It appears that Tanzania’s Dar es Salaam Stock Exchange (DSE) will be Africa’s best-performing stock market in 2014.
Midway through the year, the market removed the 60% cap on foreign investors, making shares of some of the country’s largest, most profitable companies accessible to non-Tanzanians for the first time in years.
The resulting inflow of foreign cash propelled the DSE to new heights. As of this writing, the exchange’s Local Companies Index is up 27.2% in USD terms since the start of the year.
So, which Tanzanian stocks put the biggest smiles on investors’ faces in 2014? Let’s count down the top five performers.
Tanzania’s Best Stocks of 2014
(tie) 4. CRDB Bank (CRDB)
(Year-to-date USD Return: 58.5%)
Founded in 1996, CRDB is Tanzania’s largest bank. It boasts a network of 118 bank branches and 311 ATMs ranging from Dar es Salaam to Bujumbura in neighboring Burundi. It offers a wide range of banking services but has a special focus on lending to individuals and the agricultural sector.
In the first nine months of the year, the bank grew earnings 12.6% on the back of a big jump in fee income. A partnership with the Tanzanian Postal Corporation helped increase customer deposits by nearly 18%. And management’s goal of doubling in size by 2017 is well within reach. Total assets climbed 23% over the past 12 months.
(tie) 4. Tanzania Breweries (TBL)
(Year-to-date USD Return: 58.5%)
TBL, a subsidiary of global brewing giant SABMiller, overcame a weakened currency and a 20% increase in Tanzania’s beer tax to grow earnings 18% over the first six months of its 2015 fiscal year.
It accomplished this by selling a greater proportion of premium products (which command higher profit margins) and by cutting administration costs.
In fact, the company was so profitable that it raised its mid-year dividend 67% and even had a little left over to pay down some of its long-term debt load.
The share price shot through the roof, helped by an influx of foreign investors looking to tap into the growth of Tanzania’s consumer class.
3. Swissport Tanzania (SWISSPORT)
(Year-to-date USD Return: 70.0%)
Swissport provides cargo and baggage handling at Tanzania’s airports. It’s been a terrific business to operate in. As the nation’s economy grows, so do the number and size of aircraft flying in and out of places like Dar es Salaam and Kilimanjaro.
In the first half of 2014, the number of flights increased 15%, fueling a 17% increase in revenue. This growth plus aggressive cost management helped the company generate a 39% earnings increase. The company rewarded shareholders with an equivalent boost to its mid-year dividend.
Looking ahead, the company is preparing for the entry of competitors by constructing a state of the art cargo facility at Julius Nyerere International Airport.
2. Tanzania Cigarette Company (TCC)
(Year-to-date USD Return: 73.8%)
This one’s a head-scratcher.
TCC is Tanzania’s largest cigarette manufacturer and a subsidiary of Japan Tobacco International (JTI). In the first half of this year, sales increased just 2% and earnings dropped 20% after the government enacted a 25% excise tax on tobacco. In spite of this, the company’s share price surged well over 80%.
My best guess for what catalyzed the price appreciation was the removal of the cap on foreign investment in the company, and, apparently, foreign investors love them some sin stocks.
1. Tanga Cement Company (SIMBA)
(Year-to-date USD Return: 124.2%)
Also known as Simba Cement, Tanga Cement Company is Tanzania’s second-largest cement manufacturer. Thanks to an impressive effort to reduce expenses, the company’s operating profit jumped 38% during the first half of 2014.
And two recent developments indicate improved profitability for Simba in coming years. In July, it signed a new power supply agreement with the local utility which ensures it more reliable electricity. Management also recently announced that a second kiln line will come on line next year, effectively doubling production capacity.
Even after the huge price increase, the shares still trade at just 10.5x trailing earnings and a 2.3% dividend yield.
What Do You Think?
Did this list of top performers surprise you? Which Tanzanian stocks do you think will post the best returns in 2015? Let’s hear your thoughts in the comments!