Bralirwa: A Rwandan Stock That Pours Out Profits

Christian Sirikali recalls enjoying Bralirwa’s products as a child in Rwanda and the Democratic Republic of Congo.

Now a chartered account, Sirikali looks at the brewer through an investor’s lenses and likes what he sees.

It doesn’t take much to make you happy when you’re a kid.

When I was growing up in Rwanda and the Democratic Republic of Congo, I remember every day after school, mum used to treat us to a good, cold lemonade called Fanta. It was enough to make us forget our long, hot day in the classroom.

My dad was the other “big kid” in the house. He couldn’t wait to get home for a cold beverage either. Only his was called Primus and slighly more alcoholic. And that’s how our evenings began. Everyone enjoying a drink and telling each other about the happenings of the day.

Fast forward 20 years. I was in Kigali, Rwanda’s capital, in December 2010, and I heard that Bralirwa (Brasserie et Limonaderie du Rwanda), the purveyor of our beloved Fanta and Primus, was preparing its IPO.

The prospectus was available in every big bank in town, including Bank of Kigali, where I got my copy. It was quite interesting to go over the financials of a company that I remembered so well from my childhood.

And as a big believer in Warren Buffett’s style of value investing, I almost jumped out of my shoes when I saw the company’s performance figures. I quickly concluded that the stock was a great buy.

Today, the company is public, and things have changed a bit. Bralirwa shares, of which Heineken owns a controlling stake, have risen six-fold and the stock has yielded dividends in the 10% range at  times in the past two years. Yet, I still believe the biggest gains are yet to come.

Tapping an Under-served Market

The low level of beer consumption in East Africa with its emerging middle income population (many of whom are in the 19-34 year range) gives a lot of room to grow provided management can effectively market to this increasingly demanding clientele.

On the flip side, the  Rwandan market is hugely coveted by all the major brewers. Until now, most of these heavyweights’ energy has been on bigger countries like Kenya and Uganda, but eventually Bralirwa will start seeing more competition on its home turf. Management should start preparing for this.

Christian Sirikali
Christian Sirikali

Bralirwa has a good management team with a lot experience in the industry. Their distribution network and pricing elasticity give them a huge advantage. The latter has been used lately to hike their prices by 10% – you can’t do that if you had serious competition and only when you’re in a situation of a quasi-monopoly with almost 80 % market share.

The company grew revenues by nearly 18.5% in 2012 and earnings per share by 29.8%. It generates a lot of cash and has relatively little long-term debt.

Management often seems to rely heavily on the company’s market dominance and is perhaps complacent about investing for the future. I’d like to see them focus on ways to reduce costs and invest in a lean, effective distribution system instead of raising prices. That’s the way it will stave off new competitors and continue to provide investors with a return on equity above 75% — as it did in 2012. Profitability is the name of the game.

How Much Is This Brewer Worth?

Now, I must note that Bralirwa currently trades at a P/E ratio of 23.2. So, the big question is whether its shares are a bargain in spite of this relatively high earnings multiple. To answer this, I used a two-stage discounted cash flow (DCF) model with a discount rate of 13% (which is 95 basis points higher than the average Rwandan treasury bill rate).

Bralirwa has been growing its earnings at an average rate of 50% over the last five years with almost no debt. But, to be conservative, I assumed a growth rate of 15% over the next 10 years and then lowered to a long-term rate of 3% from there on. I also used “owner earnings” (earnings plus depreciation, depletion, amortization and capital expenditures for new plant and equipment) instead of free cash flow because Bralirwa is still in an expansionary growth phase.

Photo by Ludovic Hirlimann
Photo by Ludovic Hirlimann

The results look very enticing to this value investor. Bralirwa currently trades at RWF857.00 per share. The DCF model gives me a value of RWF1308.00 per share. So, I see unrealized value of greater than 50% waiting to be snagged by a long-term, focused investor who can enjoy the 2.3% dividend yield while he or she waits for the market to recognize the stock’s intrinsic worth.

To conclude, as John Maynard Keynes once said, “I would rather be vaguely right than completely wrong.” I think that I’m at least “vaguely right” that Bralirwa shares still have a lot of value left.

Christian Sirikali is a chartered accountant, investor, and entrepreneur based in Ottawa, Canada. He has a beneficial interest in Bralirwa shares and plans to buy more in the near future.

Related Reading

How to Invest on the Rwanda Stock Exchange

How to Invest on the Rwanda Stock Exchange

Less than 20 years ago, the world watched as a paroxysm of genocidal violence wracked Central Africa’s land of a thousand hills. If ever there was a place bereft of hope, Rwanda was it.

Yet, to the world’s astonishment, the country refused to settle for merely rebuilding. Instead, it opted to transform.

Now, investors from both near and far have an opportunity to support Rwanda’s improbable economic success. The nascent Rwanda Stock Exchange (RSE) is open for business.

Less than 20 years ago, the world watched as a paroxysm of genocidal violence wracked Central Africa’s land of a thousand hills. If ever there was a place bereft of hope, Rwanda was it.

Yet, to the world’s astonishment, the country refused to settle for merely rebuilding. Instead, it opted to transform. Rwanda’s economy has expanded at a 7.8% pace for the past ten years, and neighbor is slowly, cautiously learning to live with neighbor once more.

Now, investors from both near and far have an opportunity to support Rwanda’s improbable economic success. The nascent Rwanda Stock Exchange (RSE) is open for business.

Here’s a quick guide to opening a Rwandan trading account and buying your first shares.

Rwandan Stockbrokers

I emailed each of the ten brokers who are licensed to trade on the RSE. I asked them if they catered to foreign investors, how much they required to open an account, and what documentation was necessary. I found the three brokers listed below to be particularly helpful and responsive.

Broker Minimum Initial Deposit Account Opening Form Research Sample
African Alliance Rwanda No minimum required Not Available Online Not Available Online
CDH Capital No minimum required Here Not Available Online
Faida Securities Rwanda No minimum required Not Available Online Not Available Online

Trading Costs

Commissions and fees amount to 1.71% of the total transaction value. This rate is standard across all brokers.

Note that the exchange requires that trades be for a minimum of 100 shares.

Opening a Rwandan Brokerage Account

Now let’s walk through the process of opening an account with a Rwandan stockbroker and buying your first shares.

Step 1: Complete the CSD Account Opening Form

The Central Securities Depository (CSD) records the ownership of Rwandan securities via electronic accounts. When you ask a broker to open a trading account, they will send you a copy of the CSD Account Opening Form. After completing and returning it to your broker, you will be assigned a CSD account number. This number will accompany every Rwandan stock trade you execute, allowing the CSD to keep record of all your holdings in the country.

Step 2: Complete the Broker’s Account Opening Form

After your first email to the broker requesting information on how to open an account, they may also send you a blank account opening form, which is sometimes referred to as the “Know Your Client” or KYC form. A sample form from CDH Capital may be found in the above table. The form typically requires disclosure of your passport number or other ID number, your address, and a signature sample.

Step 3: Collect two photocopies of your passport and two passport-size photos.

Step 4. Mail the original CSD form, account opening form, passport photos, and photocopies of your passport to your broker

You may email photocopies of all documents to your broker to get a head start on the account opening process, but they must eventually receive the original documentation. I recommend using a courier for this. It’s pricey but could save you a lot of grief in the event that the post office loses track of your documents.

Step 5. Wire Funds to Your Brokerage Account

After opening your trading account, your broker will provide you with its bank details so that you can fund your account. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Step 6. Submit a Trade Order

You’ve done your research and found a stock that you’d like to buy. What now?

All that needs be done is to submit a written trade instruction. Some brokers may have a special trade mandate form to complete, but, for others, a simple email may suffice.

Keep in mind that many shares listed on the Rwanda Stock Exchange are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.

Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees. Settlement of share trades takes up to three business days in Rwanda, so if you’ve sold shares, don’t expect to receive the proceeds of a sale before then unless you’re willing to incur a penalty to settle the trade more quickly.

An Important Note on Dividends

None of the Rwandan brokers that responded to me (except CDH Rwanda) would deposit dividends directly into a client’s brokerage account. You must instead opt to receive a dividend check denominated in Rwandan Francs or open a Rwandan bank account to collect the dividends. Because the teller at your local Wells Fargo branch will probably laugh in your face if you ever try to cash a Rwandan check there, your best option, unfortunately, is to open a Rwandan bank account.

Your broker should be able to assist you in connecting with a reputable bank and to help facilitate the account opening process. The CSD will be informed of your local bank details and will route all of your dividends there.

Mission Accomplished

Follow these steps and you’re all set to begin investing in Rwandan stocks. That wasn’t too bad, was it?

The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.

Further Reading

How to Invest on the Botswana Stock Exchange

How to Invest on the Ghana Stock Exchange

How to Invest on the Nigerian Stock Exchange

How to Invest on the Zimbabwean Stock Exchange