African stocks spoiled investors in 2013, with markets producing great yields.
Ten African share indexes posted returns of 25 percent or more during the year. And four gained more than 40 percent.
It’s not too tough to look like a genius stock picker in an environment like that. You could have pretty much picked a ticker symbol out of a hat and had a reasonably good chance of watching it rise 20 percent.
Unfortunately, it looks like 2014 will be much rougher.
Through February, nine sub-Saharan markets were in the red in U.S. dollar terms.
This is due to a number of internal and external factors. The Fed’s tapering of quantitative easing pulled the rug out from under emerging market currencies. China’s slowing economic growth has commodity investors worried. And political moves like the firing of Nigeria’s well-regarded central bank governor have investors questioning the direction of the continent’s governance.
But, in spite of the gloomy near-term outlook, there are some breaks in the clouds — some African markets with potential in 2014 for outstanding returns.
One such market, I believe, is the Bourse Régionale des Valeurs Mobilières (BRVM), Francophone West Africa’s regional stock exchange.
Cote d’Ivoire, the home of the majority of the BRVM’s listings, is recovering steadily from civil war. The International Monetary Fund forecasts economic growth of 8 percent this year, thanks in part to a big infrastructure development program.
There’s a new road linking the port city of Abidjan to Yamoussoukro — the political capital — which should help foster both economic growth and a sense of national unity between north and south.
And a badly needed third bridge across the Abidjan lagoon is under construction, which its builders claim, when finished, will add 1 percent to the nation’s annual gross domestic product growth.
Moreover, cocoa prices are set to rise this year, and Cote d’Ivoire is the world’s biggest cocoa producer.
In response to all of these encouraging developments, the BRVM’s main index climbed 45 percent in U.S. dollar terms in 2013, and it’s already up about 4 perent so far in 2014.
In spite of this big jump, however, the major stocks on the exchange still average dividend yields more than 5 percent.
So, which stock offer the most compelling opportunities?
Here are a few that I believe merit a close look.
This affiliate of Morocco’s BMCE Bank is one of Cote d’Ivoire’s fastest-growing banks.
It has a network of 22 branches and plans to open seven more within the year.
It’s traditionally been a retail-oriented bank, but it would like to expand its corporate lending, and to that end it has plans to open a business center in downtown Abidjan this year.
Management has guided the company deftly since the return of political stability.
Customer deposits increased 27 percent in 2012, and the bank grew its lending book by nearly a third. The deployment of this extra low-cost capital powered an 81-percent profit gain during the first six months of 2013.
It presently trades at 2.8 times its 2012 book value and 16.2 times trailing earnings. The dividend yield, which is based on its 2012 payout, is an attractive 4.3 percent.
The next company worth a look is fueling all the cars that sit in traffic jams on Abidjan’s bridges.
Total-CI, a subsidiary of the French oil giant, is a major downstream oil marketer with 140 filling stations and a 28-percent share of the market. It’s also a major supplier of LPG, controlling 33 percent of the market.
Volumes of petrol sold increased 15 percent through the first half of 2013, which bodes well for profits from African stocks.
It presently trades at 15-to-16 times trailing earnings, and earnings are expected to nearly double for the full year. The shares currently yield 5 percent.
Do you like frontier African breweries but balk at their high price tags?
If so, it might be worth checking out SOLIBRA, Cote d’Ivoire’s largest beverage company. The company has the rights to distribute Coca-Cola and Guinness throughout the country, and it also brews numerous local favorites.
The company’s sales surged nearly 15 percent in the first half of 2013.
It now trades at a P/E of about 16 and yields just shy of 3 percent, but 2013 full year earnings and a dividend increase are anticipated very soon.
I’ll conclude with one bonus pick from Burkina Faso.
Onatel, not to be confused with its much-larger Senegalese peer, Sonatel, is Burkina Faso’s largest telecom company.
It grew earnings 67 percent in 2013 on the back of extending its 3G network, a mobile payment system, and cost reductions.
It now trades between 10-to-11 times earnings and boasts a dividend yield of 9 percent.
You should factor in an extra degree of political risk to this stock, as there have been peaceful protests recently against the rule of Blaise Compaoré, president of Burkina Faso since 1987.
Which African stock markets look most promising to you in 2014? Let’s hear your picks in the comments section of this post.
Ryan Hoover is an investment analyst with Africa Capital Group and the founder of InvestingInAfrica.net. Contact him at ryan@investinginafrica.net.
