Many of Sub-Saharan Africa’s equity markets are small – with the Seychelles Securities Exchange only opening in August with a single listing – but the returns have been big, for those able to access them. But beware the investor nervous about volatility.
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Sub-Saharan Africa, ex South Africa, markets fell back in August, led by Zimbabwe (down 22% following the latest election victory for President Mugabe) and Nigeria (down 6.1%).
Smaller markets have continued their rises such as Malawi up 25% on the month, but on low volumes. In the year to the end of August, Malawi and Ghana have been outstanding with rises of 53% and 47% respectively. Nigeria and Kenya year to date are up 23% and 24%, respectively, and Zimbabwe – even factoring in the post-election correction – is up 21%.
August also marked the arrival of a new exchange as Seychelles opened for business with the listing of SACOS Insurance.
As ever, currency movements have significantly impacted US dollar-based returns for the year, for the positive in Uganda but adversely in South Africa, Nigeria, Botswana, Ghana, Zambia and Tanzania. The South African rand has slumped 17%, outpacing gains in the all share index, to leave dollar performance down 10.9%.
The graph sets out the 2013 US dollar returns for SSA and the individual markets. Excluding South Africa, for both reasons of scale and currency, Sub-Saharan Africa as a region has risen 23% in the first eight months of 2013. Despite the emerging and frontier markets sell-off, the performance to date is strong.
The market capitalisation of the Top 30 companies in August 2013 was down 5.8% on the month to US$79.5bn, but up 21% year to date and up 44% over the past twelve months.
Our analysis shows:
• Sixteen companies with a ROE above 25%
• Ten companies with a historic P/E below 10.0
• Eight companies with a dividend yield above 5%
• Seven companies with a price/book value below 1.5 times.
• ROE’s generally exceed the cost of capital and inflation. Higher ROE’s are rewarded with higher valuations
SSA ex SA Top 30: Banks
· Investors reward high ROE’s handsomely.
· From the graph, on a semi-log scale, there is strong correlation of ROE and Price/Book value.
· Following the EM and FM sell-off in Q2 2013 there is now greater divergence from the trend line, implying greater under-valuation.
· UBA, Zenith Bank, GTB and ETI look undervalued.
· Stanbic IBTC, Union Bank and MCB look overvalued.
This, we believe, has important implications for banks. Specifically, a higher ROE generates more capital for the bank to grow without recourse to shareholders, ie dilution, as well as enabling higher dividends to be paid.
SSA ex SA Top 30: Industrial & Commercial Companies
· As with banks, investors reward high ROE’s handsomely.
· From the graph, on a semi-log scale, there is strong correlation of ROE and Price/Book value.
· Following the EM and FM sell-off there is now greater divergence from the trend line, implying greater under-valuation.
· Dangote Cement, SONATEL, Lafarge WAPCO, Delta Corp and Econet Wireless appear under-valued.
· PZ Cussons Nigeria, Cadbury Nigeria, Guinness Nigeria and East African Breweries look overvalued.
| Sub-Sahara Africa stock markets: August 2013 | ||||||
|---|---|---|---|---|---|---|
| Market capitalisation (US$bn) | P/E Historic | P/E Forecast | Dividend yield (%) | Price/book | 2013 US$ returns (%) | |
| South Africa | 870.8 | 16.4 | 13 | 3.5 | 4.5 | –10.9 |
| Nigeria | 69 | 18.8 | 12 | 3.2 | 7.03 | 23.4 |
| Kenya | 18.8 | 16.6 | 11 | 3.5 | 4.01 | 24.4 |
| Cote d'Ivoire | 7.1 | 14 | 8 | 7.5 | 3.68 | 21.2 |
| Zimbabwe | 5.1 | 12.6 | 10 | 1.6 | 2.73 | 19.2 |
| Mauritius | 5.2 | 10.3 | 11 | 2.8 | 1.59 | 10 |
| Botswana | 4.6 | 12.9 | 10 | 3.9 | 3.8 | 1.1 |
| Ghana | 4.4 | 22.2 | 12 | 2.5 | 7.73 | 46.5 |
| Zambia | 3.2 | 16 | 10.5 | 4.2 | 4.02 | 23.8 |
| Tanzania | 2.6 | 10.2 | 5.5 | 5.2 | 2.93 | 34.9 |
| Namibia | 1.4 | 9.4 | 6 | 6.9 | 2.69 | –6.6 |
| Malawi | 1.2 | 8.5 | 7.5 | 5.5 | 3.38 | 53 |
| Uganda | 1 | 14.7 | 13 | 4.6 | 3.18 | 20.6 |
| Rwanda | 0.9 | 20.4 | 10 | 2.9 | 11.94 | 23.5 |
| Cameroon | 0.3 | 12.8 | 4 | 3.4 | 4.02 | 10.5 |
| Seychelles | 0.1 | 8.3 | 7 | 8.6 | 1.04 | 10.2 |
| Sub-Sahara Africa ex SA | 124.9 | 17 | 11.1 | 3.5 | 5.64 | 22.6 |
| P/E < 10, dividend yield >5%, price/book < 1.5 | ||||||
| Source: Hartland-Peel, country stock markets, company annual and earnings reports | ||||||
| Top 20 companies, Sub-Sahara Africa ex South Africa | |||||||
|---|---|---|---|---|---|---|---|
| Country of listing | Share price | Market cap (US$m) | Historic P/E | Dividend yield (%) | Price/book | ROE, last 12 months (%) | |
| Dangote Cement | NIG | 190 | 19,821 | 17.2 | 1.6 | 6.9 | 40.2 |
| Nigerian Breweries | NIG | 165 | 7,639 | 31.7 | 1.8 | 13.35 | 42.1 |
| Nestle Nigeria | NIG | 935 | 4,537 | 33 | 2 | 21.68 | 65.7 |
| GTB | NIG | 24.53 | 4,420 | 8 | 6.3 | 2.56 | 32 |
| Zenith Bank | NIG | 19.71 | 3,788 | 6 | 8.1 | 1.35 | 22.5 |
| Sonatel | BRVM | 18,000 | 3,617 | 11.4 | 8.3 | 3.35 | 29.4 |
| Safaricom | KEN | 7.7 | 3,518 | 17.7 | 4 | 3.97 | 22.5 |
| First Bank of Nigeria | NIG | 16 | 3,196 | 6.8 | 6.3 | 1.2 | 17.5 |
| East African Breweries | KEN | 284 | 2,565 | 32.2 | 1.9 | 8.78 | 27.3 |
| Guinness Nigeria | NIG | 255 | 2,302 | 37 | 3.10% | 9.32 | 25.2 |
| Lafarge Wapco | NIG | 93 | 1,709 | 13.6 | 1.3 | 3.52 | 25.8 |
| MCB | MAU | 193.5 | 1,566 | 11.2 | 3 | 1.72 | 15.4 |
| ETI | NIG | 14.64 | 1,543 | 4.3 | 4.5 | 0.77 | 17.9 |
| Access Bank | NIG | 10.8 | 1,513 | 7.4 | 7.9 | 1.06 | 14.3 |
| United Bank of Africa | NIG | 7.33 | 1,451 | 4.3 | 6.8 | 1.25 | 28.9 |
| KCB Bank | KEN | 42 | 1,415 | 9.3 | 4.5 | 2.32 | 25 |
| Equity Bank | KEN | 32.75 | 1,385 | 9.7 | 3.8 | 2.83 | 29.1 |
| Unilever Nigeria | NIG | 57.7 | 1,336 | 39.7 | 2.4 | 21.74 | 54.8 |
| Delta Corporation | ZIM | 1.1 | 1,327 | 13 | 3.1 | 3.9 | 30.1 |
| Flour Mills Nigeria | NIG | 83.78 | 1,197 | 28.2 | 1.9 | 2.42 | 8.6 |
| Source: Hartland-Peel, country stock markets, company annual and earnings reports | |||||||
