TNM have been ranked 4th in Africa’s Top Five Stocks of 2014


I always enjoy writing about standout stock performances. Familiarizing myself with the factors that fueled their success helps me to identify similar opportunities in the future.

So, I thought it would be fun to count down sub-Saharan Africa’s top five performers thus far in 2014.

We’ve got a nice crop of them in spite of African markets’ muted performance. They represent five different markets and each one has returned more than 50 percent in U.S. dollar terms.

Sound good? Alright, let’s count ‘em down.

No. 5. British American Tobacco – Uganda

YTD return: +58.0% (dollar-adjusted)

It seems that no African top-performers list is ever complete without the requisite sin stock, and BATU represents the class here.

The company’s 2013 earnings actually dropped 11 percent, but sharp-eyed Uganda investors recognized that this was due to a couple of one-off expenses.

One pertained to the loss of a lawsuit dating back to 2004, when the company failed to pay some farmers for tobacco delivered to one of its warehouses.

The other big expense involved the costs of closing its only tobacco-processing factory in the country. The company’s tobacco will now be processed in Kenya.

Management continues to grumble about its high tax burden and the potential impact of a tobacco-control bill working its way through parliament. But with operating profit up 56 percent in 2013 and margins set to widen with the closure of the factory, I suspect they’ll make out just fine.

No. 4. Telekom Networks Malawi

YTD Return: +65.4% (dollar-adjusted)

Telekom Networks Malawi boasts 45 percent of Malawi’s telecommunications market, and its share performance is the reason the Malawi Stock Exchange is Africa’s best-performing market so far this year.

The company’s 2013 earnings nearly quadrupled (up 275% percent) on the back of a 62-percent rise in service revenue.

It grew its subscriber base by 12 percent thanks, in part, to the introduction of a mobile money service (Mpamba) modeled on Kenya’s Mpesa.

It also launched a life insurance product that gives customers coverage in amounts tied to the amount of voice and data they use.

Management took advantage of the increased cash flow by paying down a big chunk of its expensive long-term debt load and by boosting the dividend 57 percent.

In spite of the big price run-up, the shares don’t appear overvalued to me. They now trade at 12.6-times trailing earnings and yield 3.4 percent.

Liquidity is decent, too, considering it trades on the sleepy Malawi Stock Exchange. Weekly trade volumes have averaged $475,000 over the past six months.

No. 3. CIC Insurance (Kenya)

YTD Return: +71.7% (dollar-adjusted)

Investors are beginning to get a handle on the upside potential of African insurers.

And one of the biggest beneficiaries of this growing awareness is CIC, Kenya’s second-largest insurer in terms of gross premiums.

The company’s 2013 earnings were actually a bit disappointing, increasing just 1.4 percent due to stagnant investment income and a big increase in claims paid. As a result, management opted not to raise the dividend.

But the share price continued to soar after the earnings announcement.

I’m guessing this was due to a big regional expansion plan that the company announced in mid-March.

It plans to expand into Tanzania, South Sudan, Uganda, and Malawi. All four countries have very low insurance penetration rates, and CIC Insurance specializes in micro-insurance products, which should allow it to achieve critical mass quickly.

The stock’s now trading at a PE of 15.1 with a yield just below 1 percent.

No. 2. ZCCM Investment Holdings (Zambia)

YTD Return: +88.5% (dollar-adjusted)

ZCCM holds ownership stakes in a bunch of Zambian copper and coal mines as well as a 20-percent stake in Copperbelt Energy Corporation, a power utility.

Most of the stock’s upward momentum this year appears to have been stimulated by a debt-restructuring exercise which saw a big sum converted into equity that the company owed the Zambian government. This effectively tripled ZCCM’s net asset value.

Copper prices have dropped 7 percent this year, but if the Chinese economy continues to gain strength, this loss could be recouped quickly.

ZCCM shares are illiquid in Lusaka with weekly trade volumes averaging just over $11,000 over the past six months. But it does trade in decent volumes on the NYSE Euronext.

No. 1. Forte Oil (Nigeria)

YTD Return: +95.0% (dollar-adjusted)

Forte Oil was Africa’s best-performing stock in 2013 and the shares have continued to soar in the first half of this year.

The company owns a rapidly expanding network of filling stations in Nigeria and Ghana and plans to move into Liberia and Sierra Leone too.

But the big reason that the stock has done so well is that it recently acquired a 414-megawatt power plant. This makes it one of the few ways to invest directly into Nigeria’s power sector, and management believes revenue from electricity sales will help the company triple its profits this year.

What’s more, Forte Oil last month was included in the MSCI Frontier 100 Index. This is a big boon for the company’s investors as demand for the shares will increase as institutional portfolio managers look to recreate the index.

What African stocks do you think will be among 2014′s best performers? Let’s hear your predictions in the comments!


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