Due to politics, South Africa has fallen short of its economic potential in recent years. We regret this, as a dynamic South Africa is not only good for that country, but for the African continent as a whole. Yet despite this fact, there are a number of South African stocks that are doing brilliantly.
Our first example is hard coal mining company Thungela Resources (ISIN: ZAE000296554), which mining giant Anglo American spun off in 2021. Traded on the Johannesburg Stock Exchange (JSE), Thungela is now valued at EUR 2 billion following a great run on the JSE in the past year. Thungela’s share gained no less than 279% to ZAR 269.31 (EUR 15.25).
However, Thungela’s rally came to a halt in the second half of September. After reaching a year high of ZAR 377.52 then, the share fell to ZAR 234.80 by 11 November. Since then, it has recovered somewhat, and we believe that global demand for coal as a reliant and cheap source of power will support the share. Analysts who cover Thungela have set an average price target of ZAR 340 for the share, or 26% above its current price.
Another stock that has done well is IT services provider PBT Group (ISIN: ZAE000256319), a small cap with a valuation of EUR 43 million. Since January, the share price is up 18% to ZAR 9.11 (EUR 0.52) and has gained 430% in the past three years. PBT’s fundamentals also look strong, suggesting further potential for its share price: The dividend yield is at 6.7%, the earnings per share at ZAR 0.73, the price-to-earnings ratio at 11.7, and the price-to-book ratio at 2.04. Moreover, PBT’s operating margin equals 13.4% and it net margin 6.9%.
Thirdly, Royal Bafokeng Platinum (ISIN: ZAE000149936) is one of the performers among South Africa’s mining stocks. The company specialises in the supply of platinum, palladium, rhodium, nickel, gold, ruthenium, iridium, cobalt, chromium and copper. Its share price is up 35% to ZAR 163.73 (EUR 9.27) since January and has climbed 278% in the past three years. But analysts covering Royal Bafokeng are not that positive on the share. They have set an average price target of ZAR 152.40, which is 7% below its current trading price. These are just three examples of the performers on the JSE. We are sure that you will find others.
Our readers will remember that we highlighted the problem of high public debt in Ghana. Fittingly, the Economist Intelligence Unit (EIU) has also examined Ghana’s debt in a recent outlook for the African economy. EIU’S economists expect that debt to remain high next year, totalling well above 60% of GDP.
We do not think that public debt is bad for a country per se. It becomes a problem when debt servicing takes a too heavy toll on the government’s finances or when the government lacks currency reserves to repay debt incurred in USD or EUR. We agree with the EIU that like in Ghana, public debt has become a problem in Tunisia, Egypt, Congo-Brazzaville, Zambia, Zimbabwe and Mozambique. Ghana’s debt-to-GDP figure currently stands at 81.8%.
Let us look at the debt levels in those other countries: According to Trading Economics, Mozambique’s public debt-to-GDP ratio is 130%. It is followed by Zambia (123%); Egypt (87.2%); Tunisia (80%); and Zimbabwe (77.2%). These figures do not, however, tell the whole story. For example, Tunisia likely has more economic resources to deal with a debt-to-GDP ratio of 80% than Zimbabwe with its 77.2% ratio.
On the other hand, the EIU cites several African countries which, despite higher interest rates, still have manageable levels of public debt. These include Kenya, Nigeria, South Africa, Algeria, Angola, Gabon and even Ethiopia which formerly struggled with high public debt.
But as mentioned, investors should be more focussed on the countries’ ability to service debt incurred in USD or EUR. According to the EIU, African states must pay back about USD 75 billion of external borrowing in 2023 and a similar amount in 2024. The EIU’s economists warn in the report: “This debt-servicing will become more painful because of higher interest rates, weaker currencies against the US dollar and softer capital inflows.” The real test of investor confidence in the solvency of Africa governments will happen when they attempt to issue new bonds in EUR or USD in 2023 and 2024. We personally think that African governments should further develop their bond markets to encourage more funding from local investors. For this would reduce their dependence on international investors.
Nigerian Breweries (ISIN: NGNB00000005) has emerged as a hot stock on the Nigerian Exchange (NGX) in Lagos. Last week, the stock gained 18.7% to NGN 48.95 (EUR 0.1062) on high trading volume. This sudden interest in the stock reduced its overall loss this year to 2.1%.
Nigerian Breweries is one of West Africa’s leading breweries with a market cap of EUR 812 million. Dutch beer group Heineken (ISIN: NL0000009165) is majority owner of it with a 55.3% stake, the 2.1% decline in its share is comparable to Heineken’s performance on the Euronext Amsterdam stock exchange. Heineken is down 9.8% to EUR 89.20 since January.
So, what explains the sudden interest in the stock? On 17 November, Nigerian Breweries said it would hold an extraordinary shareholder meeting on 8 December to issue bonus shares. Shareholders will get one additional share for every four shares they hold. The aim is to eliminate unissued shares from the company’s books. The bonus shares have a total value of NGN 1.03 billion (EUR 2.24 million). We hope these additional shares will help further boost interest in the stock.
Cairo is not currently a stock market that attracts much investor interest. This is unfortunate. For even if the economic situation in Egypt is difficult, the Egyptian Exchange (EGX) is one of Africa’s most interesting equity markets.
One performer on the EGX is Qalaa Holdings (ISIN: EGS73541C012). Its share gained 5.4% to EGP 1.377 (EUR 0.05) in the current month and 14.2% since January. In addition to that, trading volume in Qalaa is currently between 12 and 40 million shares per day.
The investor interest in Qalaa is down to its businesses: Slightly more than half of Qalaa’s net sales (54%) are from the production and distribution of power and gas – two sectors that are benefitting from the current geopolitical tension. Qalaa also generates turnover with other strong businesses like cement (18% share) as well as mining and agro-food processing (6% each). But there is one important thing investors must know about Qaala: It reported an operating loss for 2021, even if that was reduced by 46% to EGP 2.1 billion.