We don’t doubt that the venture German insurance giant Allianz (ISIN: DE0008404005) will form with South African insurer Sanlam (ISIN: ZAE000070660) is a good thing for Allianz. Allianz has never succeeded in gaining a significant foothold in Africa’s market by itself. Last Wednesday, Allianz and Sanlam agreed to combine their businesses on the continent outside of South Africa combining EUR 2 billion of assets. To start, Sanlam will own 60% of the joint venture, while Allianz has a remaining 40% stake with an option to acquire another 9% from Sanlam.
To form the new venture, Allianz is contributing a 66% stake it holds in another joint venture with Jubilee Holdings (ISIN: KE0000000273), an insurer listed on the Nairobi Stock Exchange and the owner of the other 34% stake. This venture is called Jubilee Allianz General Insurance and is active in Kenya, Uganda and Burundi. For its new venture involving Allianz, Sanlam is contributing its 57.1% stake in Sanlam Kenya.
The question is: If the new venture benefits Allianz, is it also a good thing for Sanlam? The investors’ first vote on the matter was plain: Sanlam, listed on the Johannesburg Stock Exchange (JSE), lost 5.7% to ZAR 64.46 (EUR 3.87) last week. Allianz shares, meanwhile, were down 5.9%. Since the transaction has a lower impact on Allianz, which has a market cap of EUR 87.2 billion, the decline in its share cannot be clearly attributed to the new venture.
Jubilee shareholders did not like the transaction any more than Sanlam's. Jubilee’s share was down 2.9% to KES 260.25 (EUR 2.13) last week. News of the new Allianz venture only pleased investors in Sanlam Kenya (ISIN: KE0000000414). After the deal’s announcement, Sanlam Kenya’s share price jumped 9.9% to KES 11.15 (EUR 0.0914).
At a half a percentage point, the US Federal Reserve’s interest rate hike on Thursday was significant. The US federal funds rate – the rate at which banks there borrow from one another overnight - is between 0.75% and 1%. African economists are now asking themselves: How will rising interest rates in the US and Europe affect the African continent?
“High fuel costs are set to have knock-on effects on costs in the coming months that may not be immediately obvious,” Renzi Thirumalai, head of investments at South African asset manager FNB Wealth and Investments, told the website Business Tech.
Indeed, some economists expect African central banks to tighten monetary policy in response to higher prices on fuel and imported goods. For example, the rating agency Moody’s believes that due to an expected inflation rate of 8% this year, South Africa’s central bank could further tighten monetary policy there. The central bank already raised the benchmark repo rate by 25 basis points to 4.25% in March.
Higher interest rates could negatively impact the credit quality of sovereign bond issuers in Africa. Bond buyers are already becoming cautious, as was seen during the sale of Kenyan government bonds last April. In the event, the Kenyan 15-year T-bills on offer with a 13.9% coupon were just 59.4% subscribed, down from 90.7% in March.
Higher rates would also negatively affect African stocks. For the higher interest rates are, the less investors depend on stocks to achieve decent returns. In short, investors should be prepared for a lot turmoil on African markets. Fortunately, there should be several companies that will perform nonetheless. Stay tuned: We will keep you informed about them.
Such numbers make the heart of every manager beat faster: Moroccan conglomerate Mutandis SCA (ISIN: MA0000012395) announced last week that its sales in the first quarter jumped 40% to MAD 422 million (EUR 40.1 million).
The higher sales were largely a result of Mutandis’ acquisition of US-based sardine can company Season Brand from RAB Food. The acquisition has added USD 50 million (EUR 47.6 million) in annual revenues for Mutandis. Beyond canned fish, which accounts for 35% of its sales, Mutandis is active in four other businesses: detergents (about 44% of sales); plastic food bottles (16%); fruit juices; and the distribution of cars, mainly Honda, Seat and Ferrari.
But Mutandis’ good first-quarter sales, reported on 4 May, were just a flash in the pan on Casablanca´s stock exchange. While the share was up 2% to MAD 243.70 (EUR 23.15) on 4 May, it shed more than 1% to MAD 242.10 (EUR 22.99) during the rest of the week. Indeed, for the last three months, Mutandis’ share is down 3.2%. It seems that investors in Morocco are not more enthused by conglomerates than anywhere else.
Jonathan Myers, the CEO of PZ Cussons (ISIN: GB00B19Z1432), really meant what he said when, three weeks ago, he said his company was adapting to this “most challenging environment.” Myers is cutting costs across the UK conglomerate to offset the effect of rising inflation. This strategy seems to have impressed investors in PZ Cussons Nigeria (ISIN: NGPZ00000005) is concerned. The unit’s share price has gained 49.6% to NGN 10.40 (EUR 0.0238) in the last three months on Lagos’ stock exchange.
PZ Cussons Nigeria, which is 73.3% owned by PZ Cussons, specialises in soaps and detergents; beauty and hygiene products; as well as food, nutrition and pharmaceuticals. The Nigerian company also deals in household appliances, including refrigerators, washing machines, air conditioners, microwave ovens and televisions.
Amid the difficult market environment, investors are hunting for companies like PZ Cussons that have an established brand and a sizeable market share. These attributes enable such companies to take advantage of higher global prices on things such as foodstuffs.