French telecom operator Orange (ISIN: FR0000133308) has announced a strategy for Africa called “Lead the Future.” To increase Orange’s presence on the continent, CEO Christel Heydemann will establish telecom subsidiaries in Africa and in the Middle East. With the strategy, Orange is stepping up its challenge to African incumbents for market share. The incumbents include MTN (ISIN: ZAE000042164); Vodafone (ISIN: GB00BH4HKS39) and its affiliates Vodacom (ISIN: ZAE000132577) and Safaricom (ISIN: KE1000001402); as well as Bharti Airtel (ISIN: INE397D01024) and its 56% subsidiary Airtel Africa (ISIN: GB00BKDRYJ47).
You may be skeptical of big strategy announcements, especially when they concern Africa. But Orange’s might be different, as reflected by the stock’s performance last week. Orange, whose share are traded on Euronext Paris, gained 6.5% last Thursday on news of the strategy. Orange was up 11.1% to EUR 10.62 for the week.
Orange is already doing business in 18 of Africa’s 54 countries. It also has a listed subsidiary in Ivory Coast, called Orange CI (ISIN: CI0000005864). The unit, however, leads a somewhat sad existence on the BRVM stock exchange in Abidjan with low trading volumes.
Orange is already active in Africa with a mobile payments business in Africa called Orange Money. This was a smart move, as mobile payments should be a key driver of business for telecoms on the continent. Consider Safaricom: Although M-Pesa accounts for 36% of sales, this is not enough for its investors. They are calling on the Kenyan company to further expand M-Pesa, which is a high-margin business. It remains to be seen whether Orange’s African strategy will prove successful. We, in any case, applaud the greater competition, as it will further improve Africa’s telecoms sector.
Although the country is struggling with a largely self-inflicted power crisis, South African stocks are propelling the continent’s equity market upward. Since 1 January, the Dow Jones South Africa index (ISIN: XC0006887720) has gained 6% to 2077 points. This has helped buoy the broader S&P Africa 40 index (ticker symbol: SPAFRUT), which is up 1.5%. During the past twelve months, the S&P Africa 40 was dragged down by a poor performance in the South African equity market. During that period, the S&P Africa 40 index lost 14.8%.
We don’t want to oversell the African stocks’ performance. But we would like to point out that they have outperformed the MSCI Emerging Markets index. The latter fell by 18.2% during the past twelve months but is up 5.1% so far this year. The US equity market has, admittedly, outperformed that of Africa, with the S&P 500 losing just 7.2% in the past twelve months.
But we have thrown enough numbers around. Here is what we think of them:
Ten out of 175 state-owned enterprises (SOEs) are ready for a listing on the Ghana Stock Exchange (GSE), GSE managing director Abena Amoah said last week. According to her, those slated for an IPO include GCB Bank (ISIN: GH0000000094), the oil company Goil (ISIN: GH0000000722) and SIC Insurance (ISIN: GH0000000730). Amoah did not reveal all the SOEs that she has in mind for a listing on the GSE. On that point, she only said: “We need SOEs like Ghana Re, Ghana Gas and the stronger ones to list on the market.”
But Amoah has encountered some pushback from Ghanese government officials. “The country should be careful not to list some of its strategic assets whereby they may fall into foreign hands,” said Edward Boateng, director general of the State Interests and Governance Authority (Sipa).
The construction sector is usually the main beneficiary of strong economic growth in Africa. But investors should not blindly follow this maxim.
Just consider Kenya: Although economic growth should, according to the African Development Bank, be above-average this year, Kenyan cement shares have not done well. Bamburi Cement (ISIN: KE0000000059) has, for example, lost 24.1% in the past six months.
Same picture in Casablanca: Despite decent economic growth, shares in Lafarge Holcim Maroc (ISIN: MA0000012320) are down 20.5% for the past six months and those of Ciments du Maroc (ISIN: MA0000010506) are down 19.3%.
In Nigeria and South Africa however, the maxim still seems to hold true. In Lagos, Dangote Cement (ISIN: NGDANGCEM008) has gained 4.3% in the past six months. And on the Johannesburg Stock Exchange, PPC shares (ISIN: ZAE000170049) are up 4.5% for the period.