A ground-breaking IPO in Morocco

It’s one of the biggest deals of the year: Moroccan hospital operator Akdital will go public on the Casablanca Stock Exchange (CSE) on 6 December. Akdital aims to raise MAD 1.2 billion (EUR 109 million) with the move to fund expansion in Morocco and Africa.

Akdital’s initial public offering (IPO) is happening at a good time for Morocco’s capital market. According to the financial regulator AMMC, that market raised more than MAD 55.25 billion (EUR 5 billion) between January and October. This was 6.4% more than the MAD 51.93 billion raised one year ago. Of that total, equity transactions represented MAD 992 million, said AMMC.

The IPO entails a capital increase where Akdital’s current owners are not taking the opportunity to cash in. Leading market participants such as BMCE Capital support the IPO. “We recommend subscribing to the sale of Akdital shares at the price proposed within the framework of the IPO of MAD 300 per share. Taking into account our valuation, this comes out at a target price of MAD 340,” BMCE Capital said in a research note.

Given the IPO  price of MAD 300, Akdital’s price-to-earnings (P/E) ratio is estimated at 16.3 in 2023. Akdital’s P/E ratio puts it in line with the valuation of the Moroccan stock market and hence offers no premium to investors.

We welcome Akdital’s IPO as its gives Africa’s primary market a much-needed boost. In the last few years, the number of listings on the continent was underwhelming. In 2021, only eight companies went public, one more than in 2020 and one less than in 2019. In 2017, the number of IPOs was three times that of past years, namely 30. Moreover, African companies raised only USD 921 million (then EUR 810 million) in fresh capital through IPOs last year. This compares with USD 3.1 billion (then EUR 2.6 billion) in 2017. Commenting on the trend, PwC said in a report: “Fast-growing tech companies across major markets in Africa continue to source for growth capital outside the equities capital market, due to perceived onerous regulations among other reasons.” This does not give us cause for comfort.


Ethiopia to launch a new stock exchange

Africa is rich in stock exchanges: We counted more than 25 of them on the continent. But these markets are also very fragmented, undermining their growth and importance.

Now Ethiopia wants to establish another stock exchange that will include at least 50 companies. The new “Ethiopian Securities Exchange (ESX)” is a joint project involving the country’s sovereign wealth fund; Ethiopia Investment Holdings (EIH); the Ministry of Finance; and Financial Sector Deepening Africa (FSDA), an organisation supported by UK Aid, a development fund tied to the British government. The ESX is to be launched in two years.

The question being asked on African capital markets is: Will the ambitious project be successful? From a market point of view, the answer is simple: Ambition alone will not ensure the success of the ESX. Rather, it must attract enough investors, traders and liquidity to establish itself as a smooth-functioning stock exchange.

We applaud the Ethiopian government’s decision a year ago to place most of its corporate holdings in a sovereign wealth fund (SWF). The fund, called “Ethiopian Investment Holding,” controls some USD 38 billion (EUR 37 billion) in assets – or 34% of Ethiopia’s GDP. The holdings include companies like Ethiopian Airlines, the Commercial Bank of Ethiopia and Ethio Telecom.

But we are sceptical about the creation of a stock exchange in Ethiopia’s capital of Addis Ababa. It is wholly unclear whether the ESX can attract enough market participants, including brokers, lawyers and auditors with expertise in capital market rules. And as mentioned, the ESX may struggle to attract enough institutional investors like pension funds, insurers and asset managers for the bourse.

Our readers may not be happy when we ask: Wouldn't it have been easier if the government had listed Ethiopian companies on a well-established and well-functioning bourse like the Nairobi Securities Exchange? Those involved in the ESX will have to convince us that the answer is a resounding “No.”


Too early for an investment in Centum

Some commentators are beginning to sing the praises of Kenyan investment company Centum Investment (ISIN: KE0000000265). We think this is premature. Consider that since January, Centum’s share has lost 43.1% of its value and is down 73.1% for the past three years.

The losses do not bother us that much. We recognise that investors are looking to “buy low and sell high,” and hence believe that Centum may now be a good opportunity. We, however, believe that investors should wait to see if Centum’s fortunes improve. Consider that the company reported a pre-tax loss of KES 1.24 billion (EUR 9.8 million) for the first half of 2022. Indeed, Centum’s loss has widened by 77.9% if the past twelve-month period is taken.

Specifically, we recommend investors wait to see if Centum completes the sale of a 83.4% stake in Sidian Bank to Nigeria-based Access Bank for an expected price of KES 4.3 billion. For after then, the visibility of the Centum share should improve.


A fifth stock for the Victoria Falls Stock Exchange

Since last Friday, Nedbank Zimbabwe is the first banking stock to be listed on the Victoria Falls Stock Exchange (VFEX) and the fifth overall. Some background: The Zimbabwe Stock Exchange launched the VFEX in 2020 as an offshore bourse where stocks are traded in foreign currency. Also because of this, VFEX’s aim is to attract global capital and to restore confidence among foreign investors in the crisis-ridden Zimbabwean economy.

The four companies already listed on the VFEX are: Seed Co International (ISIN: BW0000002005), a seed supplier also listed on the Botswana Stock Exchange; Caledonia Mining (ISIN: JE00BF0XVB15); crocodile breeder Padenga Holdings (ISIN: ZW0009012148); and Bindura Nickel Corporation (ISIN: ZW0009011652).

But shares in these four companies are rarely traded on the VFEX – a fact that investors should be very much aware of. For example, no Bindura shares changed hands last week, although trading in Seed Co has been a bit more active. Shares in Caledonia Mining, meanwhile, are also traded in New York, London, Toronto, Frankfurt, Munich and Stuttgart.