South African small caps outperform the market

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many thanks for your loyalty.

We will be taking a short summer break from July 1st to July 20th.


Christian Hiller von Gaertringen

Editor-in-chef, Capital News Africa

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With the first half of the year ending, let's take a look back: Despite a difficult macro environment, companies listed on the Johannesburg Stock Exchange (JSE) have become more valuable. According to the data from the bourse, the total market cap of JSE-listed stocks has risen 3.5% to ZAR 19,347 billion (EUR 1,156 billion) since January.

With respect to index performance, small caps are outperforming large caps. The JSE’s All Share Index declined by 0.4% year-on-year, mainly dragged down by underperformance of large industry stocks. Indeed, the Industrial 25 index fell by 16.6% between mid-June 2020 and mid-June 2021. At the same time, the Small Cap Index gained 13.9%. On AltX, the market place for young, high-growth companies, share prices gained an average of 19.1%. It wasn’t all doom and gloom for large caps, however. Banking stocks did relatively well, as reflected by the Financial 15 index. It is up 15.6% for the past twelve months.

These figures strongly suggest that investor sentiment on South Africa’s stock market is still positive. For when investors turn negative, they begin to sell small caps owing to their lesser liquidity vis à vis large caps.

Along with the resilience of South African small caps, African tech start-ups continue to attract funding. Futuregrowth Asset Management in Cape Town reports that inflows to the African tech sector totalled USD 2.7 billion between January and May 2022. This is more than double the USD 1.2 billion the sector attracted in the year earlier period.


Moroccan king launches investment initiative

Our readers know that a strong belief led us to publish this newsletter: We are convinced that Africa can only realise its huge growth potential when it builds a strong capital market and is no longer dependent on international financiers.

This idea is gaining ground on the continent. Speaking at a conference of the African Sovereign Investors Forum (ASIF) in Rabat, Moroccan King Mohammed VI called on the creation of a “true African investment industry.” The king said such an industry would “guarantee a massive and sustainable mobilisation of capital and ensure effective integration into financial markets.” Mohammed VI also lamented the fact that access to capital remains limited and dominated by funding from agencies and development banks. “It is time for Africa to assert itself, to take its destiny into its own hands and to occupy the rank it deserves,” he said.

We firmly support the king’s statement. Mohammed VI chose the place for his appeal well, as sovereign wealth funds can make a big contribution to the development of Africa’s investment industry. A strong capital market needs such investors and other strong players. Therefore, Africa should enrich its stock exchanges with more strong companies, including those that are currently state-owned.

Are Dari Couspate shares making a comeback?

Nearly every Moroccan knows Dari, the leading couscous brand in that country and in 45 others. We think investors should also become familiar with its producer, Dari Couspate (ISIN: MA0000011421), which is worth EUR 139 million on the Casablanca Stock Exchange (CSE). Some background: After gaining 11.6% in 2020, Dari Couspate’s share lost momentum, declining 5.7% since January. However, the company may be poised for a comeback, as Dari Couspate’s share price gained 3.1% last week to MAD 4950 (EUR 467.48).

Peaking investor interest in stocks like Dari Couspate is the wheat shortage in Africa caused by Russia’s war in Ukraine. The conflict has cut off supplies from Ukraine through the Black Sea. Such scarcity is leading to price hikes on wheat and other vital foodstuffs.

Created in 1995 and traded as a public company since 2005, Dari Couspate is still a family business. Chairman Mohamed Khalil owns 13.3% of Dari Couspate’s stock. CEO Hassan Khalil holds 14.3% of the stock, while Deputy CEO Saïda Khalil and Mohamed Amine Khalil, Director Development, also own 14.3% of the stock each. In total, the Khalil family owns just over 70% of the company.

On Wednesday 29 June, Dari Couspate will hold its annual shareholders’ meeting. Its management has announced a dividend of MAD 95 (EUR 8.97) for 2021. This is lower than the 2020 dividend of MAD 120 (EUR 11.33).

Unexpected resistance to PE investor CVC in Kenya

With 282 hectares of tea plantations in the Rift Valley worth KES 768 million (EUR 6.2 million), Kenya’s Limuru Tea (ISIN: KE0000000356) is quite an asset. It is also the subject of a heated argument between two shareholders. For when UK-based consumer goods giant Unilever (ISIN: GB00B10RZP78) recently sold its tea business to private equity firm CVC Capital Partners for USD 5.1 billion, Unilever’s 52% stake in Limuru was part of the deal.

Kenyan businessman Joe Wanjui rejects the Limuru deal and has filed a lawsuit to stop it with the UK’s High Court. Wanjui (85) owns 25.48% in Limuru and argues in the complaint that minority shareholders were not offered a chance to participate in the deal. He is accusing Unilever of making partial disclosures to the Kenyan Capital Markets Authority (CMA) in the phased restructuring of its tea business, which culminated in the sale. The irony is that Wanjui is a former executive chairman of Unilever Kenya.

For us, the big question is: What are CVC's intentions with Limuru Tea? Unilever announced in November that it would sell its entire tea division but did not disclose the reason. Private equity funds typically fillet companies and keep only those parts that promise the biggest profit potential. Now, the uncertainty about Limuru's future started to affect the share. On Friday, it lost 9.9% to KES 320 (EUR 2.58).