Eight JSE-listed stocks that will give you exposure to the rest of Africa
Are you looking to profit from the Africa growth story, but don’t feel like setting up your own business in the Congo?
Are you looking to profit from the Africa growth story, but don’t feel like setting up your own business in the Congo? A number of South African companies have started operations in the rest of the continent. Some have been in Africa for many years, long before it became fashionable to invest, while others are more recent entrants. Claude Harding looks at eight Johannesburg Stock Exchange-listed companies that could provide investors with good exposure to the rest of the continent in coming years. The JSE is a world-class stock exchange and generally more liquid than most other bourses in Africa. (Please note: This article should not be considered as professional investment advice.) 1. Standard Bank
The Standard Bank Group is Africa’s largest bank by earnings and assets. The group has a presence in 18 African countries with more than 1,000 branches. Just yesterday the bank announced that it has launched operations in South Sudan.
Investors will however need a little patience for Standard Bank’s African operations (outside of South Africa) to pay off. Last year the Bank said that its strategy in the rest of the continent could take up to five years to show meaningful results. “We think there is a three- to five-year period to run before returns in the rest of Africa will be satisfactory,” Ross Linstrom, a spokesman for the Johannesburg-based bank, told Bloomberg. 2. Nampak
Nampak is a packaging company specialising in metal, glass, paper and plastic. The company does business across Africa, with manufacturing operations in Angola, Botswana, Ethiopia, Kenya, Malawi, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Zambia and Zimbabwe.
Nampak says that its business in Africa (excluding South Africa) has the greatest potential for future growth. Within the next five years it wants to increase revenues from the rest of the continent to 25% of total group earnings. In its 2011 annual report Nampak indentified a number of opportunities to boost its growth in Africa, including capturing a larger share of the Angolan beverage can business and exporting Zambian manufactured liquid cartons to other African countries.
Last year Nampak opened a US$160 million beverage can factory in Angola, where its main clients include Coca-Cola and brewer Cuca. “We’ve been doing exports to Angola from South Africa from the early 2000s. The volumes were growing and in 2004 we had an engagement with the Angolan government. They asked us whether we want to invest into Angola and actually put up a can line there. At the time we thought it was maybe still a bit risky. We were looking at the political risk. Angola just came out of a civil war. We did a feasibility study again about two years later in 2006 and then we decided that the opportunity is there. The political situation looked better. But one of the main reasons for investing in Angola was really the size of the market. The market was growing at speed. It was literally a matter of saying, if we go in there, we already have a developed market and virtually we can sell every can we can make,” Erik Smuts, MD of Nampak’s beverage can unit, told How we made it in Africa in an interview last year.
“I am very bullish on our prospects in Africa,” said CEO Andrew Marshall according to a recent Financial Mail article. “There is a risk premium to doing business [there] … The markets are also difficult to operate in, which means there is less competition,” he added.
3. Zeder
Zeder is the agribusiness arm of South African investment company PSG.
Zeder was traditionally only focused on investments in the South African market, but has recently turned its attention to the rest of the continent. “We have always said that there are enough investment opportunities in South Africa at much lower risk. However, we have realised that we cannot afford to miss out on the vast opportunities that Africa present,” writes Zeder chairman Jannie Mouton in the company's recent annual report.
A few months ago Zeder bought an 81% stake in Chayton Atlas Investments, a large-scale commercial farming operation in Zambia. Chayton has 1,250 hectares of irrigated farm land, which it plans to extend to over 10,000 hectares over the next two years. Initially the company will only produce crops for the local Zambian market, where it sees significant demand.
In addition Zeder has also acquired seed company Agricol (it previously only had a 25.1% shareholding). Zeder plans to use Agricol as a vehicle to drive a South African and an African expansion in the seed business.
“We will continue seeking and exploiting value enhancing opportunities within our core South African market and existing portfolio, while also evaluating investments in the sub-Saharan region,” notes Mouton.
4. Tiger Brands
Tiger Brands is a South African fast-moving consumer packaged goods company involved in a variety of products, including: bread, rice, pasta, peanut butter, candy and energy drinks, to name a few.
Over the past few years Tiger Brands has increased its footprint in the rest of Africa by buying stakes in businesses in countries such as Kenya, Cameroon, Nigeria and Ethiopia. At the end of 2010, the company formed a partnership with UAC of Nigeria (UACN), a Nigerian diversified company. The joint venture consists of UACN’s food and dairy operations as well as the SWAN water business. In addition it has bought Deli Foods Nigeria Limited, a company engaged in the manufacturing and marketing of biscuits for the Nigerian market.
Tiger Brands also signed an agreement with the East African Group of Companies of Ethiopia relating to the formation of a new food and home & personal care joint venture, which will operate in the Ethiopian market. “Ethiopia, which has a population of approximately 85 million, has experienced high GDP growth rates for a number of years. Most categories in the packaged consumer goods sector are enjoying good growth, stimulated by the fast growing economy,” the company said at the time of the announcement.
Last month Tiger Brands advised its shareholders that it is in discussions to buy a stake in Nigeria’s Dangote Flour Mills. However, since then no further details regarding the possible transaction have emerged.
5. Group Five
Group Five is a construction services, materials and infrastructure investment group operating in Africa, the Middle East and eastern Europe. The group has completed numerous projects in the rest of the continent. For example, Group Five has been involved in the building of a power plant in Nigeria and it is currently working on a new road in Zimbabwe. It has also completed projects in Africa’s mining industry.
Earlier this year Group Five CEO Mike Upton said that it is part of the company’s strategy to expand its operations in the rest of Africa. It is said that Africa needs around US$90 billion a year to deal with its infrastructure backlog. Group Five is well positioned to take advantage of these opportunities.
Upton recently told the Reuters Africa Investment Summit that he sees west Africa as a big growth market for Group Five. “West Africa for us is growing into a very viable broad-based market, not just a project opportunity region.” He added that the discovery of oil and gas in east Africa also holds potential for the business.
6. Shoprite
Together with Standard Bank and MTN, supermarket group Shoprite is often credited as one of the first large South African companies to see the opportunities in the rest of the continent. In 1995, long before the current hype about doing business in Africa, Shoprite opened its first supermarket in Zambia.
The group has a presence in 17 African countries. Shoprite is seeing significant potential in the Nigerian market, where it currently has four outlets. Shoprite believes there is scope for 700 stores in Nigeria. Despite Nigeria’s population of over 160 million, it is estimated that 61% of Nigerians live on less than US$1 a day. Shoprite CEO Whitey Basson, however, doesn’t seem too concerned. “Even if you have 60% of the population living in poverty, 40% of the Nigerian population is still bigger than the South African population,” he told Reuters.
Despite its relatively large African footprint, Shoprite could be in for some strong competition in the coming years, most notably from US supermarket giant Wal-Mart, which recently acquired South African retailer Massmart. Pick n Pay, another one of Shoprite’s competitors in South Africa, has also expanded beyond the country's borders with store openings in Zambia, Mozambique and Mauritius. In addition, Kenyan-based Nakumatt, which has a strong presence in the east African market, has plans to become a pan-African player.
7. MTN
Africa’s mobile telecommunications sector has experienced an astonishing rise over the past decade. It is estimated that the continent currently has over half a billion mobile subscribers.
Since MTN’s start in South Africa in 1994, the company has expanded to become a pan-African mobile telecoms giant with operations in at least 16 markets on the continent. MTN’s early investment in Nigeria is seen as a stroke of brilliance. At first considered a risky investment, MTN closely studied the Nigerian market for three years before it entered the country in 2001. Today MTN Nigeria has over 40 million subscribers, its biggest market out of all the countries where it operates.
With revenues from voice falling rapidly, most mobile network operators need to find new ways to generate profit, such as from data and other services. However, despite what the future holds for mobile telecoms in Africa, MTN is likely to continue to be one of the major players.
8. Mr Price
Fashion retailer Mr Price currently has 45 corporate-owned stores and 28 franchised outlets in the rest of Africa. In its most recent annual report Mr Price says that the emergence of a sizeable middle class will provide fuel for consumer booms in many African countries. However, overcoming obstacles, such as poor infrastructure, will prove challenging, “but potentially very rewarding”.
In March this year Mr Price opened its first Nigerian outlet in the new Ikeja Mall in Lagos. Although it is still early days, the store is performing better than initial feasibility studies indicated. A brand new outlet is also expected to open in Ghana’s Accra Mall this month.
For its expansion into Africa, Mr Price’s strategic focus is on corporate-owned stores in areas where critical mass can be achieved. The group has however said that growth into the rest of the continent will be slowed by a lack of suitable properties.