Tanzania’s Top 5 Stocks of 2014

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.

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.

Tanzania's Best Stocks 2014
Photo by Andrew Moore

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!

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Tanzania’s Stock Exchange is Opening to Foreign Investors (4 Shares to Know)

With its large population, political stability, prudent governance, and wealth of natural resources, Tanzania offers Africa investors some compelling opportunities.

In spite of this, the Dar es Salaam Stock Exchange has remained a sleepy place due to restrictions on foreign share ownership.

But that’s all about to change. The government recently decided to remove the caps, opening up some great companies to share investors from around the world.

Here are four Tanzanian companies worth digging into.

To me, Tanzania is one of Africa’s most exciting economies.

It’s got a young population that numbers nearly 50 million citizens – a figure that surpasses its charismatic neighbor to the north, Kenya.

It boasts a long history of peace and political stability.

Its government is committed to fiscal discipline.

Its blessed with a wide variety of natural resources, including offshore gas reserves that are being harnessed for both export and the provision of electricity. And it has a rapidly growing manufacturing base.

This combination of traits and trends creates an economy that the IMF believes will grow at least 7% this year and will maintain this pace in each of the next three years.

A Restricted Market

With all of this going for it, you would think that the Dar es Salaam Stock Exchange would be a darling of foreign investors.

But for many years, the government restricted levels of each stock’s foreign ownership to a total of 60% in, what I believe was, a misguided effort to protect and promote Tanzanians’ participation in the market.

Last month, however, the government approved the removal of this regulation in a move to invigorate the sleepy exchange. The change is expected to officially take effect before the end of the year.

4 Tanzanian Stocks to Get to Know

The change effectively opens five listed firms to additional foreign investors. Here are four that I believe are worth a close look.

1. Swissport Tanzania (SWISSPORT)

For many years, Swissport Tanzania (a subsidiary of Zurich-based Swissport International) has held the sole license to operate ground handling and cargo services at Kilimanjaro and Julius Nyerere International airports. It’s also just begun similar services at two smaller Tanzanian airports.

As the monopoly provider, Swissport has benefited from the growing number of flights and passengers coming in and out of the country. In the first half of 2014, flights handled increased 15%, leading to a 39% increase in net income.

Unfortunately for shareholders, growth won’t come quite so easy in coming years. The government is working to expand Julius Nyerere International, and with that expansion will come the licensing of a second ground handler.

Management is preparing for the arrival of competition by expanding its footprint to secondary airports and by constructing a second warehouse at its Dar es Salaam hub.

The shares presently trade at a multiple of 12x trailing earnings and offer a dividend yield of 6.6%.

2. Tanga Cement (SIMBA)

Dar es Salaam Stock Exchange
Photo by David Davies

Known as Simba Cement in the marketplace, Tanga Cement’s first and only plant was commissioned in 1980. It’s presently in the midst of the biggest ever expansion project. When it is complete, Simba will no longer be required to import clinker, the prime component of Portland cement. Thus, big cost savings are on the horizon, and the company expects to have excess clinker for export.

This development comes none too soon. Competition from imported cement drove Simba’s sales down in 2013, resulting in a 10% reduction in earnings per share.

But the company, whose majority holder is Afrisam Mauritius, generates lots of cash, has very little debt to speak of, and trades at just a smidge over 7x its 2013 earnings. The shares currently yield 3.0%.

3. Tanzania Breweries (TBL)

Tanzania Breweries is the country’s largest beer maker and a subsidiary of global beverage giant, SABMiller, which owns a 58% stake in the company. It operates four breweries throughout the country and holds partial ownership of a distillery and a brewer of traditional alcoholic beverages.

In spite of unreliable electricity and increased excise taxes, TBL managed to increase its revenue 10% during its 2014 fiscal year. Earnings surged 15% thanks to cost-cutting and a smaller debt load.

The share price is up very big since September 2013 (over 268%). This is likely due to speculation that the government would, in fact, lift restrictions on foreign ownership. It now trades at a trailing P/E ratio of about 24. This should give value investors pause, but it’s definitely one to keep an eye on in the event of a sell-off.

4. Tanzania Portland Cement (TWIGA)

Like its main domestic competitor, Simba, Tanzania Portland Cement (more commonly known as Twiga Cement) faltered when cheap imported cement flooded the market in 2013. Sales were also set back as a result of a major fire at its main electricity transformer which hampered production for four months.

But the company, which is majority-owned by the German HeidelbergCement Group, bounced back during the first half of 2014, with earnings jumping 41%.

Like Simba, it too is in the midst of expanding its operations and plans to launch a second cement mill later this year. It also launched a premium brand of cement, “Twiga Plus,” to counter competition from imported products. Management is also mulling the idea of constructing a solar photovoltaic power station to help cover its energy needs.

With a P/E ratio of 14.7, Twiga isn’t as obviously cheap as Simba, but it boasts a rock solid dividend yield of 7.2%.

What Do You Think?

So, there you have it. Four intriguing new shares to add to your Africa investment universe.

Do you invest on the Dar es Salaam Stock Exchange? Which Tanzanian shares do you think are poised to outperform the market? Let’s hear your thoughts in the comments!

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Here’s How to Profit From Tanzania’s Quiet Rise

It might be time to brush up on your Swahili.

Tanzania looks to be one of the world’s biggest economic success stories over the next five years. While its dynamic neighbor to the north grabs most of the headlines, the unassuming East African nation has strung together 12 consecutive years of +6% GDP growth. And there’s no end in sight.

Here’s a stock that both local and foreign investors can buy to participate in the country’s expansion.

It might be time to brush up on your Swahili.

Tanzania looks to be one of the world’s biggest economic success stories over the next five years.

While its dynamic neighbor to the north grabs most of the headlines, the unassuming East African nation has strung together 12 consecutive years of +6% GDP growth.

And there’s no end in sight.

The discovery of huge offshore natural gas deposits and steadily improving governance suggest Tanzania’s growth story will continue well into the next decade. The IMF predicts the economy will expand 7.2% in 2014.

Bankrolling Tanzania’s Growth

One company that stands to benefit from Tanzania’s rise is CRDB Bank.

CRDB Bank began its life as the government-owned Cooperative Rural Development Bank. In 1996, it was privatized and restructured with the help of the Danish aid agency, DANIDA, which continues to hold a 21.5% stake in the bank.

Since then it has grown into the country’s second-largest bank with 103 branches and total assets of roughly $2.2 billion. It listed on the Dar es Salaam Stock Exchange in 2009.

While it offers a complete range of banking services, its strategic focus has been on retail and small business customers, especially in the agricultural sector.

It’s a market segment with huge potential. Tanzania’s central bank estimates that more than 87% of the country’s 45 million citizens are unbanked. To tap this opportunity, CRDB unveiled an agency banking platform last year. By partnering with the national postal service, it extended its reach deep into the country’s rural areas without costly investment in new branches.

The bank’s vision extends beyond Tanzania’s borders, too.

CRDB Bank and Tanzania's Growth
Photo by Stig Nygaard

In late 2012, it ventured outside its home market for the first time, opening a branch in neighboring Burundi, which is dependent on imports from Tanzania’s port city of Dar es Salaam. The branch has performed exceptionally thus far, encouraging management to consider expansion elsewhere in the region.

CRDB Bank (Buy) the Numbers

So, how did it perform in 2013?

Much like its home country, its performance wasn’t flashy. Earnings per share rose a yawn-inducing 5.7%. It’s important to note, however, that the bank opened 10 new branches during the period, which contributed to a 19% jump in non-interest expense.

Management had targeted 17% asset growth for 2013. It fell a bit short of that mark with just a 15% increase, but it remains on target to double in size within five years.

And the quality of those assets improved markedly. Non-performing loans as a percentage of total loans fell to 6.1% from 6.9% at the end of 2012.

Moreover, its return on assets is a stellar 3.7%, well above the management’s 3% target and one that puts it among East Africa’s most profitable banks.

One for the Vault?

Much of CRDB Bank’s attractiveness stems from the fact that it is one of just a few shares on the Dar es Salaam Stock Exchange that can be bought by foreigners. Foreign ownership of Tanzanian stocks is capped at 60% with the remainder being reserved for local investors. Most other stocks listed on the DSE have already butted up against that threshold, but foreigners own less than 17% of CRDB’s shares.

What’s more, with a P/E ratio of 8.1 and a price/book ratio of 1.8, I believe the stock offers decent value for long-term investors considering the size of the market open to it.

The shares currently trade at a price of TZS315.00. In my view, they are worth TZS375.00 per share. If they should reach that price, buyers here would collect a 19% capital gain.

The bank hasn’t yet announced its dividend for 2013, but, barring a big change to dividend policy, I expect it to be roughly 13 shillings per share. So, investors can collect a 3.8% dividend yield while they wait for the market to digest CRDB’s value.

Your Turn

Are you a fan of CRDB Bank? What other ways can investors participate in Tanzania’s steady growth? I’d love to hear your thoughts in the comments!

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How to Invest on the Dar es Salaam Stock Exchange

If you really want to invest at the furthest reaches of Africa’s frontier markets, the Dar es Salaam Stock Exchange (DSE) is for you. The little market lists only 11 local companies and trade volumes often don’t exceed $500,000 per week.

But the DSE will likely not be so sleepy five years from now. Exploration companies have discovered huge natural gas reserves off Tanzania’s sandy shores that they are rushing into production. Now the country appears set to be the world’s newest energy hub.

One way to get in on the ground floor of these exciting developments is via the stock market. Here’s what it takes to open a Tanzanian brokerage account.

If you really want to invest at the furthest reaches of Africa’s frontier markets, the Dar es Salaam Stock Exchange (DSE) is for you. The little market lists only 11 local companies and trade volumes often don’t exceed $500,000 per week.

Part of the reason for this is because the Tanzanian government does not allow foreigners to purchase shares of companies whose foreign ownership percentage exceeds 60%. As of this date, only six stocks have foreign ownership percentages less than 60%.

Even so, the DSE will likely not be so sleepy five years from now. Exploration companies have discovered huge natural gas reserves off Tanzania’s sandy shores that they are rushing into production. Now the country appears set to be the world’s newest energy hub.

One way to get in on the ground floor of these exciting developments is via the stock market. Let’s take a look at what it takes to open a Tanzanian brokerage account.

Tanzanian Stockbrokers

I emailed each of the ten brokers who are licensed to trade on the DSE. 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 two brokers listed below to be particularly helpful and responsive.

Broker Minimum Initial Deposit Account Opening Form Research Sample
Orbit Securities No minimum required Not Available Online Not Available Online
Vertex Securities No minimum required Here Not Available Online

Trading Costs

Commissions and fees are assessed on a sliding scale that is standard across all brokers. For transaction amounts less than TZS10,000,000 (roughly $6,300) you will pay 2.0% of the total trade value when buying or selling a stock. For amounts less than TZS50,000,000 (about $31,600) the total commission is 1.8%. Anything greater than that is charged 1.1%.

Opening a Tanzanian Brokerage Account

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

Step 1: Complete the CDS Account Opening Form

The Central Depository System (CDS) records the ownership of Tanzanian securities via electronic accounts. When you ask a broker to open a trading account, they will send you a copy of the CDS Account Opening Form. After completing and returning it to your broker, you will be assigned a CDS account number. This number will accompany every Tanzanian stock trade you execute, allowing the CDS 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 a Vertex Securities may be found in the above table. The form typically requires disclosure of your passport number or other ID number, your address, and asks for your preference regarding collection of dividends and payment of fees.

Step 3: Photocopy your passport

If you don’t have a valid passport, a driver’s license may suffice.

Step 4. Mail the original CDS form, account opening form, and copy 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.

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?

While some brokers will request a signed trade mandate form, for most brokers, all you need to do is send an email to your broker with your trade instructions. Keep in mind that many shares listed on the Dar es Salaam 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 six business days in Tanzania, 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

It is not possible to have stock dividends deposited directly into a Tanzanian brokerage account. You must instead opt to receive a Tanzanian Shilling denominated dividend check or open a Tanzanian 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 Tanzanian Shilling denominated check there, your best option, unfortunately, is to open a Tanzanian 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 CDS 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 Tanzanian 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