Some analysts have written off Kenyan mobile communications company Safaricom (ISIN: KE1000001402) as part of the “old economy.” As reported, Safaricom developed the digital payment system M-Pesa, an innovation that provides banking services to millions of Africans who lack them. However, some analysts claim that the African fintech sector has overtaken Safaricom in terms of innovation.
Are these analysts accurate? Vodacom, Vodafone's South African subsidiary, certainly doesn’t think so. According to Vodacom CEO Shameel Joosub, M-Pesa is expected “to further establish itself as Africa’s largest fintech provider through the implementation of an enhanced product roadmap.” UK telecom giant Vodafone (ISIN: GB00BH4HKS39) owns a 64.5% stake in South African telecom operator Vodacom and 39.9% in Safaricom.
With its latest figures, Safaricom showed that it could still make money. In the twelve months to 31 March 2022, revenue from M-Pesa grew 30.3% to KES 107.7 billion (EUR 890 million). The system accounted for 36.1% of the KES 298 billion (EUR 2.5 billion) in total revenue for the period. Moreover, in the calendar year ending 31 December 2021, Safaricom saw net profit (excluding Ethiopia) rebound to pre-Covid-19 levels. It was up 12.2% to KES 77 billion (EUR 636 million), the company said earlier this month.
Safaricom’s results did not impress investors on the Nairobi Securities Exchange (NSE). Last week, the share lost 6.2% to KES 30.20 (EUR 0.2496). It’s down 20.4% since the beginning of the year. Analysts have long considered the Safaricom share to be overpriced and, hence, do not have it as a buy. In August 2021, they forecasted a 10% drop in the share that was then trading at KES 43. How right they were.
Financials are currently one of the most promising sectors on African equity markets. NMB Bank (ISIN: TZ1996100222), listed on the Tanzania Stock Exchange, published strong results last week. In the first quarter, NMB Bank posted record earnings of EUR 41.8 million. The bank’s annualised return on equity (RoE) also was an impressive 28%.
Some may remember Deutsche Bank’s efforts to reach a RoE of 25% by making extremely risky – and not always ethical – deals. The disastrous outcome of those efforts is well known. NMB isn’t in the same situation as Deutsche Bank then. Example: In the first quarter, the bank reduced its bad debt – including non-performing loans – to EUR 5.7 million, or 1.1% of total loans on its balance sheet. This compares with EUR 9.5 million, or 2.1% of total loans, in the year earlier period.
NMB’s strong results have further boosted its share 45% to TZS 2900 (EUR 1.19) since the beginning of the year. Despite a market cap of EUR 592 million, NMB has a small free float of its stock. The Dutch investment company Arise BV holds 34.9% of the shares and the Tanzanian government 31.8%.
Tanzanian businessman Aunali Fidahussein Rajabali, born in Dar es Salaam in 1962 and residing in the UK, holds a 5% stake in NMB. Together with his brother Sajjad Rajabali, Aunali controls a 3.2% stake in CRBD Bank (ISIN: TZ1996100305), another leading bank in East Africa. This too was quite a good investment as CRBD’s share price has gained 63.3% to TZS 400 (EUR 0.16) in the past twelve months. The brothers’ CRBD stake is now valued at EUR 10.7 million. Add to that the 25 million NMB shares held by Aunali that are worth EUR 29.75 million, and you will understand why the Rajabali brothers must be quite happy.
We believe that market players behave rationally. But sometimes we find it difficult to see the rationale behind their actions. In the wake of Wednesday's tech stock crash, we expected Prosus’ (ISIN: NL0013654783) stock to be dragged down too. After all, Prosus’ main holdings are the tech companies Tencent and Mail.ru. But on Thursday, the Prosus share shed a mere 0.7% to EUR 44.47 on Amsterdam’s stock exchange.
It was Prosus’ parent company, South Africa’s Naspers (ISIN: ZAE000015889), that got caught in the global tech sell-off. Naspers fell 4.8% to ZAR 1598 (EUR 95.26). The two companies are closely related: Prosus owns 49% of Naspers, and Naspers owns 58% of Prosus. Meanwhile, the bellwether tech index Nasdaq 100 index dropped 5.1% to 11,928 points during Wednesday’s crash. Along with Naspers, Meta, Apple, Alphabet, Cisco, Intel and many other big tech companies were sold off.
In addition to its stake in Prosus, Naspers holds a number of other tech holdings, including a 27.4% stake in German food delivery provider Delivery Hero. We could now try to explain Prosus’ robustness amid the tech sell-off. But the truth is, we don't really know the exact reasons. We will, therefore, follow the developments closely and share with you our findings.
There is probably no other continent in the world where economic growth and the construction industry are as strongly correlated as in Africa. This is both an opportunity and a risk for equity investors. Cement producer Lafarge Holcim Maroc (ISIN: MA0000012320) will be a major beneficiary when the African economy enters a new growth cycle.
Analysts at Moroccan investment bank BMCE Capital expect that Lafarge Holcim Maroc will increase earnings per share (EPS) by 14.4% in 2022 after an increase of 43.5% in 2021. Granted, such strong earnings growth has already impressed the market, which values Lafarge Holcim Maroc at a whopping 21.4x price to earnings (P/E) ratio based on the expected 2022 results. However, its share price has fallen by 13.6% to MAD 1900 (EUR 180.15) since January.
We remain true to our principle of not making any investment recommendations. That said, we believe investors should definitely keep an eye on Africa’s construction sector. For there are other African construction companies apart from Lafarge Holcim Maroc that stand to benefit from an upswing. These include Dangote Cement (ISIN: NGDANGCEM008) in Nigeria or Orascom Development (ISIN: EGS70321C012) in Egypt.