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)
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!