Enia Nyakudzambara Business Reporter
THE number of investors from South Africa and other major international centres focused on Africa’s hidden markets has increased. This has contributed to a sustained increase in the valuations of some larger stocks, according to Imara Africa Securities.
The hunt for “less obvious, but significant” value opportunities has been spotlighted by Imara Africa Securities, a firm with a growing institutional client-base in view of its network of trading platforms across Africa’s frontier markets.
Cape Town-based head of strategy at Imara Africa Securities Andrew Schultz said Africa is liquidity-challenged, which means relatively few stocks are traded in sufficiently high quantities to attract the attention of asset managers with major funds to invest.
“Therefore, the big players tend to focus on larger markets, notably Nigeria and Kenya that have several very tradable stocks on offer,” said Mr Schultz.
“In contrast, Zimbabwe may have only two or three liquid stocks while Senegal may have only one.”
Imara also publishes highly regarded investment research. Its research insights are increasingly in demand as asset managers begin to focus intently on the hunt for hidden opportunities.
Interest in liquid stocks has sharpened as a result of growing investor commitments to sub-Saharan markets.
“As a consequence, investors are beginning seek out less obvious, but significant value opportunities in some other markets and in less frequently traded stocks,” he said.
Price-earnings multiples for Guinness Nigeria can top 23-times and may go even higher at Nigeria Breweries.
On the Kenyan stock exchange, multiples on a popular share like East African Breweries can top 30 times.
In contrast, the price-earnings multiple at Delta in Zimbabwe has hovered just above 13-times.
“The gap between multiples in the low teens and the high twenties indicates a possible opportunity,” said Mr Schultz.
“A key contributor may be foreign buying, but other factors can also come into play for example, corporate earnings in Zimbabwe’s consumer-facing sectors are dependent on consumer purchasing and the Zimbabwean consumer is currently under pressure.
“Even so, significant returns are possible for instance, Delta’s two-year annualised return, with dividends re-invested, is 35 percent,” he said.
More and more asset managers are now probing the reasons for apparently depressed P/E ratios, hoping to dig deep enough to uncover big upside potential.
“Less studied markets are now the focus area of some highly sophisticated investors.
“We see this trend across investment houses in Cape Town and Johannesburg and in the northern hemisphere, especially on the east coast of the USA, the UK and western Europe,” Schultz said.
Historically Africa’s hidden gems have always excited interest which is still the case today.