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The lights for East African equity markets have turned green since the beginning of the year. Investors are obviously betting on a quick economic recovery in this part of the continent. Shares in construction companies and in consumer staple firms are benefitting the most from the upswing.
Take as an example East African Breweries Ltd (EABL, ISIN: KE0000000216), which is listed on the Nairobi Securities Exchange. On 1 February, EAB reported that despite a difficult economy, its sales grew 4% to KES 57.3 billion (EUR 422 million) in the second half of 2022. EABL’s profit for the period was unchanged at KES 8.7 billion (EUR 64 million). Investors were impressed with EABL’s results, lifting the share up 5.5% up to KES 176.50 (EUR 1.30).
Or consider Nairobi Business Ventures (NBV, ISIN: KE5000000090), a leading supplier of construction materials like steel and cement. Although NBV’s share suffered hugely in the last twelve months, losing 31.8% of its value, it bounced back last week. For the week, NBV was up 15.6% to KES 3.48 (EUR 0.03), in our view due to improved economic prospects. Indeed, the stock is very volatile, losing or gaining as much as 8% on some days.
Renewed investor interest in Kenyan stocks could indicate a country rotation in Africa this year. The Nigerian equity market was, for example, driven last year by high oil and gas prices. Whether that rally continues is an open question. Moreover, as East Africa has strong consumer markets, the region’s stock exchanges could attract more investor attention this year.
African market participants are eagerly awaiting the start of Egypt’s IPO (initial public offering) programme for which the government will soon reveal the details. The impetus for the programme is Prime Minister Mostafa Madbouly’s wish to privatise several state-owned companies via IPOs on the Egyptian Stock Exchange (EGX).
Last week, Madbouly was quoted in the Egyptian press as saying: “The cabinet will announce a plan naming all the companies to be offered throughout the year 2023.” One chief aim of the programme, according to Madbouly, is to revitalise the EGX.
The big question market participants are asking themselves now is: Which companies will be listed on the EGX? According to the EGX’s annual report published on 3 January, four state-owned companies are already preparing an IPO. They are: Banque du Caire, Misr Life Insurance, Egyptian Drilling and petrochemical company Egyptian Linear Alkyl Benzene (ELAB). In the report, the EGX also said a total of eight companies would seek a listing. Beyond the four companies mentioned this group could include: Engineering for the Petroleum and Process Industries (ENPPI); Misr Insurance; Bank of Alexandria; Middle East Oil Refinery (Midor); Egyptian Ethylene and Derivates Company (Ethydco); and Assiut Oil Refining Company.
A word about the exchange’s current fortunes: In the first weeks of the new year, the EGX was one of Africa’s best-performing equity markets in local currency terms. However, in USD terms, its performance was not so hot. For example, the Van Eck Egypt Index ETF, quoted in USD, is down 7% since 1 January. We applaud the government’s IPO programme, as it should make the EGX far more diverse and, hopefully, more attractive to foreign investors.
York Timber Holdings (ISIN: ZAE000133450) of South Africa has acquired a new shareholder. The Industrial Development Corporation of South Africa (IDC) reduced its holding in York Timber to 20.7% from 21.8%, selling the respective 1.1% stake to an unknown buyer.
The main asset of the wood processing company are 89,759 hectares of forest which York operates in the South African province of Mpumalanga.
What is particularly disturbing is the fact that the IDC kept the identity of the buyer under wraps. After all, the IDC was established by the South African Parliament in 1940 and is still fully owned by the government. It should be important to government officials that state-owned companies like the IDC fulfil the highest standards of corporate governance. This includes transparency. Investors seem to share our view: In the first days following the transaction, York Timber’s share price fell more than 5% to ZAR 2.43 (EUR 0.13).
The share price of Pathfinder Minerals (ISIN: GB00BYY0JQ23) soared last week, gaining 46.6% to GBp 0.5862 (EUR 0.01) on the London Stock Exchange (LSE). Pathfinder specialises in the extraction of minerals in Mozambique and in Cameroon. The rally in the stock followed a capital hike in which the company raised GBP 500,000 via the issuance of 100 million new shares at GBp 0.5 each.
Other news concerning the stock is that Pathfinder is expected to sell its subsidiary IM Minerals to Acumen Advisory Group. According to Pathfinder, Acumen has secured an exclusive option to buy IM Minerals on 21 February.
Our take: Last week’s rally in the stock should not mislead investors. Like many other natural resource companies, Pathfinder is quite volatile. Consider that for a few days last quarter, Pathfinder’s share first plummeted 46.4% before bouncing back and gaining 56%.