Dear subscriber,
We wish you a good start to the new week with the latest news from the African capital markets.
Sincerely,
Christian Hiller von Gaertringen
Editor-in-Chief, Capital News Africa
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Our readers will recall: We were initially unsure as to what the election of Samuel Ruto as Kenya’s new president would mean for its economy. On 25 August, we wrote: “We feel that in order to realise even more of Kenya’s economic potential, President Ruto should do more to promote capital markets.”
Ruto has now delivered on this point: On Tuesday of last week, Ruto announced a programme to give new impetus to the Nairobi Securities Exchange (NSE). “Whatever we will have to do as government, we must do it. So that in the next twelve months we will have between six and ten companies listed at the stock exchange,” he said. Specifically, Ruto plans to reform Kenya’s privatisation law to facilitate listings and to enable up to ten state-owned companies to go public. State-owned Kenya Ports Authority and Kenya Pipeline Co. are among the candidates for an IPO.
This announcement could be a game-changer for the NSE, as the bourse has not seen a single IPO for years. The last IPO dates back to 2015 when property investment fund ILAM Fahari I-Reit was (ISIN: KE5000003656 ) listed. Furthermore, Ruto wants to introduce bonds denominated in US dollars to diversify the government’s fundraising. As interest rates have risen in the US and in other developed countries, investors have cut exposure to emerging and frontier markets. Indeed, Kenya was recently forced to cancel a Eurobond issue due to a lack of interest.
With the reforms, Ruto even wants to surmount the biggest hurdle to IPOs. And that is: Many companies in Africa avoid a listing as it could force them to reveal undisclosed profits and hence pay back taxes. The president remarked: “I want to promise the private sector that whatever tax issue may arise, we as the government are willing to work with you. We are ready to forgive some sins.” We applaud Ruto’s move with our own remark: Repentance is the first step toward forgiving a sin.
One of the most controversial banking stocks in Africa is Getbucks Microfinance Bank (ISIN: ZW0009012320). We mentioned Getbucks in our latest editorial and got a lot of feedback. One reader pointed out that the bank has published a cautionary statement relates to its re-capitalisation. This of course did not escape our attention, and we urge investors to follow further developments closely.
But we are wary of Getbucks for another reason, and that is its business model. Let us explain: Microfinance is designed to help the poor do such things as start a business, open a shop or buy a sewing machine to make a living from tailoring.
Therefore, an important criterion for assessing a microfinance institution is how much it is involved with business and consumer lending. While business loans help create a source of income, consumer loans often become a huge financial burden on borrowers. We are not happy with the fact that Getbucks does 80% of its business with consumers and less than 20% with small businesses.
Last week, we met Günther Kastner, senior fund manager at Austria-based Impact Asset Management. In 2016, Impact launched the Vision Microfinance Fund, which has accumulated more than EUR 700 million in assets. We asked him about Getbucks, and he said they that after examining the bank, Impact decided against an investment. One reason for this is that Impact AM shuns microfinance institutions like Getbucks that are very involved with consumer loans.
In general, African banking has skipped the microfinance stage. Listed banks such as Kenya’s Equity Bank (ISIN: KE0000000554) offer retail banking for the poor and are also supervised by the national regulator. They are also better capitalised and hence in a better position to take advantage of digitalisation. We clearly prefer modern, digitalised and listed retail banks to microfinance institutions.
Nestlé Côte d’Ivoire (ISIN: CI0000000295), one of the leading food processing companies in West Africa, has appointed a new CEO: Mohamad Itani. Itani joined the Swiss conglomerate Nestlé in 2008 as a sales development manager in Dubai and then had several other posts in the Middle East. In 2020, Itani was promoted general manager for the emerging markets at Nestlé. He has a bachelor's degree in business administration from the Saint-Joseph university in Beirut and also has a master's degree in marketing.
Itani’s task as CEO will not be easy. At first glance, the Nestlé subsidiary seems to be quite successful. Its dividend yield, for example, stands at 18.6%. But its profitability has recently declined. For the first half year of 2022, Nestlé CI reported an 18% increase in sales to XOF 116.5 billion (EUR 178 million). But net income was down 8.4% to XOF 10 billion (EUR 15 million). Investors have certainly taken stock of the decline: Nestlé CI’s share price has shed 6.4% in the past six months.
Last week, we met the managers of Arcadia Minerals (ISIN: AU0000145815) in our home base of Frankfurt. They are: Executive Chairman Jurie Wessels, CEO Philip le Roux and the country manager Namibia Lisias Pius. They were on a road show to meet German investors. Arcadia’s share is listed both on the Australian Stock Exchange and on Frankfurt’s bourse.
Arcadia is currently searching Namibia for metals used in batteries, including lithium, nickel, palladium, copper and gold. As the company is still exploring, the share price is mainly news-driven. To give you just two examples: Between the end of April and the beginning of August, its share lost 57% of its value on doubts about its progress in Namibia. Then later in August, Arcadia’s share was ignited by news that it had made progress. The share jumped 173% to AUD 0.48 (EUR 0.31) that month. Currently, Arcadia is valued at AUD 0.30 (EUR 0.19) per share. Once it locates the metals, it plans to begin their extraction.
We mention Arcadia to give our readers a sense of how much activity there currently is in Africa’s mining sector. But a word of caution: Only investors with a good grasp of mining should consider an investment in exploration stocks like this one.