New Kids on the Alt-X Block

Things are really hopping on the Johannesburg Stock Exchange’s Alt-X board as we close out 2006. In the past two weeks alone, three new companies have joined the small enterprise-focused market. Let’s take a look at these newcomers:

1) Safic Holdings, a chemical and flooring company, joined the market at R1.20. Today it trades at R0.92. This represents a price to net tangible assets ratio of 1.56. Management projects earnings to double by mid-2008.

The company hopes to benefit from the infrastructure boom leading up to the 2010 World Cup. The company is South Africa’s leading supplier of resilient floor coverings and a manufacturer of environmentally friendly cleaning agents.

Says the company CEO, Fred Platt, “We see enormous potential for growth, both in the chemicals company through the widening of our distribution network and the introduction of new, environmentally friendly products, and in the floorings business where the principal strategy will be to grow through acquisition.”

2) SilverBridge Holdings provides software to the financial services industry. It debuted on November 27 at R3.50 and now stands at R2.30.

The company expects to nearly double its profits in 2007. CEO, Freda du Toit, makes her pitch as follows, “We are highly cash-generative, half of our business is annuity-based, and we have a controlled acquisition strategy to ensure continued, sustained, healthy growth."

3) Africa Cellular Towers is the only company of the three that trades higher today than at its listing on November 29. It is priced at about 8x forward earnings.

The company does exactly what you would think. It constructs cellular towers and associated equipment. In its seven-year history, it has constructed 3000 towers in some of Africa’s most remote locations. The company also operates in the Middle East and India.

Margins are high in this business. Operating profit margins come in at around 22%.

www.investinginafrica.net

Warm Welcome to Coldtusker!

I’m pleased to report that Coldtusker will be joining the Investing in Africa Blog as a regular contributor on eastern African markets. Many of you may already be familiar with Coldtusker and his eponymous blog.

For those who aren’t, I think you’re in for a treat. Coldtusker brings a wealth of African investing experience and extensive knowledge of the Nairobi Stock Exchange.

Look for a post or two from him in the next couple of weeks!

Just What Is This Transcorp, Anyway?

Shares of Transcorp Nigeria are set to hit the Nigerian Stock Exchange this Thursday. There will be 18.5 billion shares on offer at N6 per share ($0.045) – a stake of $835 million.

This is an enormous addition to the market, representing 2.7% of the exchange’s total capitalization.

But just what is this Transcorp exactly?

Well, it is Nigeria’s first mega-conglomerate. But unlike most conglomerates that start small and grow over a long period through mergers and acquisitions, Transcorp started big with loads of capital and the intention to invest it in a wide array of industries. It did this by recruiting investments from of Nigeria’s wealthiest citizens, including Aliko Dangote, founder of the Dangote Sugar Refinery. Its war chest grew further through a private placement that targeted Nigerians both at home and in the diaspora.

Transcorp’s goals are in equal parts profit and national development. Right from the start, it is meant to be a global player – a company with the financial muscle to invest wherever and whenever it sees an opportunity.

One of its first investments was a controlling stake in the privatized national telecom, Nitel and its mobile arm, Mtel. It followed that with the purchase of the Abuja Hilton. It plans further investments in the oil and gas industry, agriculture, power plants, and an IT free trade zone.

This is an experiment worth watching. Will Transcorp succeed in harnessing its massive assets for the good of Nigeria like the Japanese and South Korean conglomerates it emulates? Or will it prove unwieldy and stifling to the economy? Either way, valuable lessons are in the offing.

Irrational Exuberance in Kenya

Those of you who subscribe to the newsletter are already aware of my belief that the Nairobi Stock Exchange has gotten ahead of itself. Today's trading activity is a prime example of why I feel this way.

Barclay's Bank Kenya shares closed up nearly 25% today after trading 45% higher at one point.

For what reason?

Well, it had very little to do with fundamentals. Sure, the bank's 3rd quarter earnings report was solid (EPS growth of 44%, and an expansion announcement). But most of the profit growth was due to reductions in the loan provision and improved cost management. Interest income grew at a much more sober 12%.

No, Barclay's stock surged largely because of a 5:1 share split and 1:3 bonus share issue. This means that 300 shares of the company will soon become 2000.

Does that make Barclay's 25% more valuable than it was yesterday? Of course not. But many traders on StocksKenya discussion board are considering adding to their positions.

Buying more of a bank stock that now trades at more than 26 times trailing earnings and 8x net asset value does not appear to be a bargain to me. But they may be rewarded for their optimism. Recent IPO oversubscriptions on the market have demonstrated the booming popularity of the equities market. A lower post-split share price could entice even more optimistic (or ill-informed) investors to join the party.

Corruption Perceptions Index 2006: Mixed Results From Africa

Well, Transparency International released its 2006 Corruption Perceptions Index today. Below is a list of how the nation's we cover in the Investing in Africa newsletter and how they fared.

1) Botswana - Once again ranked the least corrupt nation in Africa and outscored 11 EU member states. Its global ranking, however, fell from 32 to 37 this year, and its total score fell from 5.9 to 5.6.

2) Mauritius - The island nation posted the most rapid improvement in this year's index. Its score surged from 4.2 last year to 5.1 this year, leapfrogging South Africa and Namibia and into second place.

3) South Africa - The Rainbow Nation improved its score slightly due to (in spite of?) some highly publicized corruption cases, notably one involving former deputy President Jacob Zuma.

4) Namibia - Launched an Anti-Corruption Commission this year. Even so, its CPI score slipped a bit from last year.

5) Ghana - The country is very unhappy that its CPI ranking and score fell this year. A government spokesperson reminded the media that the country recently enacted a wide range of anti-corruption legislation. The controversy highlights a key aspect of the CPI. It does not claim to be a scientific assessment of actual levels of corruption. Instead, it measures analysts' perceptions of corruption. Unfortunately, in the international investment game, perception of corruption often outweighs reality.

6) Tanzania - Held steady at a not-so-hot score of 2.9.

7) Malawi - Ranking fell slightly from 2.8 to 2.7.

8) Uganda - Notched a modest gain from 2.5 to 2.8.

9) Zambia - Held steady at 2.6. Hopefully Mwanawasa will now be emboldened to take further action against corruption following his presidential election victory.

10) Kenya - A slight improvement for Kenya from a very low base. Not sure if this is [thanks to] or [in spite of] the handling of the Anglo Leasing scandal.

11) Nigeria - Africa's most populous nation made a rather substantial gain from 1.9 last year to 2.2 this year. I'm guessing this is due to Obasanjo's reforms. Hopefully, this perception will continue to improve next year after the April presidential election.

Nigerian Stock Exchange's Largest IPO Ever

Dangote Sugar will launch the biggest IPO in the history of the NSE on November 15. In total, 3 billion shares at N18 each (US$.137) will be on offer. This equates to a 30% stake in the company.

The issuing banks believe that the offer will be oversubscribed.

Dangote Sugar Refinery is the second largest sugar refinery in the world.

Riba Reviews Kenyan Brokers

Check out Riba Capital's blog for a very interesting post and discussion on Kenya's stockbrokers.

Insider Buy Alert - PSG Group

Sean at Sean's Investment Review spotted an interesting insider transaction at South African financial services firm, PSG Group. On October 12, the company's CEO and a director bought almost $5 million worth of shares at R22 per share. This is after the shares more than doubled in the past 12 months. This would appear to be a very bullish indicator.

The shares currently trade just a tad above R22.

Upcoming Kenyan IPOs

Coldtusker has put together a great list of upcoming IPOs on the Nairobi Stock Exchange. See it here.

Nile Bank to Join Uganda Securities Exchange in November

Investors will get their shot at a 20% stake in Nile Bank when the firm launches its IPO in November.

Here's a quick rundown of the company's 2005 performance:

- total assets up 70%
- deposit growth up 82%
- earnings per share up 35%
- payout ratio at 25%
- bad debt provision below 1%

Tanzania to Sell Stake in National Microfinance Bank

The Dar es Salaam stock exchange will soon gain another member. The Tanzanian government has announced its intention to sell a 21% stake in the National Microfinance Bank (NMB), one of the country's largest financial institutions.

NMB operates 115 branches throughout Tanzania and is the government's bank of choice.

Rabobank Nederland already holds 34.9% of the company's shares.

Two IPOs in Ghana

The GSE will add two new listings before the end of the year.

First is Transactions Solutions Ghana (Transol). Founded in 2003, Transol provides ATMs and electronic fund transfer infrastructure. Its estimated worth is $6.3 million. In 2006 it reported $380,000 in after-tax earnings.

Second is the Ghana Oil Company (GOIL). The company is Ghana's second largest oil marketer and its leading propane distributor. It sees opportunities with the completion of the West African Gas Pipeline and aspires to enter the aviation fuel market.

Recent results saw earnings increase 3% on a 39.6% increase in revenue.

Foreigners Hogging GSE Shares?

This month, Ghana's Securities and Exchange Commission (SEC) released some interesting statistics along with its 2005 annual report. Among them was the remarkable fact that non-resident foreigners own 75% of all shares issued on the Ghana Stock Exchange (GSE). According to the GSE's acting director general, such a high level of foreign ownership dries up the market's liquidity because foreigners tend not to be active traders.

I suspect that the vast majority of foreign-owned shares are in the exchange's behemoth, Anglogold Ashanti. This would have little effect on liquidity in other counters. But it would be worth investigating to see if foreigners own majority stakes in firms like Fan Milk or Enterprise Insurance.

Other interesting nuggets in the report:

- 1.5% of Ghanaians are invested in the GSE (15% participation is targeted)

- Encouraging additional listings on the GSE is often frustrated by cultural attitudes toward relinquishing control of private (often family-owned) enterprises

- The GSE will soon launch an effort to formalize the sizeable OTC market. It is currently unregulated.

Stanbic Uganda to Join Uganda Securities Exchange

The Monitor reports that Uganda's largest commercial bank, Stanbic Uganda, intends to float a 40% stake on the USE by November. If they do so, the bank will become only the sixth local listing on the market.

Ghana Stock Exchange to Automate by June?

Automation is all the rage in African stock markets it seems. The Nairobi Stock Exchange just completed the process, and the Botswana Stock Exchange is considering the idea.

Now, Ghana has announced that it plans to automate its market by June of next year provided the World Bank approves funding for the project.

Sasol Buying Back Shares

Another tip of the hat to Sean for catching the news that Sasol shareholders passed a resolution to buy back 10% of the company's shares. A company spokesperson attributed the move to continued operational cash flow growth and the sale of assets.

The South African fuel and chemical giant has a history of buybacks. As Sean notes, they bought back 8.8% of their share capital between 2000 and 2004.

MTN Revenues in Trouble?

Sean over at Sean's Investment Review details a revenue threat to MTN, Africa's largest cellular provider.

For the past year, the company's revenue from SMS text messaging (6.6% of total revenue) has been on the decline. It appears that a GPRS-based application called Mxit is the culprit. The program can be downloaded onto cellphones and allows users to text message other Mxit users at rates dramatically lower than those charged by MTN.

I'm assuming that Vodacom would also be seeing their SMS revenue under pressure thanks to Mxit. This is more bad news for Telkom, which owns a 50% stake in Vodacom.

KenGen Results: First Impressions

The man they call Coldtusker has posted some highlights and initial thoughts on Kenyan power firm, KenGen's, first results as a publicly traded company. Be sure to check out the insightful comments, too.

Fortune Magazine: "Good Morning, Africa"

A nice summary of the World Bank's "Doing Business" report.

LuSE to Add Yet Another!

In what is becoming an almost daily occurrence, a Zambian company has announced plans to list on the Lusaka Stock Exchange. This time it is Goldman Insurance, a property and liability insurer that controls 15% of the Zambian market. Management projects gross earnings of at least $6 million this year.

The date for listing is not yet determined.