Africa On Wall Street Archives - Investing in Africa

New ETF Makes Nigerian Stocks More Accessible Than Ever

I literally jumped out of my chair last week when Jan Schalkwijk told me a new Nigeria ETF had just listed on the New York Stock Exchange.

Why was I bouncing around my office like I’d hit a buzzer-beating jump shot?

Because, at this moment, I believe the Global X Nigeria Index ETF is one of the most accessible, pure, and cost-efficient ways for US retail investors to tap into the Sub-Saharan growth story.

I literally jumped out of my chair last week when Jan Schalkwijk told me a new Nigeria ETF had just listed on the New York Stock Exchange.

Why did the news provoke me to bounce around my office like I’d hit a buzzer-beating jump shot?

Because, at this moment, I believe the Global X Nigeria Index ETF (Ticker: NGE) is one of the most accessible, pure, and cost-efficient ways for US retail investors to tap into the Sub-Saharan growth story.

Invest in Nigeria on a Shoestring Budget

With a GDP growth rate well above six percent, a gigantic, young population, and a reforming financial sector, I am very bullish on the Nigerian economy. In fact, I wrote about several mutual funds with exposure to the country just two weeks ago.

Happily, NGE’s arrival on the scene has made that post a moot point.

Here’s why.

First, NGE gives you a pure play on the Nigerian stock market very cheaply. How cheaply? Its expense ratio is a mere 0.68%. Compare this to the other funds with significant Nigerian holdings.

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Not Too Much 0f That Oily Feeling

Second, NGE’s portfolio is nicely skewed toward assets that stand to benefit from the growth of Nigeria’s consumer economy.

Less than 25% of the index is invested in oil and gas companies. The remainder is invested largely in banking (45%), consumer goods (25%), and cement (6%).

Here’s a brief introduction to the ETF’s ten largest holdings.

1. Guaranty Trust Bank (GUARANTY:NL) — Weight: 10.0%

Nigeria’s largest bank stock just reported earnings growth of 69% on the back of double-digit loan and deposit growth. Now it has its sights set on East Africa. The CEO this month announced its intention to enter the Kenyan, Tanzanian, and Ugandas markets via the purchase of a profitable small to mid-tier local bank.

2. First Bank of Nigeria (FBNH:NL) — Weight: 9.9%
Who’d have thunk that a Nigerian bank with a nearly 120-year history would be one the Nigerian Stock Exchange’s most dynamic stocks? Shares of FBN, which boasts the country’s largest branch network, have gained 135% in local currency over the past 12 months.

3. Zenith Bank (ZENITHBA:NL) — Weight: 8.1%
Shares of this fast-growing lender have just hit the London Stock Exchange in the form of Global Depository Receipts. In spite of it hitting a four-year price record, Zenith shares still trade for just a little more than seven times earnings.

4. Nigerian Breweries (NB:NL) — Weight: 7.4%
This affiliate of Heineken is Nigeria’s largest beer-maker. Earnings were flat in 2012 due to an expensive expansion strategy.

5. Access Bank Nigeria (ACCESS:NL) — Weight: 4.6%
It may be substantially smaller than GTBank, FBN, and Zenith, but Access is definitely a bank to watch. It more than doubled profits this year and now trades at a P/E ratio of just 5.3 and sports a dividend yield of 8.6%.

6. Nestle Nigeria (NESTLE:NL) — Weight: 4.6%
This consumer goods giant is figuring out the best ways to get its products into the hands of lower-income customers. The upcoming earnings report sounds as though it might disappoint some people, but the stock is up nearly 140% over the past 12 months.

7. United Bank for Africa (UBA:NL) — Weight: 4.5%
Yet another bank. This one has a larger geographic footprint throughout sub-Saharan Africa and has tripled its share price over the past year.

8. TGS-NOPEC (TGS:NO) — Weight: 4.4%
This Norway-listed firm provides geological data to oil and gas exploration companies, some of whom have substantial interest in Nigeria. To be honest, I’m not entirely sure why this company merits such a heavy weight in this portfolio.

9. Subsea 7 (SUBC:NO) — Weight: 4.4%
Another Norwegian company that caters to offshore oil drillers, Subsea 7 specializes in the maintenance and refurbishment of oil rigs. This company’s inclusion in the index also seems odd.

10. Saipem (SPM:IM) — Weight: 4.2%
An Italian oil drilling firm that does a significant amount of work off the Nigerian coast.

Other significant ETF holdings include Guinness Nigeria, Dangote Cement, and Unilever Nigeria.

Is It a Game-Changer?

The Global X Nigeria Index ETF presently trades at a premium of roughly 3% to the value of its underlying portfolio, but in my view this is a small price to pay for taking the hassle out of opening a Nigerian brokerage account.

Sub-Saharan stock markets are hitting the world stage. These are exciting times.

[Disclosure: I have a beneficial interest in shares of Guaranty Trust Bank and Zenith Bank through my work with Africa Capital Group.]

Who Else Wants to Invest in Nigerian Stocks?

In case you missed it, the Nigerian Stock Exchange is making investors wealthy of late.

Thanks to a raft of reforms and a growing realization of the investment opportunities in Africa’s most populous nation, the MSCI Nigeria Index is up 78.6% over the past 12 months.

And this bull run looks like it may have some real legs. The market remains well below its five-year high. The five largest companies on the exchange have an average P/E ratio of 15.4 in spite of them averaging earnings growth of 40.6%. And 23 foreign portfolio managers are poised to dive into the market.

I’m guessing some of you would like to do the same. Unfortunately, the market isn’t as easily accessible as its larger counterpart in Johannesburg. So how exactly can a non-resident invest in Nigerian stocks?

In case you missed it, the Nigerian Stock Exchange is making investors wealthy of late.

Thanks to a raft of reforms and a growing realization of the investment opportunities in Africa’s most populous nation, the MSCI Nigeria Index is up 78.6% over the past 12 months.

Investing in Nigeria via ETFs and Mutual Funds

The simplest entry point for most US-based investors is through an ETF. This is as easy as buying any other stock listed on the NYSE or NASDAQ. The downside is that your exposure to the Nigerian market will be limited the weight given to it by the ETF’s portfolio manager. The majority of these funds’ holdings are not Nigerian, so you’ll want to take a close look to see if the portfolio as a whole fits with your investment strategy.

Here are some ETFs and mutual funds with significant Nigerian exposure along with their major Nigerian holdings.

Nile Pan Africa Fund (NAFAX)
Nigerian Weight: 38.07%
Key Nigerian Holdings: Nigeria Treasury Bond, Guaranty Trust Bank, Zenith Bank, UAC of Nigeria, FBN Holdings

Market Vectors Africa Index ETF (AFK)
Nigerian Weight: 24.61%
Key Nigerian Holdings: Guaranty Trust Bank, FBN Holdings, Zenith Bank, Nigerian Breweries, United Bank for Africa

Wasatch Frontier Emerging Small Countries Fund (WAFMX)
Nigerian Weight: 18.90%
Key Nigerian Holdings: Nestle Nigeria, Nigerian Breweries, Unilever Nigeria, Cadbury Nigeria

HSBC Frontier Markets Fund (HSFAX)
Nigerian Weight: 12.90%
Key Nigerian Holdings: FBN Holdings, Guaranty Trust Bank, Zenith Bank, Nigerian Breweries, Nestle Nigeria

iShares MSCI Frontier 100 Index (FM)
Nigerian Weight: 12.58%
Key Nigerian Holdings: Nigerian Breweries, Guaranty Trust Bank, Zenith Bank, FBN Holdings, Guinness Nigeria

Harding Loevner Frontier Emerging Markets Portfolio (HLMOX)
Nigerian Weight: 12.00%
Key Nigerian Holdings: FBN Holdings, Access Bank, UAC of Nigeria, Diamond Bank, Dangote Cement

T. Rowe Price Africa and Middle East Fund (TRAMX)
Nigerian Weight: 11.67%
Key Nigerian Holdings: Zenith Bank, Guaranty Trust Bank, Nestle Nigeria, Nigerian Breweries, FBN Holdings

Templeton Frontier Markets Fund (TFMAX)
Nigerian Weight: 9.66%
Key Nigerian Holdings: FBN Holdings, Zenith Bank, Guinness Nigeria, United Bank for Africa, UAC of Nigeria

Investing in Nigeria via US-listed Stocks

ETFs and mutual funds aren’t your style, you say? Well, if you’d like a bit more control in exactly what sorts of Nigerian assets you invest in, but don’t want to hassle with opening a new brokerage account, consider the following three options. All can be purchased via a US discount broker.

Coca-Cola Hellenic Bottling Company (CCH:US)
One of the world’s largest Coca Cola bottlers, CCH owns the Nigerian Bottling Company, Nigeria’s only authorized Coca-Cola distributor. Nigeria accounts for 8.7% of the group’s total sales volume. Its Coke sales increased 13% during the fourth quarter of 2012.

MTN Group (MTNOY:US)
Africa’s leading wireless telecommunications company derived 28.6% of its 2011 revenue from Nigeria. And look for this share to increase. The firm operates in more than 20 countries, but it will invest $1.5 billion in Nigeria on new cellular towers in 2013, a sum that represents almost half of its total capital expenditure for the year.

Aviat Networks (AVNW:US)
Aviat makes the equipment that’s required by wireless companies wishing to upgrade their 2G and 3G networks to 4G. Given that Africa’s wireless data usage is forecast to expand 790% by 2017 and that Aviat is a preferred provider to MTN, we should see Nigeria’s 21.3% share of the company’s revenue expand significantly.

[Note that there are also lots of US oil companies that do significant amounts of business in Nigeria, but I’ve excluded them because extractive industries are not the focus of this blog.]

Investing in Nigeria via the London Stock Exchange

If you have access to the London Stock Exchange, perhaps via an ETrade or Interactive Brokers account, you have a few more targeted options open to you.

PZ Cussons (PZC:LN)
PZ Cussons makes all sorts of consumer goods; soaps, detergents, pharmaceuticals, even refrigerators and air conditioners. The company has a long history in Nigeria, where it collects roughly 33% of its total revenue. It recently wound up construction on a new palm oil refinery in the country, a nice step toward vertical integration which should begin paying dividends immediately.

Guaranty Trust Bank (GRTB:LI)
Here we have a pure play. Nigeria’s largest bank in terms of market capitalization trades as a Global Depositary Receipt (GDR) on the London Stock Exchange. It’s big but growing fast. Merrill Lynch analysts expect revenues to increase 17% this year and 21% in 2014.

Diamond Bank (DBPA:LI)
This up and coming Nigerian bank has made a name for itself by focusing on small and medium-sized enterprises and an active retail banking segment. Unfortunately, the Sahel is more liquid than its GDR. Worth keeping an eye on, but if you’re dead set on buying the stock, you’ll likely need to open a local brokerage account.

Zenith Bank (ZENB:LI)
The newest Nigerian GDR, Zenith Bank boasts the second-largest market share of the banking sector. It’s growing extremely rapidly. Earnings are up approximately 50% through the first nine months of the 2012 fiscal year, yet the GDR trades at eight times trailing earnings and yields 4.5%.

Investing in Nigeria via the Nigerian Stock Exchange

Finally, if you’re an expert level Africa investor and/or ready for a little adventure, you can invest directly on the Nigerian Stock Exchange via a local brokerage account. I won’t walk through the steps of opening a Nigerian trading account in this article, but you can find them here.

It’s Your Turn

Do you know of other ways to invest in the rapid growth of Nigeria’s consumer economy? Let us know in the comments!

[Disclosure: I have a beneficial interest in Guaranty Trust Bank and Zenith Bank through my work with Africa Capital Group.]

11 Africa-Focused Mutual Funds and ETFs

The US investment community is waking up to the African growth story. As a result, an increasing number of mutual funds and ETFs now boast significant African stock holdings.

But Africa is not a country. It’s a diverse continent with a myriad of different cultures, leaders, resources, and economies.

So, I thought it might be helpful to dig into these US funds’ portfolios to determine where exactly they are placing their bets.

The US investment community is waking up to the African growth story. As a result, an increasing number of mutual funds and ETFs now boast significant African stock holdings.

But Africa is not a country. It’s a diverse continent with a myriad of different cultures, leaders, resources, and economies.

So, I thought it might be helpful to dig into these US funds’ portfolios to determine where exactly they are placing their bets.

Investing in the Sub-Sahara

The table below lists 11 funds ranked according to their degree of sub-Saharan African exposure.

Fund Name	Ticker	Sub-Saharan Weight	Portfolio Date
iShares MSCI South Africa Index	EZA	100.0%	11/13/2012
SPDR S&P Emerging Middle East and Africa	GAF	91.3%	11/13/2012
Commonwealth Africa Fund	CAFRX	84.6%	7/31/2012
Nile Pan Africa Fund	NAFAX	84.5%	6/30/2012
Market Vectors Africa Index ETF	AFK	59.2%	11/13/2012
T. Rowe Price Africa & Middle East	TRAMX	46.2%	7/31/2012
Wasatch Frontier Emerging Small Countries Fund	WAFMX	32.4%	6/30/2012
Templeton Frontier Markets	TFMAX	23.2%	6/30/2012
HSBC Frontier Markets Fund	HSFAX	17.5%	9/30/2012
iShares MSCI Frontier 100 Index Fund	FM	15.5%	11/14/2012
Harding Loevner Frontier Emerging Markets Portfolio	HLMOX	14.5%	4/30/2012

To me, the Sub-Saharan weights of the Market Vectors Africa ETF (AFK) and T. Rowe Price’s TRAMX are the table’s biggest surprises.

How is it that these two Africa funds deploy only half of their assets to sub-Saharan stocks?

Well, AFK invests heavily in North Africa and in companies that do business in Africa but which are domiciled in the US, Europe, or Australia. The same goes for TRAMX, but, unlike AFK, it also invests in Middle Eastern stocks.

Now, let’s check out the sectors that each fund invests in.

Screening Out the Mining and Oil Plays

I’ve often noted that I’m not a fan of mining and oil stocks. I see the most long-term, sustainable growth in sectors with more direct exposure to the African consumer — banking, retail, and construction.

The following chart measures the exposure of each fund to sub-Saharan listed stocks excluding those mining and oil companies.

Fund Name	Ticker	Sub-Saharan Weight (excl. Mining & Oil)
iShares MSCI South Africa Index	EZA	73.6%
Nile Pan Africa Fund	NAFAX	72.5%
SPDR S&P Emerging Middle East and Africa	GAF	68.2%
Commonwealth Africa Fund	CAFRX	51.9%
Market Vectors Africa Index ETF	AFK	43.1%
T. Rowe Price Africa & Middle East	TRAMX	38.7%
Wasatch Frontier Emerging Small Countries Fund	WAFMX	32.2%
Templeton Frontier Markets	TFMAX	22.9%
HSBC Frontier Markets Fund	HSFAX	17.5%
iShares MSCI Frontier 100 Index Fund	FM	15.5%
Harding Loevner Frontier Emerging Markets Portfolio	HLMOX	13.8%

Now we see some real separation between the funds that give their investors exposure to the rise of an African middle class (EZA, NAFAX, GAF) and those that bet heavily on natural resources (CAFRX) or other geographic regions (HLMOX).

But let’s dig still deeper.

Who’s Investing In Frontier Africa?

Clearly, many of these funds invest heavily in South African stocks. South Africa, with its relatively developed infrastructure, and slower economic growth rate may not offer the same ground floor investment opportunity that faster growing countries like Nigeria and Kenya do.

This next table screens out South African stocks from each fund’s portfolio to determine which one invests most heavily in rising incomes in the African frontier.

Fund Name	Ticker	Sub-Saharan Weight (excl. South Africa)
Nile Pan Africa Fund	NAFAX	25.1%
Wasatch Frontier Emerging Small Countries Fund	WAFMX	23.9%
Market Vectors Africa Index ETF	AFK	20.8%
Templeton Frontier Markets	TFMAX	18.9%
HSBC Frontier Markets Fund	HSFAX	17.5%
iShares MSCI Frontier 100 Index Fund	FM	15.5%
Harding Loevner Frontier Emerging Markets Portfolio	HLMOX	13.8%
T. Rowe Price Africa & Middle East	TRAMX	10.7%
Commonwealth Africa Fund	CAFRX	4.0%
iShares MSCI South Africa Index	EZA	0.0%
SPDR S&P Emerging Middle East and Africa	GAF	0.0%

So, there you have it. If you are in the market for an Africa-focused mutual fund with significant exposure to frontier markets, then you should take a close look at the Nile Pan Africa Fund (NAFAX).

You might consider the Wasatch Frontier Emerging Countries Fund if you’re less biased toward Africa and more concerned about geographic diversification.

The bigger revelation for me, however, is that there appears to be an excellent opportunity to launch a frontier Africa fund.

Any takers?

(Levar Hewlett contributed to this blog post.)

Who’s Investing In Africa Now? 3M, France Telecom, Visa, and More

It’s not necessary to wire money to a far-flung African locale to invest in the rise of the African consumer. Here are nine companies that are making big bets on the continent and conveniently trade on the New York Stock Exchange.

3M (MMM:US)

Technology conglomerate 3M announced a big expansion to its African business in June and set up subsidiaries in Nigeria and Kenya. The new operations will set about distributing the company’s existing products in the region. Eventually, they hope to develop new products, specifically designed for the African context. Management believes Sub-Saharan Africa could develop into a $500 million market for the company over the long-term.

BT Group (BT:US)

UK-based telecom, BT Group, plans to nearly double its African operations by 2015. The company already serves 600 African commercial customers and is hiring 100 additional staff at its regional head office in Johannesburg. Other investment includes the construction of data centers and the purchase of internet bandwidth on a Cape Town to Johannesburg.

France Telecom (FTE:US)

The telecommunications giant has made a huge push into Africa with its “Orange” mobile and broadband brand. During the first half of 2012, revenue from Africa and the Middle East grew 5.8%, propelled by a stabilized Ivory Coast (+34%) and an impressive performance from Niger (+20%).

FTE also devoted considerable resources to building its mobile customer base in Niger (+28%), Cameroon (+25%), and Senegal (+18.5%). Mobile broadband usage increased 83% in the region.

Koninklijke Philips Electronics (PHG:US)

Dutch electronics maker, Philips, said its second quarter Africa sales increased nearly 30%. Much of the growth stems from the company’s distribution of high-efficiency lighting in South Africa. It’s in the midst of a program that will see 200,000 50W halogen bulbs at South African banks, shopping malls, and other commercial establishments replaced with Philips’ 7-10W LED lamps.

Moneygram (MGI:US)

Remittances from the US to Africa have surged of late as the pain of recession begins to ease. There’s also been a big upswing in transfers within Africa and between Africa and China.

To take advantage of this opportunity, fund transfer company, Moneygram, is building out its branch network as quickly as it can. In July, it announced that it could now process transfers to South Sudan. It also added nearly 500 additional locations in Ghana and over 500 locations in Nigeria.

Starwood Hotels (HOT:US)

Hotel operators are beginning to reap the benefits of their African investments. Starwood Hotels’ Middle East and Africa revenue per available room (REVPAR) bounced back after last year’s tough Arab Spring, increasing 11% in constant dollars. The chain’s Nigerian properties performed particularly well, with revenue up 43%. Starwood operates 84 hotels across Africa and the Middle East.

Visa (V:US)

The global payments company that’s everywhere you want to be is finally realizing that some people want to be in Africa. It opened its Sub-Saharan regional headquarters in Nairobi in June.

Visa sees significant potential in East Africa’s mobile payments market and in processing inter-bank ATM transfers. A wider Visa network would also be a boon to the international tourism industry. It aims to generate $14 million worth of revenue from Kenya alone by 2015.

Western Union (WU:US)

The money transfer service reported “strong” results in Africa in spite of foreign currency headwinds. Its Middle East and Africa segment grew revenue by 3% during the second quarter. It now accounts for 15% of total sales and total transactions in the region grew 9% — more quickly than anywhere else in the world.

Yum! Brands (YUM:US)

We’ve highlighted Yum! in Africa before, but on its second quarter conference call, the purveyor of pizza (Pizza Hut), tacos (Taco Bell), and fried chicken (KFC) reiterated its plans to be in 20 different African countries by the end of the year. It sees “tremendous growth potential” on the continent, especially in Nigeria with its rapid population growth.

The company’s expansion will be driven primarily by the KFC chain, which has proven extremely popular in South Africa. It bought 70 restaurants in South Africa last year, building its base in the country which it will use as a springboard into the rest of the continent.

Who’s Investing In Africa Now? Ericsson, FastJet, PepsiCo, and More

It’s not necessary to wire money to a far-flung African locale to invest in the rise of the African consumer. Here are five companies that are making big bets on the continent and conveniently trade on the New York Stock Exchange.

Ericsson (ERIC:US)

The Swedish telecom system manufacturer reported a big increase in revenue from Sub-Saharan Africa during the second quarter. Sales from the region increased 26% and accounted for over 5% of the firm’s total revenue in the period. African wireless companies continue to build out their 2G infrastructure, which management attributed as the main driver to sales growth. Further growth should be in the offing as mobile users begin to adopt smart-phones.

Ericsson now employs 2,277 people in Sub-Saharan Africa. That’s up 39% over one year ago.

FastJet (RUBI:LN)

East Africa’s Fly540 airline got a shot in the arm last month after being spun off from its corporate parent, Lonrho. The airline, now owned by Rubicon Diversified Investment Holdings, will be rebranded as FastJet and led by a management team hand-picked by the founder of EasyJet (EZJ:LN), Stelios Haji-Ioannou. FastJet will look to reduce the price of many of its regional flights to just $20 (a fraction of prevailing prices) and to expand its routes dramatically, particularly in Nigeria. It will lease six Airbus aircraft within the next six months and plans to triple that number in time.

Millicom (MIICF:US)

Ericsson isn’t the only Swedish telecommunications company active in Africa. Wireless operator Millicom reported $84 million worth of capital expenditure on the continent during its second quarter. Much of the investment went toward purchasing additional wireless spectrum in the Democratic Republic of Congo, a country where it forecasts strong wireless growth in coming years. It estimates the DRC’s wireless penetration rate to be at 55%, and it controls one-third of the market.

Africa accounted for 20% of Millicom’s total sales during the quarter.

PepsiCo (PEP:US)

The soft drink maker will soon unveil a $28.5 million manufacturing facility in the Kenyan capital, Nairobi. The plant will employ 300 workers. Pepsi re-entered Kenya in 2010 after a 30-year absence, but it has been importing all of its product from outside the country. The new plant should significantly reduce import costs.

Coca-Cola (KO:US) currently controls 63% of Kenya’s soda market, and it isn’t taking Pepsi’s challenge lightly. It is in the midst of a $59 million expansion that includes a new bottling line. Kenyans’ soft drink consumption remained roughly level between 2009 and 2010 at 8.7 liters per person.

Procter & Gamble (PG:US)

This maker of pretty much everything in your kitchen cupboard and cleaning cabinet recently announced last month that it would build a $250 million plant in Nigeria. The facility will employ 750 people.

The factory’s plans come amidst a growing realization that P&G has been losing ground to the likes of Unilever (UL:US) and Colgate-Palmolive (CL:US) in emerging markets. The company estimates that it generates just less than $1 worth of sales per person in Sub-Saharan Africa. This compares with $4 per person in China.