African equities have underperformed global equity markets this year, largely because of the strong performance of the US stock market. But they have outperformed in an emerging markets context, where China stocks have been a drag on performance.
Markets overview
The heavyweight Johannesburg market has had a solid year, giving a US$ total return of around 17%, with strong showings from MTN Group, Sasol and Investec, in particular, offsetting weakness from Naspers and Prosus.
However, Ghana has been one of the continent’s star performers, giving a 44% US$ return, helped by Scancom (MTN Ghana), consumer names like Fan Milk and Guinness Ghana, and commodities plays like Benso and Total. Other strong markets include Namibia, Mauritius and Morocco. In contrast, Nigeria and Kenya have been some of the weaker markets, together with Tunisia, Botswana and Tanzania.
Star performers include FBNH and Scancom
South Africa’s solid market performance was underpinned by 100%+ rises for MTN Group and Investec – further details are in the Appendix. Zimbabwe can also boast of some strong share price gains, notably from Econet and Delta.
In this note, we focus on other markets. This year, among larger names (>US$1bn market capitalisation), 16 firms have generated more than 25% total return (share price gains plus dividends) in US$ terms. Half of these are from Morocco. Egypt has four firms on the list, while Ghana, Kenya, Mauritius and Nigeria each provide one representative.
Scancom (MTN Ghana): 82% US$ total return, US$2.3bn market cap
Scancom, otherwise known as MTN Ghana, is a subsidiary of African telco giant, MTN Group, and offers voice, data and mobile money services. It is the country’s leading mobile network operator, with 68% of the mobile data market and a 57% share of voice. It is also actively involved in the country’s mobile money ecosystem – the transaction value processed by its mobile money service (MoMo) was more than 100% of Ghana’s GDP in 2020.
One factor behind the strong share price performance in 2021 is the general improvement in market sentiment as the economy bounces back from 2020’s covid-induced plunge. But the main reason is MTN Ghana’s solid fundamentals and strong growth prospects, driven by data and fintech revenue growth. Note that MTN Ghana still trades at a discount when compared to Safaricom, although it is at a much earlier stage in its transition to a full platform business.
First Bank of Nigeria Holdings: +75% US$ total return, US$1.1bn market cap
FBN Holdings is Nigeria’s largest and oldest financial holding company, with subsidiaries in commercial banking, merchant banking, asset management, securities trading, and trusteeship. The group’s commercial banking subsidiary – First Bank of Nigeria, ranks third by total assets (NGN8.5tn/US$21bn). The group also controls the largest banking agent network in Nigeria, with roughly 117k agents spread across the country.
FBNH’s valuation has taken a beating in the past, with the shares underperforming peers’, due to the significant asset quality deterioration it faced between 2015 to 2018, weak corporate governance practices, bad insider loans and weakened profitability. However, 2021’s impressive share price performance reflects the positive changes the group has made in recent years. First, FBNH has spectacularly cleaned up its loan book, with the NPL ratio falling from 24.4% in 2016 to 7.3% currently. Second, the group’s corporate governance has improved, following the recent board shake-up by the CBN and the firm’s disposal of investments in entities that were related to the ousted chairman. These two core developments perhaps set the scene for the recent acquisition of a 7% stake in the group by one of Africa’s wealthiest men, Femi Otedola, a third factor behind FBNH’s rocketing share price.
Misr Fertilisers (Egypt): +60% US$ total return, US$1.3bn market cap
Egypt’s equity market has had a solid year. One of the standout performers has been Misr Fertilisers, which started the year on lower multiples than peers such as Abu Kir Fertilisers and Egyptian Chemical Industries. Established in 1998, Misr Fertilisers is one of the leading producers of nitrogen-based fertilisers in Egypt. The firm receives its feedstock at below-market prices and exports the bulk of its production making it a geared play on global food price inflation.
Misr Fertilisers has enjoyed several strong tailwinds in 2021. Urea prices have recovered from their 2020 lows. Rising food prices have helped boost demand for its product from farmers. Higher energy prices have raised input prices at rival producers (notably China). Chinese producers have also reduced their export volume as energy shortages bite. Despite the strong performance in 2021, the firm’s shares continue to trade at a discount; a key uncertainty relates to the sustainability of its preferential feedstock pricing. Indications that the current regime will be extended would likely be well-received by the market.
LabelVie (Morocco): +46% US$ total return, US$1.5bn market cap
Morocco has been one of the better performing African markets in 2021. In addition to LabelVie, positive share price moves have also been delivered by Sothema, TotalEnergies Marketing, Afriquia Gaz and Managem.
Since opening its first store in the mid-1980s, LabelVie has become one of the leading food retailers in Morocco, with brands including Carrefour and Atacado. It is the market leader in supermarkets but also operates in hypermarket and hypercash formats. The firm expects to have 138 stores in operation by year-end, with close to 235,000 square metres of floor space.
In Q3 21, LabelVie delivered 18% top line growth (9% on a like-for-like basis). Its 9M top line growth was 6% yoy. The gross margin, EBITDA margin, and the firm’s market share have all improved this year. Investment activity has also increased (helped by a MAD800mn bond issue in H1 2), which should allow the positive top line momentum to continue. The biggest additions are taking place in the Carrefour Market brand.
MCB Group (Mauritius): +25% total return, US$1.7bn market cap
Mauritius stocks were hit hard by the onset of the pandemic, reflecting the importance of long-haul tourism to the country’s economy. The rapid deployment of vaccines both in Mauritius and in some of its key source markets has helped boost investor confidence in 2021, although the Omicron variant has taken the shine off market performance in recent weeks.
MCB is the largest bank in Mauritius and hence a key bellwether stock. Asset quality has remained broadly stable, despite the headwinds caused by the Covid pandemic and associated lockdowns and travel restrictions. The outlook for the bank’s domestic activities should improve as tourism numbers recover; results in the last quarter are in line with such a scenario. Moreover, foreign currency loans and deposits have continued to experience solid growth, even during the pandemic; in recent years the bank’s international commodities and infrastructure businesses have been key growth drivers. The stock is still well-below its pre-pandemic level, suggesting a further normalisation in global travel could deliver further upside to the shares.
Appendix: South Africa’s best-performing stocks
Despite negative returns from index heavyweights Naspers and Prosus, South African equities have had a strong year, with strong showings across a wide range of industries. We highlight below some of the best performers.
