International financial markets have had a tough month so far. The benchmark US stock index S&P 500 has lost 7% since the beginning of 2022, while the technology index Nasdaq 100 is down 11.4%. In Africa, however, markets have proven quite resilient. Since 1 January, the Kenyan blue chip NSE 20 index is down just 1% to 1875 points. South Africa’s Top 40 index is nearly unchanged, having dipped to 67,021 points from 67,052 on 31 December. Indeed, the Moroccan All Share index in Casablanca has even gained 2% to 13,793 points since 1 January. And in Nigeria, the NSE 20 index registered a small gain to 1753 points from 1722 points at the end of 2021.
African blue chips are topping the shopping lists of investors. South African oil company Sasol (ISIN: ZAE000006896), for example, was up 17% last week. South African banks Absa (ISIN: ZAE000255915), Standard Bank (ISIN: ZAE000109815), Investec (ISIN: ZAE000081949) and Firstrand (ISIN: ZAE000066304) were also among the stocks in demand. But market volatility was clearly on display. Investec, for example, lost 3.3% on Monday, 24 January - the day of the big sell-off on international markets. On Tuesday, Investec began a recovery, posting a gain of 7.2% for the rest of the trading week. On the Nairobi Securities Exchange, BOC Kenya (ISIN: KE0000000042), a producer of industrial and medical gases, was up nearly 10% on Thursday to trade at KES 77.00 (EUR 0.607) per share.
These numbers reflect that African markets, which are not closely correlated to those in Europe and the US, are holding up well amid the recent turbulence. We also expect that a rise in US interest rates will not affect African banks that much. This is because they have already proven themselves in an environment where interest rates have been above zero.
Nonetheless, the global sell-off on international stock markets has led us to reassess the outlook for African markets in 2022. Here are ten observations:
Our advice to investors looking at Africa in 2022 is: Focus on individual stocks rather than on stock indices. To illustrate this, let’s consider some constituents of the NSE 30 index for blue-chip Nigerian stocks: The index gained 2% to 1753 points since the beginning of the year. The pan-African Bank Ecobank Transnational Incorporated or ETI (ISIN: TG0000000132) was up more than 48% since then. But Nestlé Nigeria (ISIN: NGNESTLE0006) was down 7.8% up to now in 2022. As the example shows, we expect the spread between winners and losers within an African index to be quite high this year.
2022 should be a year for clever stock picking. Sector allocation will play a major role this year, as the fight against the Covid-19 pandemic likely moves from the US and Europe to Africa. As a result, providers of tests, hygiene products and vaccines will be in focus of investors. It is therefore advisable to take a close look at companies that will be a part of the fight against this virus in Africa. We also think that the focus will be on African companies that have a sound business model and outstanding management. If they also can benefit from the recovery in the established markets of the North, even better.
On Monday, 31 January, Moroccan consumer goods producer Mutandis SCA (ISIN: MA0000012395) will launch a capital increase. It expires on Friday, 4 February. In the event, the company will issue new shares and cancel the right to preferential subscription.
Mutandis is seeking to raise MAD 300 million (EUR 28.5 million). As a result of the hike, the company’s current market capitalisation of MAD 1.9 billion (EUR 180 million) should be increased by 16%. Mutandis has set the share price for the hike at MAD 240 (EUR 22.80), or slightly below the MAD 245 (EUR 23.37) level quoted on 21 January. That day, Moroccan financial market regulator AMMC approved the prospectus for the capital hike.
As Mutandis offers next to no premium at all, we don’t see the advantage of buying shares in the capital hike as opposed to buying those already trading on Casablanca’s stock exchange. The lack of an incentive suggests that Mutandis has already attracted enough institutional investors for its move.
That said, private investors still thinking about subscribing to the capital hike should be aware of two more things. First, the company is an SCA, or in French, “société en commandite par actions.” This means it is a limited partnership that gives many rights to the management and few rights to the shareholders. Second, Mutandis has not yet published its full financial results for 2021, to include the bottom line. Investors have so far only been informed about its revenue for the first three quarters of the year. That revenue was up 11% compared with 2020 and up 3% at constant scope, i.e. M&A effects are not included. This does not reflect a big increase for the year. As the profit figure is not yet available, a price-to-earnings (P/E) ratio for Mutandis cannot be calculated. The P/E ratio enables investors to determine whether the share is expensive or cheap relative to other shares.