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.
Sincerely,
Christian Hiller von Gaertringen
Editor-in-Chief, Capital News Africa
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If you like rollercoaster rides, then Glencore’s stock (ISIN: JE00B4T3BW64) is the right investment for you. The company specialising in metals, minerals and oil made an impressive 45.9% jump in the last twelve months. And in spite of bumpy international stock markets since the beginning of the year, Glencore is up 12.2% to 4.2357 GBP (EUR 5.08) a share. That said, Glencore lost momentum during the last trading week, and its share price is down 2.2% for the last decade. The company has a double listing, namely on the London Stock Exchange and on the Johannesburg Stock Exchange (JSE). Its headquarters are in Zug, Switzerland, which is the place to be for corporates that are, to put it mildly, “sensitive” to tax matters.
Glencore’s stagnation last week was surprising, for CEO Gary Nagle had good news to share. Nagle said Glencore was looking to end investigations in the US, UK and Brazil regarding accusations of bribery and market manipulation. Glencore has also been accused of paying bribes in the DR Congo, Venezuela and Nigeria. According to Nagle, Glencore expects to resolve these cases by paying legal fines totalling USD 1.5 billion. Glencore has already made a provision in its 2021 balance sheet for the amount. Ending the legal troubles would be good news for Glencore’s shareholders.
Glencore’s results for 2021, announced last week, were also impressive. Its operating profit, as measured by EBITDA, increased 84% to USD 21.3 billion. Net profit should come in at USD 5 billion for 2021 after a net loss of USD 1.9 billion for 2020. The huge gain in EBITDA also allowed the company to lower its debt by nearly 50% to USD 6 billion.
Now, Glencore just has to convince investors of its potential. Consider that analysts for the stock have a price target of GBP 4.65 a share – that is just 10.6% above the current level. Given the good prospects for the commodities industry as a whole, that premium is ridiculously small.
For years, the gold price has been held down by a combination of low interest rates and low inflation. But with the return of inflation around the world, gold is in demand again. In the past year, its price has gained 7.3% to USD 1893 per ounce (31.1 grams). That said, we believe it is too early to declare a new “gold rush.” In our view, the higher demand for gold is due to the fact that investors are looking for a safe haven amid the Ukraine crisis.
The renewed interest in gold has boosted African mining stocks. For example, JSE-listed Anglo Gold Ashanti (ISIN: ZAE000043485) has gained more than 18% to ZAR 331.30 (EUR 19.47) since 27 January. While Deutsche Bank lowered its price target for Anglo Gold Ashanti to USD 22 (EUR 19.24) from USD 23 on 2 February, it still confirmed the stock as a “buy.” As that target has been reached, it is time for Deutsche Bank to fix a new one.
The price gains for shares in Asante Gold (ISIN: CA04341X1078), a Canadian company operating gold mines in Ghana, are more impressive. Those shares are up 31.8% to CAD 1.71 (EUR 1.18) since 27 January. Indeed, in the past year, Asante Gold’s stock is up an incredible 1,610%. Here is some background: The company is about to launch an open-cast gold mine next to the town of Bibiani in Ghana. It also intends to raise USD 100 million (EUR 88 million). The new shares created via the capital increase will be offered at CAD 1.75 (EUR 1.21) each. Emiral Resources, an Asante Gold investor with a 19.6% stake, will participate in the capital hike to maintain its current level of ownership.
It is good news that companies like Asante Gold are opening new mines and raising fresh capital. But we would still urge caution with investments in gold or gold mining companies as it is too early to say if inflation remains high in the world and if gold will really see a renaissance. Our recommendation is to keep however an eye on these asset classes as they move back into the focus of investors.
The Economist Intelligence Unit (EIU), the research arm of the firm that publishes the Economist magazine, is optimistic about Africa this year. “Africa may be one of the world’s major regions where economic growth will accelerate in 2022,” EIU states in its economic outlook for 2022. According to the EIU, the only other region that will experience such an acceleration is the Middle East. But the EIU also urges caution: “This improvement will be modest and will follow a very difficult 2021.”
EIU’s analysts expect another difficult year for travel and tourism in Africa. But they also note that this should be compensated for by strong demand for commodities that Africa exports. These include oil and gas, solid minerals and metals, as well as timber and food.
In the outlook, the EIU also noted that economic performance should vary according to the African country. Its analysts believe that Nigeria and South Africa will underperform, while Senegal, Ivory Coast, Ghana, Uganda and Tanzania will do better. Kenya ranks somewhere between the five outperforming countries and the two underperforming ones.
Shares in Centrale Danone (ISIN: MA0000012049) are trading again on the Casablanca Stock Exchange (CSE) after having been suspended. Still, investors should be aware that the dairy company’s days on the CSE are numbered.
The board of Centrale Danone, formerly Centrale Laitière S.A., decided on 2 December 2021 to de-list the dairy firm’s shares. The decision follows Compagnie Gervais Danone’s decision to seek total control over Centrale Danone. Within the French food group Danone (ISIN: FR0000120644), Compagnie Gervais Danone is the much larger dairy and plant-based products division that accounts for 54% of the French group’s total sales.
Moroccan market regulator AMMC has approved Compagnie Gervais Danone’s buyout of Centrale Danone. But it also allowed the resumption of trading in Centrale Danone shares on 16 February. In the buyout, Compagnie Gervais Danone is paying MAD 550 (EUR 51.60) per share of Centrale Danone. On Thursday of last week, Centrale Danone’s share was trading MAD 433, but when the buyout was announced, the price rose to MAD 530 (EUR 49.68) on Friday.
There are unlikely to be many investors who will miss Centrale Danone. In 2012, France’s Danone acquired a 37.8% stake in Centrale Laitière. By 2018, Danone had acquired 99.7% of Centrale Laitière’s shares and had since renamed the firm Centrale Danone. Its free-float was cut to just 28,260 shares. Indeed, since Danone acquired a stake in Centrale Laitière ten years ago, its share has lost 68.6% of its value.
From the stock market’s point of view, it is unfortunate that Centrale Danone will be de-listed. After all, the dairy share broadened the CSE and made that market more interesting. Yet the CSE still offers many attractive food stocks. These include Cosumar (sugar); Lesieur Cristal (cooking oil, soaps and olive oil); Cartier Saada (olive and apricot preserves); Dari Couspate (couscous, flour and food pastes); Mutandis (detergents, seafood and PET bottles); and Unimer (canned fish, fruits and vegetables as well as food imports).