African Markets and Investments

In this 2 part series.. We will venture into the last frontiers. Developed world treasuries are yielding close to nothing; US, UK, Japan etc are all yielding sub 1% returns.. but the emerging markets and the more riskier ones at that, are returning some high yields, of course, this will be pricing in the risk appetite for the investor.

In Part 1, I will look at Iraq then in part 2 we visit our brothers and sisters in Zimbabwe where the economy is now dollarised. i.e. the US dollar is also acceptable as legal tender.

In Iraq, there is a new $10 Million hedge fund; called Babylon Fund which is investing exclusively in Iraqi quoted companies or Iraqi exposed companies(i.e. companies which earn most of their income from Iraq reliant activities) The Iraqi Stock Market has a market capitalisation of around $2 Billion , with 75% of this being financial services industry.

The Market has around 80 listed securities, and yes these are more than in Kenya. If you are wondering what about the Oil companies, there are no listed Oil companies because the government owns the oil companies and they are not publicly traded. The Iraqi Stock Exchange trades for only two-and-a-half hours a day, twice a week, on Mondays and Wednesdays. During these sessions, Only about a quarter of the roughly 80 companies listed on the exchange trade, with a total turnover of between US$2 million and US$4 million.

For more information click on below links: Hedge Week and Final Alternatives

Here is a presentation by CNBC on Africa..The Final Investing Frontier

In Kenya, the image is still pretty tainted by the anarchy after the mess we called ‘elections’.
Anyway, was just listening to CNN and comparisons are now being drawn on whats happening in Iran to be the ‘Kenyan Thing’… similar to the other ‘kenyan thing’ that took place in Zim.

May be we should patent powersharing and tribal warfare…

Ok.. back to business.. This coverage gives a good overview of whats happening in Africa.

GE has developed a new disc which can store upto the equivalent of 100 DVD’s, or about 1,000GB i.e. 1 Terabyte; Yep, that’s a lot of movies in 1 disc, another difference is that this Disc will store the data within it not on the surface like the current discs, which I hope will sort out the problem of scratches.. this has taken its toll on my music collection, use it in the car for a day, or a friend borrows and the disc is gone..

For more info, click here.

After the first day of trading today on JSE(Johannesburg Stock Exchange), it closed at R58.80(about Kes:524.00) per share.
Currently Vodacom is owned 50% by Telkom and 50% by Vodafone.

The listing of the company forms part of a number of interconditional transactions including the sale by Telkom of a 15% stake in Vodacom to Vodafone for a net sum of R20.95bn, increasing Vodafone’s interest in the company to 65% and, following the listing, the unbundling by Telkom to its s hareholders of its remaining 35% in Vodacom.

Vodacom was formed in 1993 and has developed into the leading SA mobile company and related services with some 38 million customers as at 31 December 2008. Its also the largest provider of mobile broadband services in South Africa with more than 600,000 customers. The recent opening of a data centre in Johannesburg, a client services operation centre and recent acquisition of Storage Technologies Services (“StorTech”) and Gateway Communications (“Gateway”) affords Vodacom a solid platform to further develop its ICT business.

Vodacom also promises to selectively evaluate further license and acquisition opportunities within the sub-Saharan African region, where shareholder value can be created. The recent acquisition of Gateway provides Vodacom with an established platform into Africa on which to benefit from the further growth in demand for carrier connectivity and high quality corporate telecommunications services. Being majority owned by Vodafone(65%), Vodacom will benefit from access to Vodafone’s expertise, product innovation, marketing and centralised procurement. Vodafone has agreed that Vodacom will be its exclusive expansion vehicle in sub-Saharan Africa. Vodacom anticipates a dividend payout ratio of about 40% of headline earnings for the year ended 31 March 2010. Dividends will be paid semi-annually with the first dividend payable for the first half of 2010.

The listing of Vodacom Group will not have any impact on the BEE shareholding interests in Vodacom SA. The Black Public interest held in YeboYethu will remain at 3.44% in Vodacom SA, as part of the 6.25% overall BEE stake. This is a key requirement of doing business in South Africa with the Black Economic Empowerment(BEE) requirements.

The listing almost never took place with a last minute application was brought by the Congress of South African Trade Unions (Cosatu) supported by the Independent Communications Authority of SA (Icasa). The application for an urgent interdict to halt the listing and to prevent Telkom selling the 15% to Vodafone provoked widespread concern that the new government’s left-wing leanings would harm SA’s business credibility.
However this application was overthrown and the listing goes ahead today. Analysts believe Vodacom is worth R70bn-R80bn. Vodacom’s shares will be distributed to the thousands of ordinary people who already own Telkom shares, meaning that many citizens will also now gain a direct stake in the lucrative cellular network.
More on the Vodacom Listing here.

The numbers do speak for themselves….

Linda is the proprietor of a bar. In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around and as a result increasing numbers of customers flood into Linda’s bar.

Taking advantage of her customers’ freedom from immediate payment constraints, Linda increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively. A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Linda’s borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral… At the bank’s corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS.

These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items. One day, although the prices are still climbing, a risk manager (subsequently of course fired due to his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Linda’s bar. However they cannot pay back the debts. Linda cannot fulfil her loan obligations and claims bankruptcy. DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.

The suppliers of Linda’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor. The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties (and vested interests). The funds required for this purpose are obtained by a tax levied on the non-drinkers.

This is the story of the global banks today…

Blue Financial Services is a micro-finance institution (MFI) listed on the JSE AltX and Botswana Stock Exchange.
The Group offers innovative and ethical credit solutions to formally employed but under-banked and underserved employees.
Blue currently operates in 12 African countries including Kenya through 281 branches, staffed by more than 3,000 employees.

Blue has identified its market as being the salaried i.e. teachers, soldiers, nurses, policemen, civil servants, and employees of enlisted companies etc. who are lower income earners and normally do not have access to loans due to the size of loans they require, as well as the lack of security, especially in other African Markets and South Africa in particular, however in Kenya, this segment is served by the likes of Equity, Krep, Faulu etc.
This explains why Blue is a small operation in Kenya.

Blue’s success can be attributed to providing employees with a range of products that include salary advances, term loans, home improvement finance, mortgages, small business finance and micro-insurance.
They collect by getting into agreements with employers to make deductions before these staff are paid their salaries, therefore ensuring that they collect early and in a more sustained manner, the same way that PAYE is deducted.

Blue’s goal is to take advantage of the significant opportunities offered by Africa’s largely ignored frontier markets.The company has plans on expanding its operations in Mozambique, Angola, Cameroon and Ghana.

Blue plans to move its listing from AltX to the JSE’s main board and may consider listing on the new Africa board, which launched on the 19th Feb on the JSE South Africa.

The group is also looking at taking additional listings on the Namibian, Kenyan and Zambian stock exchanges as it grows its presence in these countries.
However, this decision will be finalized once the group releases it financial results for last year in April.

Blue has a market capitalisation of about R2bn (Kes:16Bn) and ranks as the 122nd largest listed company in SA.

Last month, Absa became Blue’s second largest shareholder after it bought a 16% stake in Blue, after clients of Absa Capital defaulted on their single stock futures contracts.

KEY TRADING DATA (ZAR)
Share price (31 December 2008) R4.40 per share
52 week high R7.00
52 week low R3.30
Number of shares in issue(net of treasury shares) (million) 584,589,765
Market capitalisation R2.4 billion
3 month average daily volume 414, 765 shares per day
3 month average daily value R2 ,401,990.57
Currency conversion
1$ = R9.89
1£ = R14.66
1R = Kes 8.00

MAJOR INVESTORS
ABSA Bank (A member of the Barclays Group)
American International Group (AIG USA)
International Finance Corporation (IFC USA)
Public Investment Corporation (South Africa)
Stanlib (South Africa).. A member of Standard Bank (Stanbic)

Download the Blue Pre-Listing information memorandum.

City Trust ltd announced a bonus of 1:10 on 14-Oct-2008. Books Closure 02-March-2009.Posting 18-March-2009.Trading of new shares 23-March-2009.

Eaagads ltd announced a bonus of 1:1 on 26-Nov-2008. Books Closure Subject to approval.

Limuru Tea ltd announced a bonus of 1:1 on 18-Dec-2008. Books Closure Subject to approval.

Equity Bank ltd announced a share split of 1:10 on 12-Feb-2009. Record date 25-March-2009. [not exactly a bonus, but I just listed it anyway.]

NIC Bank ltd announced a bonus 1:10 on 19-Feb-2009. Books Closure 19-March-2009. Posting/Crediting date 29-April-2009

Well, this sure is the season. But in this current environment, its pleasing to see companies, reduce their cash payouts as the days ahead look gloomy, but still maintain a balance by rewarding shareholders with non – cash incentives, in the form of bonus shares.

What’s more, dividends are taxed, but the gains enjoyed by disposing off the bonus shares are not taxed, so it’s a win-win for both the company and the shareholders.