Ghana investors will probably pinch themselves after reviewing their portfolios’ 2013 performance.
In spite of a breathtaking 19% drop in the value of the local currency, the market still surged almost 45% in US dollar terms, ranking it among the world’s best.
Which companies notched the most impressive performances? Let’s take a look-see.
The Ghana Stock Exchange’s 5 Best Performers of 2013
5. Ghana Commercial Bank +90.5% (+135.2% local currency)
With a share price that nearly doubled in US dollar terms, GCB made sure investors had something to celebrate during its 60th anniversary. Ghana’s most prominent bank grew profits 51% during the first nine months of 2013.
How did it do it? Well, customer deposits increased more than 10%. This gave the bank lots of low-cost capital to lend, which it chose to deploy primarily in government securities.
The downside is that the bank now has an unsettling amount of government securities sitting on its balance sheet. These could be at risk if the government should find itself unable to service its growing debt load. Management would do well to diversify its lending portfolio into retail, small business, and corporate loans.
4. Mechanical Lloyd +105.1% (+153.3% local currency)
One of Ghana’s largest auto dealers, Mechanical Lloyd holds the rights to sell BMWs, Fords, and Massey Ferguson tractors throughout the country. In recent years, it has expanded its repair and workshop operations, helping to smooth earnings.
But the company struggled in 2013. Sales slumped roughly 11% during the first nine months of the year. Increased finance charges hit the company hard, too. The result? Profits fell 38.6%.
The company looks to be in expansionary mode, though, having borrowed nearly 20 million cedis through September. This, plus the fact that the stock still trades at less than half its book value is likely why investors believe performance will rev up again soon.
3. CAL Bank +108.9% (+157.9% local currency)
While Ghana Commercial Bank is big, conservative, and (dare I say it?) a bit sleepy, CAL Bank is young, aggressive, and quickly becoming a major national player.
Its strategic focus is to provide long-term commercial loans, and increasingly to small businesses. The approach has certainly borne fruit. Earnings through the first three quarters of 2013 jumped 113%, and the bank’s asset base is 40% larger than it was one year ago.
CEO Frank Adu maintains that the bank has no plans to “jump on the pan-African bandwagon,” and with just 19 branches throughout the country, it would appear that CAL still has plenty of room to grow at home.
2. Enterprise Group +217.2% (+291.7% local currency)
In the US, we’re accustomed to seeing insurers make very little profit on underwriting. They derive their earnings from investing the float, instead.
Most African insurers, however, are in a much more enviable position. They make a healthy profit on their investments and on their underwriting, too.
Take Ghana’s oldest insurance company, for example. During the first nine months of 2013, Enterprise Group kept over 17% of the premiums it collected from clients after paying re-insurers and claims.
And it made a tidy profit from its investments. In total, the company’s earnings are up 196%, yet the company still trades at a PE ratio of less than six.
1. PZ Cussons Ghana +255.5% (+338.9% local currency)
It’s been a good few years for Ghana’s consumer goods companies. Sales at PZ Cussons Ghana, which distributes soap, cosmetics, pharmaceuticals, and small appliances, jumped 16% during its 2013 fiscal year and 46% in its first quarter of 2014.
The market responded by scarfing up shares of the stock. Its share price rocketed more than 400% at one point.
Unfortunately, with Ghana’s devaluing currency and rising competition, importers like PZC must sell more and more just to keep earnings moving in the right direction. Shrinking margins forced the company to report an earnings loss during the first quarter.
The stock now trades at nearly 21x trailing earnings, a demanding valuation given the challenging environment.
Which Ghanaian stock will top the charts in 2014? Let us know your predictions in the comments!