins that will allow it to remain profitable even after slashing its tariffs and rolling out 4G network infrastructure.

What’s more, a new mobile payment service has caught fire. Ecocash registered 76% subscriber growth during the first half of the 2014 fiscal year, and total transaction value has surpassed $1.2 billion.

Still the stock trades at an undemanding 7.6x earnings multiple.

2. Delta Corporation (Website)

Delta, the country’s main brewer, is adapting to deflation by rolling out affordable substitutes to its premium beers. The reduced demand for its lagers will weigh on margins but its sorghum-based brew, Chibuku, has proven so popular that the company’s existing plant has been stretched to nearly full capacity. A second brewery is now on the drawing board. The company’s also experimenting with smaller package sizes that are less taxing on consumers’ wallets.

The shares have dropped nearly 18% so far this year, which, is an appropriate discount for the tough medium-term environment the company faces. Now, trading at 13x trailing earnings and a 3.1% dividend yield, the stock should be a relatively stable deflation bulwark.

3. Padenga Holdings (Website)

Another way to take a bite out of deflation is by investing in companies that export most of their products. Crocodile-farmer, Padenga Holdings, is one such firm. It’s one of the world’s biggest suppliers of reptile skins to the global luxury goods market. It also recently expanded its operations to the USA, further protecting it from economic travails at home.

Investors can purchase shares of the company for less than 10x trailing earnings, and management says demand is “exceptionally strong.”

4. Seedco (Website)

Like Padenga, Seedco’s geographic expansion dilutes its exposure to the Zimbabwean economy. One of Southern Africa’s largest producers and marketers of crop seeds, the company saw its sales sprout almost 30% higher during the first half of its 2014 fiscal year. Unfortunately, this big gain didn’t filter down to the bottom line as much of it was absorbed by provision for bad debts. But a capital injection from new partner, Limigrain, should help nurture Seedco to greater profitability quickly.

The share price is down 12% so far this year, giving the stock a trailing P/E ratio of 17.9.

5. Rainbow Tourism Group (Website)

Zimbabwe’s tourism industry is well-insulated from deflation and fared relatively well in 2013 in spite of election year uncertainty. Total tourist arrivals rose 2%. Rainbow Tourism Group operates hotels in Zimbabwe, Zambia, and Mozambique. It boosted its room occupancy rate by 9% in 2013 while growing revenue 6%. Management is keen to retire debt and build up a healthy balance sheet. That’s music to this potential investor’s ears.

The stock currently trades at less than 1.5x book value.

Your Turn

Which Zimbabwean stocks do you think stand the best chance of standing up to deflation? Let’s hear your thoughts in the comments!

Related Reading

Zimbabwe’s Five Best-Performing Stocks of 2013
The Zimbabwe Stock Exchange’s Fantastic New Website
How to Invest on the Zimbabwe Stock Exchange

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Why Cadbury Nigeria’s Sugar Rush Could Be Harmful to Your Wealth Thu, 20 Mar 2014 11:39:26 +0000

Get ready for a stomach ache.

Investors’ big binge on Cadbury Nigeria shares may be nearing an unpleasant conclusion.

Like a sugar rush, the stock’s meteoric 372% rise over the past 24 months was fun while it lasted, but judging from the company’s 2013 results, the stock’s valuation is now sickly sweet.

The company, which is 75% owned by Mondelez International (formerly Kraft Foods, Inc), produces a wide range of drinks and sweets. Its flagship brands are Bournvita, a malted chocolate drink, and TomTom, a menthol-flavored candy.

Confectionery goods account for well over 90% of the company’s sales. Processed cocoa goods (butter, liquor, and powder) comprise the remainder.

The company gained notoriety as “Nigeria’s Enron” in 2006 when investigations revealed that the CEO and CFO had, for years, been cooking Cadbury’s books. The scandal resulted in two years of earnings losses, fines, lawsuits, and a decimated balance sheet.

Thus, when management announced Cadbury’s first dividend payout since 2005 last year, the company was rightly hailed as a successful turnaround.

With profitability restored, investors eager to profit from the growing wealth of the Nigerian consumer piled into the stock, making it one of the exchange’s best performers in 2012.

The rally continued throughout the following year, which saw the shares more than double in value, and made the company the eighth largest listing on the Nigerian Stock Exchange. It presently boasts a bigger market cap than heavyweights Guinness Nigeria and Ecobank Transnational.

Unwrapping Cadbury Nigeria

CEO Emil Moskofian and his management team have indeed steered the company deftly in recent years.

Cadbury Nigeria: Sugar Rush?

Photo by Yum9me

Cadbury’s pre-tax earnings soared 38% in 2013, and it generated huge wads of cash in each of the past three years. Profit margins widened dramatically. This helped the firm’s return on assets to leap from 9.4% in 2012 to 13.2% over the past 12 months.

And the balance sheet was nearly as liquid as the Gulf of Guinea.

It was this increasingly cash-rich balance sheet that eventually provided investors with a concrete indication that the company’s shares were substantially overvalued.

Late last year, instead of deploying its capital in the construction of new manufacturing or distribution centers, management proposed to buy back 40% of the company’s ordinary shares.

The capital reduction, which was approved by shareholders in December, was an admission that management didn’t see great opportunities for expansion. Cadbury Nigeria essentially revealed that its growth prospects are minimal. So, instead of wasting its cash pile on fruitless pursuits, Moskofian and his team opted to return it to shareholders.

The company’s modest outlook is bolstered by the company’s revenue growth (or lack thereof) in recent years. Revenue actually dropped in 2012, and, in 2013, it rose just 7%, a rate lower than inflation.

The company was boosting earnings by cutting costs, not by selling more TomToms.

This would be just fine if it weren’t for the fact that, even after a 22% drop from its high water mark, the stock still trades for more than 29x its 2013 earnings and more than 7x its post-buyback book value. Those are multiples typically reserved for small, fast-growing technology companies – not fifty-year-old candy manufacturers with stale sales growth.

Price Check

So, what is a fair price for Cadbury Nigeria?

Considering the long-term growth expectations for the Nigerian economy, the company’s excellent management team, and its new capital structure, I believe the stock is worth roughly NGN61.50 per share. That’s 28% lower than its current market value.

Nigeria investors should probably look elsewhere for nourishment.

[Disclosure: I have no position or beneficial interest in shares of Cadbury Nigeria, but I'd still like to get my hands on some Bournvita!]

Your Turn

What’s your take on Cadbury Nigeria? Do I have things all wrong? Let’s hear your thoughts in the comments!

Related Reading

How to Invest on the Nigerian Stock Exchange
Nigeria’s 10 Best-Performing Stocks of 2013
New ETF Makes Nigerian Stocks More Accessible Than Ever

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Here’s How to Profit From Tanzania’s Quiet Rise Fri, 14 Mar 2014 12:37:32 +0000

It might be time to brush up on your Swahili.

Tanzania looks to be one of the world’s biggest economic success stories over the next five years.

While its dynamic neighbor to the north grabs most of the headlines, the unassuming East African nation has strung together 12 consecutive years of +6% GDP growth.

And there’s no end in sight.

The discovery of huge offshore natural gas deposits and steadily improving governance suggest Tanzania’s growth story will continue well into the next decade. The IMF predicts the economy will expand 7.2% in 2014.

Bankrolling Tanzania’s Growth

One company that stands to benefit from Tanzania’s rise is CRDB Bank.

CRDB Bank began its life as the government-owned Cooperative Rural Development Bank. In 1996, it was privatized and restructured with the help of the Danish aid agency, DANIDA, which continues to hold a 21.5% stake in the bank.

Since then it has grown into the country’s second-largest bank with 103 branches and total assets of roughly $2.2 billion. It listed on the Dar es Salaam Stock Exchange in 2009.

While it offers a complete range of banking services, its strategic focus has been on retail and small business customers, especially in the agricultural sector.

It’s a market segment with huge potential. Tanzania’s central bank estimates that more than 87% of the country’s 45 million citizens are unbanked. To tap this opportunity, CRDB unveiled an agency banking platform last year. By partnering with the national postal service, it extended its reach deep into the country’s rural areas without costly investment in new branches.

The bank’s vision extends beyond Tanzania’s borders, too.

CRDB Bank and Tanzania's Growth

Photo by Stig Nygaard

In late 2012, it ventured outside its home market for the first time, opening a branch in neighboring Burundi, which is dependent on imports from Tanzania’s port city of Dar es Salaam. The branch has performed exceptionally thus far, encouraging management to consider expansion elsewhere in the region.

CRDB Bank (Buy) the Numbers

So, how did it perform in 2013?

Much like its home country, its performance wasn’t flashy. Earnings per share rose a yawn-inducing 5.7%. It’s important to note, however, that the bank opened 10 new branches during the period, which contributed to a 19% jump in non-interest expense.

Management had targeted 17% asset growth for 2013. It fell a bit short of that mark with just a 15% increase, but it remains on target to double in size within five years.

And the quality of those assets improved markedly. Non-performing loans as a percentage of total loans fell to 6.1% from 6.9% at the end of 2012.

Moreover, its return on assets is a stellar 3.7%, well above the management’s 3% target and one that puts it among East Africa’s most profitable banks.

One for the Vault?

Much of CRDB Bank’s attractiveness stems from the fact that it is one of just a few shares on the Dar es Salaam Stock Exchange that can be bought by foreigners. Foreign ownership of Tanzanian stocks is capped at 60% with the remainder being reserved for local investors. Most other stocks listed on the DSE have already butted up against that threshold, but foreigners own less than 17% of CRDB’s shares.

What’s more, with a P/E ratio of 8.1 and a price/book ratio of 1.8, I believe the stock offers decent value for long-term investors considering the size of the market open to it.

The shares currently trade at a price of TZS315.00. In my view, they are worth TZS375.00 per share. If they should reach that price, buyers here would collect a 19% capital gain.

The bank hasn’t yet announced its dividend for 2013, but, barring a big change to dividend policy, I expect it to be roughly 13 shillings per share. So, investors can collect a 3.8% dividend yield while they wait for the market to digest CRDB’s value.

Your Turn

Are you a fan of CRDB Bank? What other ways can investors participate in Tanzania’s steady growth? I’d love to hear your thoughts in the comments!

Related Reading

How to Invest on the Dar es Salaam Stock Exchange
Will Kenyan Bank Stocks Sizzle or Fizzle in 2014?

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9 Ways Smart Africa Investors Avoid Losing Their Shirts Tue, 25 Feb 2014 15:50:54 +0000

I will always remember my first introduction to the stock market.

My fifth-grade teacher, Mr. Decker, devised a one-month stock-trading competition for my 11-year-old classmates and me. He taught us how to read a stock price chart and gave us each an imaginary $1,000,000 to “invest” however we liked.

“At the end of the month,” he said, “the person with the portfolio that has increased the most in value will win a candy bar.”

We dove headfirst into the game, selecting ticker stocks that looked like they had been going up in the previous few days, assuming that those whose prices were trending higher would continue to rise at a similar rate throughout the month.

It was fun. Some of us made vast imaginary fortunes. Others lost almost everything. I recall falling somewhere in the middle.

With only the vaguest understanding that these ticker symbols represented actual companies, we bought and sold them at the drop of a hat.

We were gambling, pure and simple. Or to put it in more sophisticated, respectable terms, we were speculating.

Investing versus SpeculatingThe Intelligent Investor

Warren Buffett, arguably the best stock investor in history, calls The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham (affiliate link) “by far the best investing book ever written.” It’s essential reading for novice and experienced investors alike.

Graham devotes the book’s entire first chapter to making the distinction between investing and speculating.

In short, investing is associated with thorough analysis, prudent allocation, and reasonable expectations. Speculation, on the other hand, tends toward unproven assets, huge but unlikely payoffs, and short holding periods.

Speculation in Moderation

You can probably see where I’m heading with this, but before I sound like too much of a killjoy, let me make clear that as humans we are hard-wired to speculate to some degree or another.

And that’s a great thing.

Without speculation we’d have no explorers, inventors, entrepreneurs, or venture capitalists. Plus, just as I learned way back in fifth grade, speculation is a lot of fun even when you don’t end up winning a candy bar.

The key is to make sure that your speculative efforts don’t expose you to catastrophic levels of risk. Speculate only in amounts that you can afford to lose completely without jeopardizing your financial health and of the loved ones that are dependent on you.

This amount will be different for different people.

A very wealthy, young single person might be able to speculate with 99% of their total assets. A low-income parent of six children, on the other hand, may be scarcely able to risk even 1% of their funds.

Keep in mind, too, that anyone who buys and sells shares of stock, no matter how conservatively, is a speculator to some degree. Why? Because there are no certainties in the stock market. No one can predict with certainty which direction stock market prices will go one day from now, let alone five years from now. There are simply no guarantees.

Benjamin Graham’s Tips for Containing Speculative Tendencies

So, with that said, how can you invest intelligently in African markets and keep undue speculation within reasonable limits?

Here are a few hints from Benjamin Graham:

Graham's Tips for Not Losing Your Shirt

Photo by Domiriel

1) Don’t purchase shares with money that you can’t afford to lose

Graham says stock investors must “be prepared financially and psychologically for adverse results.”

Do you have any debt (apart from a home mortgage)? If so, pay it off. Do you have an emergency fund at the bank that is large enough to cover six months worth of living expenses? If not, start building one. Don’t invest until you’re debt-free and have a cash cushion.

2) Understand what you are buying and selling

Graham observed that many people thought they were investing when, in fact, they were speculating.

That’s often because they purchase shares of a company before they thoroughly understand the underlying business and what factors influence its success. Without such an understanding it’s extremely difficult to determine how much to pay for its shares.

So, don’t pick your stocks blindly like I did in Mr. Decker’s class. Take some time to get a sense of what each business does, how it makes money, and who it competes with.

3) Trade infrequently

Graham advises against “short-term selectivity,” the practice of quickly buying or selling a stock whenever one believes good or bad news is coming. He didn’t believe investors could reliably predict this news, let alone how the market would react to it.

He believed that buying undervalued stocks and patiently holding them until the market recognized their worth as a better strategy.

In African markets, I think there’s an even more compelling reason to invest for the long-term — the brokerage commission structure. To my knowledge all African stockbrokers charge commission based on a percentage of trade value (often 2%) instead of a flat fee. This builds into a huge headwind for short-term traders over time.

Assume Obi bought N100,000 worth of shares of a Nigerian company. He would be charged commission of roughly N2,000 to do so (N100,000 x .02 = N2,000). He holds the shares for one month and during that time they increase in value by 4%. He’s very pleased, because that’s a great one-month return! So, he decides to sell his shares for N104,000 and reinvest in another hot stock. Then he looks at his trade notice and see that brokerage commission on the sale was N2,080 (N100,000 x .02 = N2,080). So, instead of earning N4,000, he actually ended the month N80 poorer.

His broker, meanwhile, is now N4,080 richer.

4) Beware of IPOs

Graham says “the warning cannot be given too often – that the investor cannot hope for better than average results by buying new offerings (IPOs).”

Why is this the case? Because company managers want the absolute highest price they can get when they offer shares for sale. This means that you generally only see IPOs when everyone is excited about the stock market and share prices are in overvalued territory. When markets are in the doldrums, IPOs are as rare as a hen’s teeth.

Remember how long it took for Safaricom shares to rally above its IPO price? That’s partially because investors were “irrationally exuberant” at the time. Valuations were sky-high, and the issuers exploited it.

5) Don’t buy shares with money that doesn’t belong to you

While we’re on the topic of IPOs, let’s briefly touch on the subject of buying shares with borrowed money.

Graham strongly advised against investing on margin – money that a broker lends to its customers for the purpose of buying stock. To my knowledge, no African brokers are currently permitted to engage in this activity.

But when a big IPO appears on the horizon, African banks frequently offer their customers loans for the purpose of participating in the IPO. This often doesn’t work out very well for the investor. Why? Because, in order for the investor to make a profit, the new stock must not only increase in value, it must increase higher than the amount of interest that has accrued on the loan.

6) Buy shares of consistently profitable companies with low debt

Graham was a proponent of investing in high quality businesses, companies “with a long record of profitability and strong financial position.” In other words, companies that make money year after year and don’t depend on much borrowed money to do so. Such companies will be more resilient if the economic environment turns sour.

How can you identify such companies? Your broker should be able to help, but if you’d like to do the research yourself, the financial results library should help.

7) Diversify

Graham advocated for splitting your investment portfolio between stocks and bonds in order to reduce risk.

The exact allocation he proposed depended a bit on market conditions and an investors risk tolerance. Generally, however, young, risk-tolerant investors, in depressed markets can prudently allocate up to 75% of their investment portfolio to stocks, while their older, less risk tolerant counterparts would be better-served allocating a majority of their portfolio to bonds.

8) Entrust money to a proven manager

Graham recognized that many people don’t have the time, expertise, or inclination to manage their own investment portfolios.

In such circumstances, investors should consider entrusting their assets to a “well-established investment fund” with a proven long-term track record. Such funds charge a management fee on funds invested with them, but can be well-worth the price for the skill and diversification benefit they offer.

South Africa’s Coronation Fund Managers, Ghana’s Databank, Old Mutual Kenya, and numerous other asset managers across the continent fit the bill. And, of course, my colleagues and I at Africa Capital Group would be happy to help you, too.

9) Dollar-cost average

Another of Graham’s favorite strategies for reducing risk was “dollar-cost averaging.” It sounds fancy, but it’s simply the practice of investing a fixed amount of money at regular intervals.

For example, an investor could either invest 40,000 shillings in one lump sum, or divide it into four monthly installments of 10,000 shillings each. By investing in a lump sum, you are locking your risk into one purchase price – a price that may or may not be a fair one.

Investing in installments minimizes risk because the 10,000 shilling installment will buy fewer shares when the price is high and more shares if the price drops.

Safety First

So, there you have it. Nine ways to help ensure that investing in stocks doesn’t crack your nest egg.

Remember, if you invest in shares of stock for any length of time, you will inevitably make some bad calls along the way. That’s okay. The key is to have safeguards in place to limit your loss.

Your Turn

How do you make sure you’re investing and not speculating? Tell us your risk-reduction strategies in the comments!

Related Reading

Stash Cash Before Investing in Shares
A Simple System to Stalk Super African Stocks
What Is a Stock Really? The Story of Boniface
Do I Need a Big Paycheck to Invest in African Stocks?

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So Long, BRICs! Make Way for the KINGs Sat, 15 Feb 2014 14:10:43 +0000

You’ve no doubt heard of the BRICS countries, the emerging market quintet comprised of Brazil, Russia, India, China, and South Africa.

You may also have been introduced to the MINTs, a grouping of fast-growing economic heavyweights that includes Mexico, Indonesia, Nigeria, and Turkey.

Now, in an excellent post published on Seeking Alpha, Belgrad Kenne, Founder and Director of equity research firm, Phase One Associates, has coined a new acronym that captures the dynamism of Sub-Saharan Africa’s frontier economies – the KINGs (Kenya, Ivory Coast, Nigeria, and Ghana).

The Seeking Alpha article lays out the rationale behind the grouping, but I asked Belgrad to give us a bit more insight into the KINGs’ stock market performance over the past five years. He graciously agreed and also shared his thoughts as to why he believes these markets make for a compelling investment opportunity.

His analysis follows.


Belgrad Kenne

Belgrad Kenne

The KINGs’ Ascendancy

Whether referring to MSCI country indices or local stock market indices, the KINGs posted a 39% USD-adjusted, price return in 2013. That is above all other MSCI leading indices and the S&P 500.

We note however that this performance has been volatile. Such volatility is not significantly different from that observed in most emerging markets. Therefore, dedicated emerging and frontier market specialists are expected to build-in and manage this downside risk.

Looking at local stock market indices, risk-adjusted performance suffers from the massive flight to safety that occurred in 2008 and 2009 during the financial crisis. In Kenya, losses were magnified as the period coincided with the 2008 post-election violence. These unprecedented outflows resulted in unprecedented losses after a bullish year in 2007 that attracted many opportunistic, foreign, non-frontier investors.

Strong Market Performance, Despite Volatility

Returns of Local Stock Indices in USD (2009 – 2013)


Ivory Coast



5y. Cumulative





5y. Mean





5y. STD





5y. Sharpe





Source: local stock exchanges, Phase One Associates

The market crash observed in various KING countries during this period reminds us that these markets are vulnerable to external shocks partly because a considerable number of investors are foreign-based. As an example, foreign investors are estimated at 51% in Nigeria.

Therefore, despite the value and growth opportunities they represent, frontier markets including the African KINGs are reactive to market sentiment and externalities. This is particularly true in today’s context with ongoing speculation around the Fed’s policy shift in its quantitative easing program that will trigger outflows and/or slow inflows mainly from opportunistic, non-frontier investors.

4 Reasons to Be Bullish on the KINGs
Photo by Jason Train

Photo by Jason Train

Here’s why we’re bullish on each constituent of the KINGs.

  • Kenya

Kenya will continue to be attractive in the near and medium terms, as the successful elections held last year have paved a way to an enabling socio-political environment that supports its dynamic economy, which has been boosted by the recent oil discoveries.

  • Ivory Coast

The case for Ivory Coast featuring in the KINGs is not just a formality, but is appealing for several reasons. The country is not only UEMOA’s hub but also its newly found growth engine since the end of post-election violence in 2011. Economic activity has resumed, driven by key sectors such as: agriculture, consumer-related sectors and public spending on infrastructure. From 2012 to date the BRVM has gained over 66% of which 7% at the beginning of this year! Government gross debt has gone from nearly 95% in 2011 to an estimated 39% this year.

  • Nigeria

Following Qatar and the UAE graduation into Emerging Market status this year, Nigeria will soon become the second biggest weight in the MSCI Frontier Market index behind Kuwait. This not only highlights its potential, but also positions the country to Emerging Market status in the medium term; a move that will increase visibility and liquidity as more capital flows in. This is an appeal to gain first mover’s advantage.

Ongoing reforms in the power sector coupled with infrastructure improvement will yield multiplier effects on the economy by reducing costs, improving margins, bringing in efficiencies. Overall, this will accelerate growth and open new opportunities for businesses and investors. Similar multiplier benefits are expected from the oil and gas bill. The country plays a leading role in the regional common market, ECOWAS, and many businesses are expected to further benefit from this growing trend of cross-border expansion.

  • Ghana

Ghana is known for its democratic institutions and conducive business environment. Despite macro economic challenges in the near term, the country remains an attractive destination despite short-term macro economic concerns over widening deficits and double-digit inflation.

How to Ride the KINGs Coattails

Which of the KINGs industrial sectors offer the most upside?

We like the four Cs:

  • Consumer-related sectors (FMCG, retail, banking, and breweries)
  • Communications (telecom and IT)
  • Construction (including cement companies)
  • Commodities

Overall, these sectors’ key drivers leverage on strong commodities prices and a growing trend of consumerism supported by a rising middle class and rapid urbanization. These dynamics coupled with better politics and policies and improved corporate governance all contribute to strong corporate earnings, and, thus, attractive investment targets.

Here’s how their valuations stack up against their global counterparts.

Industry P/E Ratios vs. Global Averages
























Source: Reuters, Phase One Associates, October 2013

And, specifically, which blue-chip stocks play in these sectors?

A quick survey of the top performing Sub Sahara Africa-focused mutual funds revealed that most of them hold different percentage allocations of similar stocks in selected industries within the African KINGs. The usual suspects are summarized in the table below.


Ivory Coast




Equity, KCB


























Mining, Oil &Gas






We refer to these popularly-held stocks as the KINGs Index.

The KINGs Index is diverse across countries and sectors. Note, however, that it is biased toward large, liquid companies.

The ability to mix these blue chips with smaller value and growth stocks is the key differentiating parameter between high and poor performing frontier Africa portfolios.

Value is often found at the bottom of African market listings, with “neglected”, illiquid stocks outperforming large caps. In Nigeria, small cap stocks grew by 56%, followed by mid-cap 53%, whereas large cap stocks grew by 31% in 2013, according to the Nigerian Stock Exchange.

For those investors challenged by regulatory requirements that restrict their abilities to invest directly into KING markets, or for those who are uncomfortable with share illiquidity, here is a summary of leading South and Pan-African companies operating in the continent’s frontier.


















Illovo Sugar

Source: compiled by Phase One Associates
* Now Barclays Africa

Despite having a significant geographic presence across the continent, most of these companies with the exception of the MTN Group still generate the majority of their revenue in South Africa. As an example, Shoprite is present in over 16 Sub Saharan African countries yet it generates only 12% of its top line outside South Africa, according to its 2012 financial report.

This so-called “marginal contribution per country” is fast growing, yet still low to justify full exposure to Frontier Africa.

Long Live the Kings

In sum, we believe that Kenya, Ivory Coast, Nigeria and Ghana presented as the African KINGs best represent Frontier Africa’s investment opportunities.

And companies that operate in the four “C” sectors: consumer goods and services, construction, communication, and commodities look particularly well-positioned.

We welcome your thoughts on Africa’s sweet spots and sweet stocks in 2014. Let’s hear them in the comments!

Belgrad Kenne is the Founder and Director of Phase One Associates, a research firm specializing in African Frontier Equity Markets.

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How to Invest on the Malawi Stock Exchange Tue, 11 Feb 2014 19:28:59 +0000

A number of readers have been wondering about how to open a brokerage account on the Malawi Stock Exchange.

I can understand why. The little market in Blantyre posted the best return of any sub-Saharan stock exchange in 2013. Its All Share Index is up 75.2% over the past 12 months in US dollar terms.

Performance like that would make even the most jaded of investors take notice.

So, what do you need to do to put money to work in the warm heart of Africa?

Here’s how to get started.

How to Open a Malawian Brokerage Account

Four brokers are licensed to trade on the Malawi Stock Exchange. You can find contact details for each of them here.

I emailed all of them, asking if they accepted foreign investors, how much they required to open an account, and what documentation was necessary in order to do so.

The only response I received came from African Alliance Malawi.

You’ll note that the stock exchange website doesn’t include an email address for them, so try sending your account opening query to this one: Make sure to specify that you’re interested in opening a Malawian trading account.

African Alliance does, in fact, accept foreign investors and doesn’t require a minimum amount before opening an account. But they do require some documentation.

As an investor, here’s what you will need to provide them:

1) A certified copy of your passport or driver’s license
2) Proof of your residential address – e.g. a recent utility bill
3) A recent bank statement for the account that will be your source of funds
4) And a completed African Alliance account opening form.

Fund Your Account

After opening your trading account, your broker will provide you with its bank details so that you can send funds. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Photo by Ismail Mia

Photo by Ismail Mia

Trading Costs and Taxes

Before you begin buying and selling Malawian stocks, be sure you understand the trading costs involved.

Malawian brokers charge commission on a sliding scale based on the value of the transaction. For amounts greater than MWK100,000 (approximately $250), however, the commission amounts to 1% of the total value traded.

There is also a government surcharge of 17.5% on the amount of this brokerage commission. And a flat exchange fee of MWK50.00 per transaction.

So, for a transaction of MWK1,000,000 (approximately $2500) expect to pay roughly MWK11,800 worth of commission and fees (about $30.00).

There are also some taxes to take note of, too. Malawi levies a 10% withholding tax on dividends paid to non-residents and capital gains are taxed at a rate of 30% unless the stock has been held for more than seven years.

Submitting a Trade Order

Now it’s time to do some research into the various companies listed on the exchange to figure out where the best opportunities lie. Your broker can likely provide some guidance here, but if you’re more of an independent sort and want to conduct your own research, the financial statement library should give you a few numbers to crunch.

After identifying your hot stock pick, it’s time to tell your broker to buy it for you.

All that needs be done is to submit a written trade instruction. Some brokers may have a special trade mandate form to complete, but, for others, a simple email may suffice.

Keep in mind that many shares listed on the Malawi Stock Exchange are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.

Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees. Settlement of share trades takes up to five business days after the trade date in Malawi, so if you’ve sold shares, don’t expect to receive the proceeds of a sale before then unless you’re willing to incur a penalty to settle the trade more quickly.

Mission Accomplished

Follow these steps and you’re all set to begin investing in Malawian stocks. That wasn’t too bad, was it?

The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.

Related Reading

How to Invest on the Dar es Salaam Stock Exchange
How to Invest on the Lusaka Stock Exchange
How to Invest on the Zimbabwe Stock Exchange

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African Governance Scores: Who’s Up, Who’s Down (and Why Investors Should Care) Thu, 30 Jan 2014 13:58:47 +0000
This post is sponsored by Veventis – Risk Solutions for Emerging and Frontier Markets.

Key to Africa’s growing popularity among both portfolio and direct investors is its improving governance.

According to the Mo Ibrahim Foundation, 94% of the continent’s people live in countries that have improved their overall governance since the year 2000.

But as recent events in the Central African Republic and South Sudan amply demonstrate, the progress is as uneven as Lesotho’s Maloti Mountains.

Nina Hall of UK-based risk manager, Veventis, explains how weak governance impacts foreign investment.

Poor or deteriorating governance can create a myriad of problems for Africa investors.

Weak public procurement policies, for instance, are more likely to to cause confusion, and create reputational and political risks for investors especially if there is a change of government.

Moreover, generally low standards of governance can put an investor at risk of a sudden increase in taxable profits or threaten the viability of a long-term project. Lack of transparency in administrative processes is a source of concern when trying to obtain licenses and so on.

Financial investors are particularly susceptible to the consequences of deteriorating governance if it begins to undermine the rule of law and the legal process affecting rights over assets or profits. International banks doing business in Africa face this kind of problem fairly regularly and, in turn, this can push up borrowing costs.

To mitigate hazards, many foreign investors opt for political risk insurance or hedge their bets with small investments relative to their overall size.

Good Governance = Good Returns

Improving governance, on the other hand, amplifies the performance of good businesses.

Consider this. Of the ten African stock markets for which I have performance data, the five with the highest governance scores averaged a total dollar return of 76.1% over the past five years, while those with the lowest averaged just 40.2%.

Positive changes in governance also appear to predict good share performance. In 2012, markets based in countries with the most improved governance scores between 2006 and 2011 outperformed those with less improved governance 35.9% to 22.2%.

So, which countries, should investors with an eye for good governance be considering? And which ones should they be avoiding?

Risky Business

We’ll start with the bad news. Here are five countries that according to the 2013 Ibrahim Index of African Governance have seen their governance deteriorate the most over the past five years.

Madagascar (IIAG score: -12.8)

Life in Madagascar got a whole lot tougher in 2009 when a military coup put Andry Rajoelina in power. The country became an international pariah and foreign donors withdrew their support. In the resulting economic collapse, violent crime soared. Fortunately, the country could be poised for a turnaround following the inauguration of a democratically-elected president in January.

Who’s doing business in Madagascar? Shoprite operates eight Malagasy stores, and the two big Mauritian banks, Mauritius Commercial Bank and State Bank of Mauritius are also active there.

Photo by Choofly

Photo by Choofly

Guinea-Bissau (IIAG score: -6.0)

Military coups and presidential assassinations don’t make for a hospitable environment to do business, and this small West African nation has experienced both within the past five years. It also became a notorious transit point for drug trafficking between South America and Europe. Needless to say, the rule of law has become but a vague concept, but elections are scheduled for March this year.

Who’s doing business here? MTN and Sonatel control the wireless market and infrastructure firm, IHS, is mulling a purchase of Sonatel’s mobile towers.

Eritrea (IIAG score: -5.2)

This isolationist East African nation is one of the continent’s poorest. Eritreans have suffered severely during the 20-year reign of Isaias Afewerki, whose regime is accused of widespread torture and other human rights abuses. Desperate for a better life, thousands of Eritreans attempt dangerous sea voyages to flee the country each year.

Who’s doing business here? SABMiller is reportedly mulling an investment in the local beverage sector and Qatar and Yemeni Airways are considering regular flights to the capital, Asmara.

Mauritania (IIAG score: -5.2)

Following a bloodless coup in 2008, measures of safety and the rule of law dropped sharply in this arid West African nation. The coup’s leader, a general in the military, has since won an election and some key foreign supporters, including the United States. This and neighboring Mali’s return to stability suggest the nation’s governance could rebound in the years ahead.

Who’s doing business here? Tullow’s looking for oil, Maroc Telecom controls some of the mobile market, and First Quantum Minerals is digging up copper.

Mali (IIAG score: -3.1)

An insurrection, a coup, and fighting between rebel groups plunged Mali into turmoil in 2012, stalling years of steady economic progress and development gains. While the conflict in the north still simmers, the government has, with the help of the French military, recaptured most of its lost territory and a newly elected president now leads the country.

Who’s doing business here? Sonatel operates here. So does Bank of Africa and South Africa’s Illovo Sugar.

The Up and Comers

So, we’ve heard the bad news, let’s move to the other end of the spectrum. Here are the five African countries who’ve made the biggest strides since 2007, and potentially offer investors the biggest opportunities.

Liberia (IIAG score: +10.6)

The prize for most improved governance since 2007 goes to Liberia. Since her election in late 2005, Nobel Peace Prize-winning President Ellen Johnson-Sirleaf has quickly transformed the West African nation’s reputation from one of devastating civil war to one of rebirth. International lenders canceled the country’s debt, investment in vital energy and water infrastructure increased, and the government’s spending on healthcare more than doubled.

Who’s doing business here? Mobile operator MTN and the London-listed Equatorial Palm Oil. And Nigeria-based Dangote Cement is considering building a plant in the country by 2015.

Angola (IIAG score: +8.9)

It would be tough to argue that Angola isn’t a kleptocracy run by President Jose Eduardo dos Santos and his family, but there’s no denying that governance has improved since the end of the oil-producing nation’s 27-year civil war in 2002. Elections in 2008 and 2012 have laid the foundation for a democratic tradition in the country, and oil wealth is being plowed into much-needed infrastructure development. Big investments in healthcare have increased life expectancy dramatically – from 47 years in 2010 to 52 years in 2012.

Who does business here? South African retail giant, Shoprite, operates 28 stores in Angola and JSE-listed Consolidated Infrastructure Group owns an environmental services firm there.

Togo (IIAG score: +6.5)

Run with a firm grip by the Gnassingbe family, Togo nonetheless ranks among Africa’s biggest recent reformers. The abolition of the death penalty and a power-sharing deal with opposition leader Gilchrist Olympio in 2010 helped burnish the country’s image. The initiation of free primary education and steady advances in the reduction of poverty have also helped.

Who does business here? Togo’s most famous corporate citizen is Ecobank Transnational, the pan-African bank trades on the Ghanaian and Nigerian stock exchanges as well as on the BRVM. Morocco’s Attijariwafa Bank also does business in the country.

Niger (IIAG score: +5.2)

Five years ago, Niger was roiled by a violent rebellion in the north. Former president Mamadou Tandja attempted to capitalize on the unrest by changing the constitution to allow him a third term in office. The military intervened, ousting him from power and returning the country to civilian rule in January 2011. The election, a peace deal with the rebels, and the initiation of oil production brightened the country’s outlook immensely. Health, education, and public administration have all improved greatly, albeit from a very low base.

Who does business here? Check out Bank of Africa’s Nigerien subsidiary, which is listed on the BRVM. France Telecom is also active in the country through its mobile group, Orange.

Cote d’Ivoire (IIAG score: +4.9)

No doubt. Cote d’Ivoire has a very long road ahead to fully recover from its two recent civil wars. Crime rates are high, infrastructure is in sorry shape, and rural areas have been severely neglected. But the improving political stability has given business owners the confidence to invest in growth and there continue to be steady gains in education and health.

Looking for companies with exposure to this reviving West African giant? Then the Abidjan-based Bourse Régionale des Valeurs Mobilières (BRVM) is just the exchange for you. Most stocks listed here are Ivorian with a few from Togo, Niger, and Mali, too.

Other Rapid Improvers

You’ve likely noticed that of the five countries with the most improved governance scores, only Cote d’Ivoire is home to a stock exchange.

So where else can stock investors look to capitalize on this trend?

Here are four more countries that have progressed significantly in the past five years and each of them boasts a local stock exchange.

  • Rwanda (IIAG score: +4.2)
  • Mauritius (IIAG score: +3.9)
  • Zimbabwe (IIAG score: +3.8)
  • Zambia (IIAG score: +3.5)
Your Turn

Where do you see governance improving in Africa? Is progress being overblown or overlooked? Let us know your thoughts in the comments.

Related Reading

Veventis Blog
Africa’s Most Transparent Countries (and Why Investors Should Care)

Cautious Optimism: Political Risk Insurance in Africa

[Disclosure: Ryan has a beneficial interest in shares of Shoprite and Consolidated Infrastructure Group through his work at Africa Capital Group.]

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Will Kenyan Bank Stocks Sizzle or Fizzle in 2014? Fri, 17 Jan 2014 04:48:36 +0000

Bank stocks made Nairobi Stock Exchange investors much richer in 2013.

A stable political environment, regional growth, good profits, and a relatively steady interest rate environment kept the bulls running.

All bank shares ended up in positive territory, most outpaced the NSE’s All Share Index, and a couple even doubled in market value. What’s more, they paid out some of the most generous dividends on the exchange.

Here’s a closer look at how each bank stock performed during the year.

Bank2013 Share Performance (Local Currency)2013 Share Performance (Dollar Adjusted)
Housing Finance Company (HOUS)108.2%107.4%
CFC Stanbic (CFCO)103.4%102.6%
National Bank of Kenya (NABK)90.6%89.8%
Diamond Trust Bank (DTKL)72.5%71.8%
Kenya Commercial Bank (KCBK)48.4%47.8%
NIC Bank (NINC)46.3%45.7%
Co-operative Bank of Kenya (COOP)44.5%43.9%
Equity Bank (EQTY)35.1%34.6%
Standard Chartered Bank of Kenya (SCBK)28.7%28.2%
Barclays Bank of Kenya (BARC)10.1%9.7%

But all of that’s in the rear view mirror. What we really want to know is whether these stocks are worth banking on this year. Will their shares pop or drop? Sizzle or fizzle? Jump or slump? Rise or… Well, you get the idea.

To help answer that question, I asked for some help from three local experts — one bold bull, one cautious bull, and one bear.

Here are each of their arguments in turn:

The Bull Case

Photo by Bernard DuPont

Alistair Gould, Head of Trading at Old Mutual Securities (Kenya)

I’d say that the majority of bank shares aren’t overvalued as we are anticipating strong performance for the 2013 fiscal year, which, coupled with decent dividend payouts, will continue to keep our banks attractive and push the stocks to higher levels.

Moreover, the performance of the banking sector going forward will be driven by increased economic activity from the mining, oil & gas, and construction sectors. We also foresee more uptake of private sector credit in the new year which still leaves room for banks to grow further in 2014.

However, with competition increasing within the Kenyan banking sector, we believe that the performance of each individual bank will be driven by innovation, product development and well-planned geographical expansion. There are still some good picks that investors should try to get in on early in the year. In particular, we like Coop Bank, National Bank, and Equity Bank.

The Wary Bull Case
Photo by Carol von Canon

Photo by Carol von Canon

Isaac Njuguna, Head of Investment at Zimele Asset Management

Listed banks are currently trading at a trailing p/e ratio of 10 times against the average market trailing p/e ratio of 15 times. This suggests they’re undervalued in spite of their recent gains, especially if they report sustained performance in profits in 2013.

However, despite favorable economic growth projections in 2014, one of the sector’s main challenges is the threat of regulation of interest rate spreads.  Various government task forces are investigating why spreads in Kenya are high in relation to banks elsewhere. Regulation of spreads could limit banks’ earnings growth to single digits, and if it were to become reality, one could say banks are over-priced.

If controls on interest spreads don’t materialize, I’m bullish on KCB, Equity, and Co-op Bank.

The Bear Case

Photo by Chris Sgaraglino

Vimal Parmar, CFA, Head of Research at Burbidge Capital

With the banking sector trading at a weighted average price/book ratio of about 2.8, roughly 30% of bank stocks are quite overvalued, especially the leading retail banks. Just two of the listed banking stocks trade less than their intrinsic value — CFC Stanbic and National Bank (assuming its recent restructuring yields results).

Going forward, growth in the sector may not be high enough to justify the higher valuations owing to increasing competition not only within the sector but also from the telecoms sector, which has rolled out innovative mobile banking services like M-Shwari.

However, from a technical perspective, investor demand may keep the stock prices in range (if not increase) because they don’t see better alternatives elsewhere.

My Take

When trying to unearth value in banks, I like stocks with low price/book ratios and high returns on equity (ROE).

As you can see in the chart below, such bank stocks are scarce as hen’s teeth in today’s market.

P/B vs. ROE for Kenyan Bank Stocks

P/B vs. ROE for Kenyan Bank Stocks

While the sweet spot in the upper left hand corner of the chart is empty, there’s a bunch of outliers  in the upper right hand corner. These are very profitable banks, but their price is steep. Look for them to underperform the sector as a whole in 2014. Co-operative Bank, NIC, and Housing Finance look like better values.

In sum, I expect most Kenyan banks to finish 2014 higher than where they started, but I don’t expect the sizzling performances of 2013.

Your Turn

What do you expect from the Nairobi Stock Exchange’s bank stocks this year? Do you fall in with bull, wary bull, or bear case? Or another case entirely? Let’s hear it in the comments!

Related Reading

How to Invest on the Nairobi Stock Exchange
What’s in Store for the Nairobi Stock Exchange in 2014?
Ranking Kenya’s Best Bank Stocks

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Nigeria’s 10 Best Stocks of 2013 Fri, 10 Jan 2014 13:43:50 +0000

It was a remarkable year for the Nigerian Stock Exchange.

The All Share Index surged 44.6% in US dollar terms thanks to impressive profit growth and a raft of market reforms.

Let’s take a closer look at the year’s best performers.

10. MRS Oil

+106.7% (Local Currency: +117.7%)

If recent results from this service station operator are any indication, the pace of Nigerian life accelerated dramatically in 2013. Its third quarter earnings statement shows sales of petrol increased 36% over the prior year.

MRS, which owns 416 filling stations, was forced to slash its dividend in 2012 due to thinning margins and a big foreign exchange loss. But now, with sales up and costs in check, investors are banking on a much larger 2013 payout.

9. Wema Bank

+115.2% (Local Currency: +120.4%)

This smallish regional bank gave investors two big things to cheer about in 2013.

First, it returned to profitability by cleaning up its lending book, driving the non-performing loan ratio down to just 3% from a level of 14% one year earlier.

Second, it raised $250 million in additional capital, making it eligible to obtain a national banking license. The company now intends to expand nationwide from its base in the west of the country.

8. Union Dicon Salt
Nigerian Stock Exchange

Photo by S. Remeika

+125.4% (Local Currency: +130.9%)

A resurrection story.

Until last year, this salt-maker’s shares were so dormant that the Nigerian Stock Exchange was on the verge of having them de-listed.

And share illiquidity was far from its biggest problem. In their review of the company’s 2011 financial statement, auditors noted that the company reported a big earnings loss and that its current liabilities exceeded current assets by roughly $6 million. They questioned whether Union Dicon was viable as a going concern. The company has not turned a profit in many years.

Fast forward to November 2013 and enter CBO Capital. The Nigerian investment firm injected capital sufficient to give it a controlling stake in the business, valuing the company at N14.00 per share. It’s now up to shareholders to decide whether to get while getting is good, or to stick around for the turnaround attempt.

7. Conoil

+127.0% (Local Currency: +132.5%)

Nigeria’s oldest and largest domestic filling station operator, Conoil also distributes aviation fuel, asphalt, and propane.

After reporting a drop in earnings in 2012, management slashed admin and finance charges to report 329% earnings growth through the first three quarters of 2013.

Where will growth come from next? Billionaire CEO Mike Adenuga says the company will roll out more filling stations and try to capture market share in the unregulated, high-margin engine lubricants industry.

6. Fidson Healthcare

+136.7% (Local Currency: +142.5%)

Fidson makes more than 200 pharmaceuticals and consumer goods, from antacids to chemotherapy drugs. It’s one of five Nigerian drug companies approved by the World Health Organization to distribute drugs for the treatment of HIV, malaria, and tuberculosis.

In spite of intense competition from counterfeits and legitimate imports from China and India, Fidson managed to increase earnings 272% in 2012 and by 61% through the first nine months of 2013.

The completion of a new, state-of-the-art factory in 2013 and the rollout of a new dietary supplement should lead to healthy sales and margin growth over the near term.

5. Livestock Feeds

+185.5% (Local Currency: +192.4%)

Nothing real glamorous about this business. It does what it says it does, manufactures and distributes feed for cows, pigs, turkeys, chickens, ducks, rabbits. You name the critter, chances are Livestock Feeds makes some sort of mash for them.

The company’s earnings were actually down 7% through the first three quarters of the year. But the shares popped when Nigerian conglomerate UACN acquired a controlling stake of the company in April. The move gave UACN a 32% share of the country’s animal feed market.

4. Champion Breweries

+278.0% (Local Currency: +287.2%)

Champion Breweries’ financial statements aren’t pretty. There’s red ink all over the place.

Not only did the company report a loss both in 2012 and through the first three quarters of this year, its balance sheet shows the companies liabilities exceed its assets.

Not exactly the stuff that superstar stocks are made of.

Nevertheless, the company appears on this list of top gainers because Heineken acquired a majority stake in the brewer in June. Thus, the brewer is in for a major restructuring, and shareholders seem to have decided that the glass looks half full.

3. Transnational Corporation of Nigeria

+288.9% (Local Currency: +298.4%)

Transcorp has put together quite the run. Its share price not only quadrupled in 2013, but it nearly doubled in 2012.

So, what’s behind the conglomerate’s stellar share performance?

Solid sales and earnings growth helped, but the announcement that it would acquire a power plant from the federal government is what really propelled the price gain.

The Ughelli Power Plant has a generating capacity of 1000MW, which is enough to power one million American homes. But due to disrepair, it currently produces just a third of that amount. Transcorp plans to rectify this and expand total capacity by 50%. CEO Tony Elumelu believes the investment will help the company triple its profit next year.

2. Evans Medical

+374.0% (Local Currency: +385.5%)

Another one of Nigeria’s largest pharmaceuticals manufacturers, Evans Medical makes everything from calamine lotion to HIV anti retrovirals. It also operates a chain of 30 pharmacies.

The company doubled earnings per share in 2012, but, as far as I can tell, has not updated the market on its financial performance since then.

Shareholders, did however, approve a NGN3.5 billion ($22 million) rights offering in August. The proceeds would finance working capital requirements.

In spite of the stock’s huge run-up, the shares still appear reasonably priced. The company is cash flow positive and the shares trade for less than 10x 2012′s earnings.

1. Forte Oil

+959.3% (Local Currency: +985.1%)

Nigeria’s best performer by a long shot, Forte Oil owns a network of filling stations in Nigeria and Ghana. It’s a fast-growing, high-octane business. In the first three quarters of 2013 earnings spiked 316% on a 29% sales increase. Billionaire CEO Femi Otedola plans to expand the business to Liberia and Sierra Leone within the next three years.

But this isn’t the main reason that shareholders scored a ten-bagger with the stock this year.

Like Transcorp, the company recently acquired a 414MW power plant from the Nigerian government, a move that makes the company one of the few ways to invest directly in the country’s power sector. Management believes revenue from electricity sales will see Forte triple its profits in 2014.

To top things off, the company is also bidding for some of Shell’s offshore oilfields and is considering the construction of a much-needed oil refinery.

Your Turn

Which Nigerian stocks will make investors wealthy in 2014? Share your top picks with us in the comments!

Related Reading

How to Invest on the Nigerian Stock Exchange
Kenya’s 5 Best Stocks of 2013
The BRVM’s 5 Best Stocks of 2013

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Kenya’s Five Best Stocks of 2013 Wed, 08 Jan 2014 06:08:01 +0000

In a year that saw Kenyans hold their collective breath through a tense presidential election and then be faced with a horrific terror attack, investors worldwide made their bullishness on the nation’s future clear.

The Nairobi Securities Exchange’s All Share Index soared 43.7% in US dollar terms, ranking it among the world’s very best.

While big names like Safaricom and ARM Cement recorded terrific performances in 2013, the year’s most explosive price gains came from insurance firms and investment holdings companies.

Let’s count ‘em down, shall we?

The Nairobi Stock Exchange’s 5 Top Stocks of 2013

5. Liberty Kenya 114.1% (Local Currency: 115.0%)

In the lead-up to Kenya’s March presidential election, local insurance companies like Liberty Kenya (formerly known as CfC Insurance) welcomed a raft of new customers concerned about the potential for loss of property to political violence.

Thankfully, the election and its aftermath were largely peaceful, leaving Liberty Kenya with what will likely be a big underwriting profit for 2013.

The company, which operates a Tanzanian subsidiary and is majority owned by South Africa’s Liberty Holdings, should also report lots of investment income for 2013 thanks to the fantastic price gains from local stocks during the year.

Liberty specializes in General Insurance, and controls roughly 7% of the Kenyan market. Look for this to expand in coming years as it continues to capitalize on its parent’s expertise to improve sales and margins.

4. Pan Africa Insurance 128.4% (Local Currency: 129.3%)

Pan Africa Insurance started 2013 with a bang, raising its dividend by 50%. The move sent shares of the life insurer soaring. But even better news was on the way.

In August, the company announced that its earnings had nearly quadrupled during the first half of the year thanks to reduced costs and a big investment gain.

And there’s lots of headroom to grow. Kenya’s life insurance penetration rate is just a shade above 1%.

To more aggressively tap this market, the company recently announced a partnership with local cellular provider, Airtel, which allows them to sell life insurance via mobile phones for as little as 15 Kenyan shillings ($0.17) per week.

Pan Africa also plans to develop marketing partnerships with local banks, effectively transforming bank tellers into insurance salespeople.

3. British American Investments 140.3% (Local Currency: 141.3%)

Britam, Kenya’s largest insurance company, garnered a 23% increase in earnings per share during the first half of 2013 in spite of lots more expenditure (25%) on technology and personnel.

Then, in November, it announced that it would acquire Real Insurance, a mid-sized firm. The move is strategically important because Real operates in Tanzania, Malawi, and Mozambique. All are new markets for Britam, whose operations had previously been limited to Kenya, South Sudan, Uganda, and Rwanda.

The market decided it liked both news items very much. In the last quarter of the year, the share price climbed over 90%.

What’s next for Britam?

It recently teamed with Equity Bank (CEO James Mwangi sits on Britam’s board) to launch a medical insurance product, and the company is investing more of its float in Kenya’s hot real estate sector, purchasing a large stake in local property development company, Acorn Group.

2. Centum Investment Company 178.9% (Local Currency: 180.0%)

Photo by Erik Hersman

Photo by Erik Hersman

Centum delighted investors all year long, with its share price climbing steadily to a 180% local currency return.

The performance should probably come as no surprise after taking a look at its investment portfolio. Centum owns two big real estate projects (Two Rivers and Pearl Marina) which revalued upwards after meeting important milestones in 2013. And its private equity stakes doubtless benefited from the NSE’s big rise.

The purchase of a local asset manager (Genesis) and the takeover bid for land-rich REA Vipingo also generated some excitement.

But now, the company trades at a substantial premium to its net asset value, which suggests a repeat appearance in next year’s top performers list may be a stretch.

1. Carbacid Investments 289.3% (Local Currency: 290.9%)

Carbacid manufactures liquified carbon dioxide, primarily for the production of carbonated drinks. It has been doing this quietly for many years.

So, what on earth could have caused the market to decide that it is three times more valuable now than it was one year ago?

An announcement of bonus shares. One additional share for every two held. It was effectively a 50% dividend payout over and above the company’s ordinary dividend. It also proposed a 5:1 share split to be effected immediately after the bonus issue.

Why the generosity? The company had no long-term debt and had built up a huge cash pile over the years that it had been investing in stocks and bonds. The income from these investments was beginning to rival that which the company earned from selling CO2.

So, with additional demand for fizzy beverages already covered, management did the right thing. It rewarded investors and increased the liquidity of the company’s shares in one fell swoop.

If that doesn’t make for a gleeful shareholders’ meeting, I’m not sure what does!

Your Turn

Which Kenyan stocks will shoot the lights out in 2014? Your prediction is wanted in the comments!

Related Reading

How to Invest on the Nairobi Stock Exchange
The BRVM’s 5 Best Stocks of 2013
Mauritius’ 5 Best Stocks of 2013
Ghana’s 5 Best Stocks of 2013

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