Top Performers Archives - Investing in Africa

Kenya’s 10 Best Stocks of the Past 10 Years

The Nairobi Securities Exchange had a tough go of it in 2015, but investors have reaped exceptional rewards from long-term investments in stocks ranging from banking to agriculture. Here’s a countdown of the top Kenyan stocks over the past 10 years.

Let’s not sugarcoat it.

The Nairobi Securities Exchange (NSE) had a dismal year in 2015, dropping 10.6% (21.5% in US dollar terms), and market watchers remain decidedly unenthusiastic about the prospects for Kenyan stocks in the year ahead.

When bearish sentiment prevails, it’s often difficult to see just how profitable a long-term investment in stocks can be.

So let’s turn back the clock ten whole years, to the early days of 2006.

Kenyan voters had just rejected a proposed new constitution, a disastrous drought was creating misery in the north, and the Anglo Leasing scandal had just broke. The intervening years have brought devastating election violence, a global financial crisis, and horrific terrorist attacks.

In hindsight, it seems like an absolutely dreadful decade to have been invested in Kenyan stocks.

Yet throughout that time period individual companies have posted some sensational performances. A dozen stocks more than tripled in value during that time period, creating a healthy nest egg for their long-term shareholders.

Here’s a countdown of the NSE’s five best performers over the past ten years.

5. Kakuzi
(10yr Rtn: +560.4%)

Ten years ago, this diversified agricultural producer was saddled with heavy debt and reported an earnings loss due to drought and low tea prices. But over the past decade, the tea price has nearly doubled and the company invested heavily in lucrative new crops like avocado and macadamia nuts.

Management also sold off one of its tea plantations and retired the company’s interest-bearing debt. The combined impact of all these factors has been consistent profitability.

Undervalued land assets along the Thika Road added to the surging share price’s momentum.

And so did activist investor, John Kimani. Kimani, who was born and raised on Kakuzi farm, has been steadily buying shares of the relatively illiquid stock in an effort to represent the rights and interests of the company’s workers and neighbors. His stake in the company has risen from virtually nil ten years ago to a whopping 25% of outstanding shares today.

4. Diamond Trust Bank
(10yr Rtn: +663.9%)

While its larger peers, Equity Bank and KCB, may get most of the headlines, Diamond Trust is arguably Kenya’s best-managed bank. The past ten years saw it embark on an ambitious expansion drive that increased its branch network from just five in 2005 to well over 100 today and extended its reach beyond its Kenyan home base to Burundi, Tanzania, and Uganda.

So, far it looks like the moves are paying off. Customer deposits have increased in excess of 20% in each of the past five years, while non-performing loans have been held to less than 2% of total lending.

The share price has benefited from steady purchases from Pakistan’s Habib Bank. In 2013, Habib announced its intention to increase its stake in DTB from 11% to 26% through purchases on the open market by the end of 2018.

3. Centum
(10yr Rtn: +676.3%)

The comparisons to Berkshire Hathaway are perhaps a bit premature, but if this investment holding company continues to grow at the rate it has over the past ten years, it won’t be long before Chairman Chris Kirubi and CEO James Mworia become Kenya’s answer to Warren Buffett and Charlie Munger.

Starting from small holdings in listed companies, Centum now boasts controlling stakes in firms active in consumer goods, manufacturing, banking, and real estate. Look for it to take on an even more instrumental role in the Kenyan economy over the next ten years through big investments in energy, healthcare, and education.

2. Jubilee Holdings
(10yr Rtn: +743.6%)

Kenya’s largest insurance company has given its shareholders plenty to celebrate over the past ten years. In that time period, the company’s grown its net insurance premium revenue by an astounding 660%.

Savvy investments in Diamond Trust Bank, real estate, undersea fiber-optic cables, and energy projects have augmented the insurance income and positioned it to benefit directly from some of the most promising sectors in the region.

The company now sells its policies throughout East Africa, is on the verge of launch in the DRC, Madagascar, and Ethiopia, and is eyeing expansion opportunities in West Africa, too.

1. Limuru Tea
(10yr Rtn: +1158.0%)

A true home run stock. Lucky shareholders of this 677 acre tea plantation just northwest of Nairobi saw the value of their shares rise more than eleven-fold this past decade.

Rising tea prices certainly didn’t hurt the company’s valuation, but the real impetus behind the stock’s rise is real estate. Limuru’s rolling hills are also highly coveted by property developers. With its pleasant climate and convenient location just 40 kilometers from the capital’s central business district, the plantation is ideally situated for high-end property developments. But if you’d like to own a piece of the company, you’d best be patient. Unilever Tea Kenya owns 52% of shares and the remainder rarely trades even after a 2:1 share split in June this year.

Who were the other top performers on the NSE? The chart below shows the top ten Kenyan shares since December 31, 2005.

10 Best Kenyan Stocks of the Past Decade

Company	Return (12.2005 – 12.2015)*
1. Limuru Tea	1158.0%
2. Jubilee Holdings	743.6%
3. Centum Investment	676.3%
4. Diamond Trust Bank	663.9%
5. Kakuzi	560.4%
6. ARM Cement	425.6%
7. Crown Paints	381.5%
8. Equity Bank	314.5%
9. KCB Bank	301.1%
10. BAT Kenya	284.8%
* excludes dividends

[Disclosure: At date of post, I (Ryan) held a beneficial interest in shares of KCB Bank and Centum Investment Holdings.]

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.

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!

Botswana’s 5 Best Stocks of 2014

At first glance, it would appear that the quiet Botswana Stock Exchange (BSE) had a lackluster year. Its main index is down 1.0% in USD terms.

If you look closely at the performances of individual stocks, however, you will see that the market was weighed down by two large banks that are struggling to grow profits due to Botswana’s record low interest rates. Most other stocks have enjoyed solid price gains.

Here’s a countdown of the top five performers.

At first glance, it would appear that the Botswana Stock Exchange (BSE) had a lackluster year. Its main index is down 1.0% in USD terms.

If you look closely at the performances of individual stocks, however, you will see that the market was weighed down by just two companies – FNB Botswana and Barclays Botswana.

These two banks are among the BSE’s largest stocks and have dropped 15% and 41% respectively. They’re struggling to grow profits due to Botswana’s record low interest rates.

Most other stocks have enjoyed solid price gains. Here’s a countdown of the top five performers.

Botswana’s Best Stocks of 2014

5. Wilderness Holdings (WIL)
(Year-to-date USD Return: 18.3%)

With more than 60 safari camps spread across nine countries, Wilderness Holdings is an excellent play on Africa’s luxury tourism sector.

The company’s earnings increased 70% during the first half of its 2015 fiscal year thanks to higher occupancy rates and a stronger US dollar. Management succeeded in widening profit margins by packing guests’ itineraries full of company-owned activities and side trips. It also paid down a big chunk of its long-term debt.

Some customers have canceled reservations in the wake of West Africa’s Ebola outbreak, but the company expects this to be a temporary setback. It plans additional expansion in coming years.

4. G4S Botswana (G4S)
(Year-to-date USD Return: 21.3%)

G4S is one of Botswana’s leading security companies. It monitors thousands of alarms, vehicles, fences, and cameras and manages a large team of guards and incident response units.

The security business has been a good one in Botswana. G4S’s revenue grew nearly 7% during the first half of the year. But the main reason investors have been so enthusiastic is an ongoing restructuring exercise that saw the company’s administration expenses slashed by over 15%.

The cost-cutting helped the company post earnings growth of 129% and allowed management to more than double its dividend payout.

3. Sefalana Holding Company (SEFA)

Botswana's Best Stocks — Photo by Steve Jurvetson

(Year-to-date USD Return: 30.2%)

The first company to ever list on the Botswana Stock Exchange, Sefalana Holding Company is a wholesaler and retailer that operates 37 cash and carry stores and 21 large supermarkets across Botswana and Namibia.

Sefalana bought 12 Namibian cash and carry stores in July of this year. The company funded the deal through a rights offering, and management announced that it would make a significant contribution to both sales and profits. Look for the company to expand further into Namibia in coming years.

2. Chobe Holdings (CHO)
(Year-to-date USD Return: 32.9%)

An eco-tourism company, Chobe Holdings operates 11 lodges and camps in northern Botswana and Namibia.

The firm grew profits 19% during the first half of its 2015 fiscal year thanks to a big increase in occupancy rates. These results, plus an 18% dividend hike announced earlier in the year, sent shares soaring. Going forward, a newly modernized fleet of aircraft, which help ferry guests to and from the company’s lodges, should ease pressure on profit margins.

Like its competitor Wilderness Holdings, Chobe is seeing slackened bookings in response to the Ebola outbreak. In response, both companies are now offering no-penalty cancellations to all prospective customers should a case of Ebola be confirmed in Botswana.

1. Sechaba Brewery Holdings (SECH)
(Year-to-date USD Return: 40.9%)

Botswana’s largest brewer has managed to grow earnings at a modest pace in spite of a 50% levy on alcoholic beverages mandated by the country’s teetotaler president, Ian Khama.

SABMiller owns a 16% stake in the holding company and a 40% stake in the breweries themselves. Thus, when Sechaba released a series of cautionary announcements hinting at potential changes to the ownership structure, rumors abounded that SABMiller was preparing a buyout offer. This speculation, not the company’s meager earnings growth, is what fueled the stock’s price rise.

On November 21, the company withdrew the cautionary, saying the company is no longer pursuing the “corporate changes.” This makes it tough to imagine that the company will appear in this countdown again next year.

What Do You Think?

Did any stocks on this list surprise you? Which shares do you believe will be among Botswana’s top performers in 2015? Let’s hear your thoughts in the comments!

Does Britam Kenya Still Have Room to Run?

British American Investments Company – Kenya (BRITAM) has made investors very happy of late. The stock is among the Nairobi Securities Exchange’s best performers this year, posting a dazzling 94.7% return.

Now the shares trade a shade below 2.5x their book value. Is that too rich a price? Or is there upside left here?

Let’s take a look at earnings (and Kenya’s long-term bond rate) to give us a clearer picture.

British American Investments Company – Kenya (BRITAM) has made investors very happy this year. The stock is among the Nairobi Securities Exchange’s best performers, posting a dazzling 94.7% return.

Now the shares trade a shade below 2.5x their book value. Is that too rich a price? Or is there some upside left?

In order to answer that question let’s begin by taking a closer look at the business and how it makes money.

Insuring East Africa

While it does operate a small asset management business, Britam Kenya is, first and foremost, an insurance company. It sells everything from life insurance to fire, marine, and medical policies. Kenya is its primary market, but it also operates in Uganda, South Sudan, Rwanda, and Malawi. Over the past five years, the company has grown its net premium revenue at a 22.7% clip.

Like all insurance companies, it invests the cash that it receives from customers until it needs to pay it out in the form of claims or other expenses. This investment capital is known as float, and it’s where the real magic happens.

Britam invests its float in a combination of real estate, government securities, and stocks. It also owns a 21% stake in Housing Finance Company of Kenya (HFCK).

When these investments perform well, Britam becomes the virtual equivalent of a cash machine. Such has been the case over the past 12 months. After accounting for the change in fair value of all the company’s property and equity investments, the company generated comprehensive income of Ksh3.48 per share. That’s a 30.1% increase over the prior 12-month period.

Value Check on Britam Kenya

One way that I quickly assess the value of a stock is to imagine that the underlying company suddenly stops growing. Forever.

Britam Kenya: Room to Run? — Photo by Wayan Vota

What’s the most that I would be willing to pay for a stock if it continued to generate the same level of earnings per share in perpetuity?

In such a case, the stock’s earnings can be viewed very much like the interest payment on a long-term bond.

The stock’s earnings should “yield” as much as a long-term bond would. Otherwise, there’d be no point for me to buy the stock. Thus, the prevailing long-term bond rate is my required rate of return.

To illustrate, let’s assume that Britam’s growth stagnates. Year after year for the foreseeable future, it averages comprehensive income of Ksh3.48 per share.

To find out how much such performance would be worth, we can simply divide the annual earnings (Ksh3.48 per share) by Kenya’s 10-year bond rate, which currently hovers around 12%.

If we do so, we arrive at a value of Ksh29.00 per share.

Kshs3.48 / 0.12 = Ksh29.00

So, in the event that Britam’s earnings froze at current levels, investors who buy at a price of Ksh29.00 per share would realize a 12% annual return.

Priced for Stagnation

How does this calculated value compare to the current price of the shares on the Nairobi Securities Exchange?

Well, as of this writing, you can buy Britam for Ksh29.50 per stub. Interesting, huh? So, essentially, Britam is priced for zero earnings growth in perpetuity.

I’ll gladly take that bet.

Even if the company’s earnings were exceptionally high over the past 12 months, I’m guessing Britam, with its steadily rising premium income and a large investment portfolio (which it could simply invest at a 12% rate of return if it chose to), will find ways to grow earnings over the long-term.

Thus, for patient investors, the shares appear to offer value — even after nearly doubling in price over the past ten months.

What Do You Think?

I’d love to hear your thoughts on Britam Kenya. Am I too enthusiastic about its prospects? Or do you agree that it looks like a bargain? Share your take in the comments!

5 Hot JSE Stocks That Even a Value Investor Can Love

I hate to jump on bandwagons.

When it comes to investing, however, a mountain of evidence suggests that running with the herd may be more profitable than bucking the trend.

Repeated studies confirm that stocks with momentum – those whose share prices have recently outperformed the market – tend to outperform those that haven’t.

Here are a few high-flying South African shares that can make the trend your friend while minimizing downside risk.

I hate to jump on bandwagons.

Whether it be clothes, sports, or the latest internet meme, I like to think I’m an individualist – unswayed by whatever or whoever is in vogue at the moment.

I bring this same contrary attitude to picking stocks and take far more pleasure in discovering a hidden gem than I do in piling into whatever hot share is grabbing headlines at the moment.

The Wisdom of Crowds?

When it comes to investing, however, a mountain of evidence suggests that running with the herd may be more profitable than bucking the trend.

Repeated studies confirm that stocks with momentum – those whose share prices have recently outperformed the market – tend to outperform those that haven’t. In other words, the winning stocks keep winning, and the losers keep losing.

The reason for this is still subject to some debate, but confirmation bias is the explanation that makes most sense to me. A critical mass of investors become “married” to their bullish view on a stock and ignore or reinterpret any data that runs counter to this image.

Thus, a snowball effect begins, where price increases beget price increases until hype eventually succumbs to reason and the share price retreats (or crashes) to more sober levels.

5 JSE Shares to Make the Trend Your Friend

The good news is that some stocks allow investors to enjoy price momentum while limiting downside risk. Their share prices have risen dramatically, but they still trade at down-to-earth valuations.

Here are eight high-flying JSE shares that fuddy-duddy value investors like me don’t have to be ashamed of owning. Each one has risen more than 25% over the past 12 months but still trades at less than 1.5x book value and a P/E ratio of less than 15.

Faddish JSE shares that are okay to love — Photo by Jeff Attaway

1. Telkom (TKG)
52-week Return: 157.0%
P/E Ratio: 6.8
P/B Ratio: 1.3

A beleaguered giant, Telkom once ruled South Africa’s telecommunications sector with an iron fist. After being stripped of its stake in mobile operator Vodacom, however, it struggled to survive.

Now, it’s in the midst of a turnaround.

New CEO Sipho Maseko has pledged to slash one billion rand of expenses over the next five years, reduced debt, and put some draining regulatory problems to rest. Investors like what they see and have made the shares one of the JSE’s best performers over the past year.

2. Steinhoff International (SHF)
52-week Return: 85.6%
P/E Ratio: 11.4
P/B Ratio: 1.5

This furniture retailer excited investors with a string of European acquisitions. The new operations boosted sales, consolidated market share, and improved profit margins. Now, with more than half of its revenue generated in Europe, the weak rand has given the company a big earnings boost. In recent months, it also reduced its ownership stake in KAP Industrial, a South African furniture manufacturer, and announced that it would pursue a secondary listing on the Frankfurt Stock Exchange.

3. Cargo Carriers (CRG)
52-week Return: 60.9%
P/E Ratio: 9.6
P/B Ratio: 1.1

Just as its name indicates, Cargo Carriers hauls freight and specializes in mining, chemicals, fuel, sugar and steel. It’s not been a particularly easy operating environment for the company in recent years, but CEO Murray Bolton and his team still managed to grow operating profit by nearly 36% in its 2014 fiscal year. A key acquisition in fast-growing, strategically-placed Zambia helped improve revenue, while the sale of surplus equipment and an unused airplane resulted in a much prettier balance sheet.

4. Sovereign Food Investments (SOV)
52-week Return: 50.9%
P/E Ratio: 12.6
P/B Ratio: 0.9

This is a poultry producer worth crowing about. Long-focused primarily on simply breeding and raising broilers, SOV is now venturing into value-added products, like breaded chicken patties and nuggets. It intends for these higher margin products to account for the majority of sales within the next three years. Recently modernized production facilities, a weak rand, and lower maize costs (thanks to the largest crop in 33 years) have also helped bolster profitability.

5. Mustek (MST)
52-week Return: 50.7%
P/E Ratio: 7.5
P/B Ratio: 1.0

South Africa’s largest personal computer assembler, Mustek, have been on a tear thanks to growing demand for the Acer, Lenovo, and Acer brands that it distributes. Management displayed its confidence in the business by repurchasing more than R20 million worth of shares from cash it had in the bank back in April. And a just-announced 22% boost to its dividend further sweetens the investment appeal.

What Do You Think?

Do you consider price momentum when analyzing potential share investments? How do you make sure that you’re not getting caught up in hype? Let’s hear your thoughts in the comments!

Category: Top Performers

Kenya’s 10 Best Stocks of the Past 10 Years

10 Best Kenyan Stocks of the Past Decade

Tanzania’s Top 5 Stocks of 2014

Tanzania’s Best Stocks of 2014

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Botswana’s 5 Best Stocks of 2014

Botswana’s Best Stocks of 2014

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Does Britam Kenya Still Have Room to Run?

Insuring East Africa

Value Check on Britam Kenya

Priced for Stagnation

What Do You Think?

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5 Hot JSE Stocks That Even a Value Investor Can Love

The Wisdom of Crowds?

5 JSE Shares to Make the Trend Your Friend

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