Dear subscriber,
We are happy to share with you the latest issue of Capital News Africa, your weekly newsletter about African financial markets. It is published every Monday. Every Thursday, we invite you to read an in-depth analysis of a selected topic in our weekly editorial “From The Trading Floor.”
We aim to provide you with valuable insights about African stocks and about the trends that move those stocks. We trust that these insights will help you make up your own mind regarding an investment in Africa. We feel strongly that investors should gather the proper information and then make their own judgment instead of just relying on the opinion of others.
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Mutual funds move like tankers. It takes a long time for them to change course. Recently, Peter Leger, head of global frontier markets at South African fund manager Coronation, made a remarkable move with the “Africa Frontier Strategy” funds he manages together with Gregory Longe.
Over the past year, we have expressed concerns about the funds’ high exposure to Zimbabwe. Peter Leger and Gregory Longe do not share our concerns and have even increased the funds’ exposure to the crisis-ridden country. The funds currently have 29.6% of assets invested in Zimbabwe, up from 25.8% at the end of July 2021.
Leger and Longe have also made notable changes to the allocations. Specifically, the funds’ holdings in consumer goods stocks have been reduced to 21.7% of assets currently from 25.7% at the end of July 2021. Exposure to financial stocks has decreased slightly to 23.2% from 24.8%. At the same time, the funds’ holdings in telecom stocks increased to 16.2% from 11.9%.
Investors seem to like Coronation’s Africa strategy. Assets under management for Coronation’s African funds rose to USD 397.7 million currently from USD 371.5 million at the end of July 2021. The funds’ performance was no doubt a big factor. In the twelve months to 31 January, the funds’ returned 30.2% compared with a mere 0.1% gain for the relevant benchmark.
At the risk of some readers finding us stubborn, we maintain that the true value of any equity exposure to Zimbabwe can only be measured once the shares have been sold successfully. This is more uncertain than ever given the difficult economic situation there.
The macroeconomic environment has seldom been that favorable to oil stocks. Even before Russia’s war against Ukraine, tensions on international markets were high. Now there is concern that Russian supplies of oil and gas to Western Europe could be disrupted. As we pointed out in our latest editorial, the situation could boost African energy firms, as Europe looks for alternatives to Russian supply.
In the meantime, not all African energy firms are benefitting from this geopolitical tailwind. The shares of Africa Oil Corp. (ISIN: CA00829Q1019), for example, lost more than 10% in the last week. The main reason was its disappointing results for 2021. Last week, the Canada-based company announced that earnings per share (EPS) were down in the fourth quarter to USD 0.12 (EUR 0.11) from USD 0.17 a year ago. The results for the whole of 2021 look better: Africa Oil reported EPS of USD 0.40 (EUR 0.36) for the year. This compares with a loss of USD 0.04 (EUR 0.04) the year before.
Investors are also concerned about the development of the Turkana project. Kenya’s “Business Daily” reported that Africa Oil has run out of cash to finance the exploitation of the South Lokichar Basin, which is located in the Turkana region. As a result, the management is looking for additional investors for the Turkana project. Africa Oil holds a 25% stake in the project, which involves the construction of a crude oil pipeline as well as processing facilities.
Africa Oil also announced a semi-annual dividend of USD 0.05 per share. The first payment will be made on 31 March to shareholders of record as of 17 March. Africa Oil develops oil and gas fields in deep water off the shores of Nigeria and Kenya. The company also does business in Namibia, South Africa and the Senegal Guinea-Bissau Joint Development Zone.
Last week, West African telecom operator Sonatel (ISIN: SN0000000019) announced impressive results for 2021. Net revenue was up 10% to EUR 2.1 million, while its return on equity increased to 31% - three points better than one year ago. Sonatel’s revenue from mobile data also jumped 26%. As a result, Sonatel’s stock gained 8.1% to XOF 16,200 (EUR 24.70) last week and is up 16% since the beginning of the year. This is also impressive if you consider that all leading stock indexes have lost ground since 1 January 2022.
Sonatel is active in Senegal, Mali, Guinea, Guinea-Bissau and Sierra Leone. Its results for 2021 reflect that business conditions in such lower-developed African countries are quite good for telecom operators. The only bit of bad news in an otherwise strong 2021 was a decline in revenue at Sonatel’s mobile money business.
As measured by a price-to-equity ratio (P/E) of 8.01, Sonatel shares are cheap compared with other African telecom operators. The South African giant MTN has a P/E of 16.7, and the P/E of Kenya’s Safaricom is 18.3. In our view, the challenge for Sonatel is to grow its more higher-margin business such as mobile money. French telecom operator Orange owns a 42.3% stake in Sonatel, with the government of Senegal holding another 27% stake. Sonatel’s employees own 6% of the company through a stock ownership plan.
While the world’s major stock markets are down so far this year, shares in brewing firm Société des Boissons du Maroc, or SBM, (ISIN: MA0000010365) are gaining on the Casablanca Stock Exchange (CSE). Since 1 January, SBM’s stock has risen by 3.6% to MAD 2963 (EUR 276.74). Indeed, the stock is up by 25% for the past twelve months. Its performance has been driven by good financial results. Last week, SBM said net sales were up by 14% to MAD 2.7 billion (EUR 252 million) in 2021. This was despite the Covid-19 pandemic, which led to a significant decrease in tourism in Morocco as well as a temporary lock-down of cafés, bars, restaurants and hotels.
SBM is Morocco’s leading beer brewer. Under license, it produces prominent beers like Heineken, Castel and 33 Export as well as local beers such as Flag and Casablanca. SBM also distributes wine and soft drinks. The French Castel family, through its vehicle Groupe Castel, has a 69.3% controlling stake in SBM, while Dutch brewer Heineken owns 2.2% of it.
In fact, Groupe Castel is one of Africa’s biggest beverage companies. Beyond the aforementioned beer brands, it owns wine brands like the rosé Listel and the sparkling wine Kriter. In addition, Groupe Castel owns 1,500 hectares of vineyards in Morocco and breweries in Cameroon as well as in Ivory Coast. Groupe Castel is still led by Pierre Castel who was born in 1926 and who established the vehicle in 1949. The reclusive Castel family’s wealth is estimated at EUR 13 billion.
SBM is a well-managed company with net cash of MAD 661 million (EUR 61.7 million) at the end of 2021. Thanks to these solid results, SBM’s shares have performed better than those of Heineken. Heineken’s stock is up by 8.4% for the past twelve months but down 9% since 1 January. However, the trading volume in SBM shares is quite low, so there could be an issue with its liquidity.