As the year comes to an end, it is time to reflect on the state of African capital markets. These markets are, in our view, the most underrated in the world. The stock exchanges in Johannesburg, Cairo, Nairobi, Casablanca and Lagos offer a wide range of attractive companies. For these companies off offer business cases you will find nowhere else in the world.
Yet in line with the bearish international markets, African equity indexes are in the red this year. Since January, the Dow Jones Africa Titans 50 index (ticker symbol: DJAFK) lost 11%, while the S&P Africa 40 index shed 9.9%. In the latter’s case, most of its losses happened in the first nine months. Since the beginning of October, however, the Africa 40 index has put on 24.3%.
While the indices are important to get a general feel for Africa’s equity markets, we are convinced that the continent is a market for stock pickers. This year, investors focussed on African banking and consumer stocks in particular.
Here are some of the top performers among the banks: Kenya’s NCBA (ISIN: KE0000000406) gained 37.3% in value this year; Standard Chartered in South Africa (ISIN: KE0000000448) was up 14%; and BH Bank of Tunisia jumped 57.4%. In the consumer sector, drinking water producer Société de Distribution d’Eau de la Côte d’Ivoire (ISIN: CI0000000204) was a stand-out, gaining 26.9% since the start of the year.
In the mining sector, the results are mixed: Morocco’s Managem (ISIN: MA0000011058) jumped 56.6% thanks to strong demand for the metals it supplies, including copper, zinc, cobalt, gold and silver. Anglogold Ashanti (ISIN: ZAE000043485), a South African supplier of gold, silver and copper, also put on 8.1%. However, companies such as platinum and palladium supplier Sibanye Stillwater (ISIN: ZAE000259701) lost 5.1% this year as the prices for industrial metals started to fall this year.
The numbers reflect that African stock markets fared pretty well during this very bearish 2022. Looking to 2023, we are convinced that they will continue to offer interesting investment opportunities. Stay tuned.
The Johannesburg Stock Exchange (JSE) has lost ground this year. This is not that troubling considering that the bourse is still the largest in Africa. There is still a huge gap in terms of market cap between first place JSE and the equity markets of Cairo, Lagos, Nairobi and Casablanca.
The JSE also formerly ranked among the 20 largest stock exchanges in the world. In late October, however, the website Statista reported that the JSE’s market capitalisation had fallen below the EUR 1 trillion mark. This caused its removal from the list of the world’s 20 biggest exchanges. The biggest equity market in the world is the New York Stock Exchange (Nyse) with a market cap of EUR 20.8 trillion. The NYSE is followed by second-place Nasdaq (market cap EUR 16.2 trillion), Shanghai (EUR 5.6 trillion) and Euronext (EUR 5.2 trillion).
As the JSE is falling behind, we feel strongly that it needs to be reformed. Here are some recommendations: JSE officials must do more on the investor and public relations front to win back international investors in Europe, the US and the Middle East. Another task is to attract more companies for an IPO or a listing on the JSE. For years now, the exchange has lost more company listings than it has gained – a very troubling sign. Remedying this would be good for the JSE and for the companies themselves as the exchange allows them to reach new investors and hence diversify their funding. Finally, the JSE must connect more to wealthy and institutional investors in emerging markets than it has to date.
In terms of importance, and indeed liquidity, there is no other stock exchange in Africa that can compare with the JSE. This is why we feel strongly that it must reformed for the sake of the continent’s capital markets as a whole. The next biggest equity market is that of Lagos with a market cap of a mere EUR 56 billion. Casablanca is in third place with EUR 53 billion. Fourth-place EGX in Cairo has EUR 37 billion in market cap, but it is also one of the most active markets on the continent with a daily trading volume of EUR 147 million.
Since Wednesday, Moroccan hospital operator Akdital (ISIN: MA0000012585) is listed on the Casablanca Stock Exchange (CSE). We already reported on this IPO, so this is just an update.
During the IPO, the demand from 8225 prospective buyers exceeded the supply of shares by a factor of 3.77. They requested more than 15 million shares worth MAD 4.5 billion (EUR 404 million). This compares to the MAD 1.2 billion worth of Akdital shares on offer. As a result, only 26.53% of the allocation requests could be met.
We welcome the fact that, with Akdital, the CSE has its 75th company listing. Morocco’s financial press already talks of a successful IPO, and that is indeed true from the company’s perspective. It was more than three times oversubscribed.
After the IPO, we would like to point out that Akdital must fulfil the high expectations investors have placed in the stock. That means, among other things, attractive fundamentals. Another fact that speaks for Akdital is that it is the first health care stock traded in Casablanca. Until its IPO, Johannesburg and Cairo were Africa’s only equity markets that offered health care stocks.
As we mentioned at the beginning, you will find very unique companies on African equity markets. Williamson Tea Kenya (ISIN: KE0000000505) is one such company. Family-owned Williamson runs four tea farms: Kaimosi, Tinderet and Kapchorua north of Nakuru as well as Changoi south of Nakuru. Like Williamson, the farm of Kapchorua (ISIN: KE0000000299) is also listed on the Nairobi Securities Exchange (NSE).
Williamson’s share price has risen sharply this year due in part to better financials. According to CEO Alan Carmichael, Williamson turned a profit of KES 247 million (EUR 1.9 million) from January to September 2022. In the year ago period, the tea supplier posted a KES 7.8 million loss.
Another reason for the upward trend in Williamson’s share price was an announcement last July that it would double its dividend to KES 20. This brings the company’s dividend yield to 10%. As a result of better results and a higher dividend, Williamson’s share price is up 23.1% to KES 160 (EUR 1.22) this year. However, it now seems that the upward trend has come to a halt. This is because African agricultural stocks like Williamson are also very sensitive to the weather. Kenya currently finds itself in the dry season, which could impact yields.