In case you missed it, the Nigerian Stock Exchange is making investors wealthy of late.
Thanks to a raft of reforms and a growing realization of the investment opportunities in Africa’s most populous nation, the MSCI Nigeria Index is up 78.6% over the past 12 months.
And this bull run looks like it may have some real legs. The market remains well below its five-year high. The five largest companies on the exchange have an average P/E ratio of 15.4 in spite of them averaging earnings growth of 40.6%. And 23 foreign portfolio managers are poised to dive into the market.
I’m guessing some of you would like to do the same. Unfortunately, the market isn’t as easily accessible as its larger counterpart in Johannesburg. So how exactly can a non-resident invest in Nigerian stocks?
Investing in Nigeria via ETFs and Mutual Funds
The simplest entry point for most US-based investors is through an ETF. This is as easy as buying any other stock listed on the NYSE or NASDAQ. The downside is that your exposure to the Nigerian market will be limited the weight given to it by the ETF’s portfolio manager. The majority of these funds’ holdings are not Nigerian, so you’ll want to take a close look to see if the portfolio as a whole fits with your investment strategy.
Here are some ETFs and mutual funds with significant Nigerian exposure along with their major Nigerian holdings.
Nile Pan Africa Fund (NAFAX)
Nigerian Weight: 38.07%
Key Nigerian Holdings: Nigeria Treasury Bond, Guaranty Trust Bank, Zenith Bank, UAC of Nigeria, FBN Holdings
Market Vectors Africa Index ETF (AFK)
Nigerian Weight: 24.61%
Key Nigerian Holdings: Guaranty Trust Bank, FBN Holdings, Zenith Bank, Nigerian Breweries, United Bank for Africa
Wasatch Frontier Emerging Small Countries Fund (WAFMX)
Nigerian Weight: 18.90%
Key Nigerian Holdings: Nestle Nigeria, Nigerian Breweries, Unilever Nigeria, Cadbury Nigeria
HSBC Frontier Markets Fund (HSFAX)
Nigerian Weight: 12.90%
Key Nigerian Holdings: FBN Holdings, Guaranty Trust Bank, Zenith Bank, Nigerian Breweries, Nestle Nigeria
iShares MSCI Frontier 100 Index (FM)
Nigerian Weight: 12.58%
Key Nigerian Holdings: Nigerian Breweries, Guaranty Trust Bank, Zenith Bank, FBN Holdings, Guinness Nigeria
Harding Loevner Frontier Emerging Markets Portfolio (HLMOX)
Nigerian Weight: 12.00%
Key Nigerian Holdings: FBN Holdings, Access Bank, UAC of Nigeria, Diamond Bank, Dangote Cement
T. Rowe Price Africa and Middle East Fund (TRAMX)
Nigerian Weight: 11.67%
Key Nigerian Holdings: Zenith Bank, Guaranty Trust Bank, Nestle Nigeria, Nigerian Breweries, FBN Holdings
Templeton Frontier Markets Fund (TFMAX)
Nigerian Weight: 9.66%
Key Nigerian Holdings: FBN Holdings, Zenith Bank, Guinness Nigeria, United Bank for Africa, UAC of Nigeria
Investing in Nigeria via US-listed Stocks
ETFs and mutual funds aren’t your style, you say? Well, if you’d like a bit more control in exactly what sorts of Nigerian assets you invest in, but don’t want to hassle with opening a new brokerage account, consider the following three options. All can be purchased via a US discount broker.
Coca-Cola Hellenic Bottling Company (CCH:US)
One of the world’s largest Coca Cola bottlers, CCH owns the Nigerian Bottling Company, Nigeria’s only authorized Coca-Cola distributor. Nigeria accounts for 8.7% of the group’s total sales volume. Its Coke sales increased 13% during the fourth quarter of 2012.
MTN Group (MTNOY:US)
Africa’s leading wireless telecommunications company derived 28.6% of its 2011 revenue from Nigeria. And look for this share to increase. The firm operates in more than 20 countries, but it will invest $1.5 billion in Nigeria on new cellular towers in 2013, a sum that represents almost half of its total capital expenditure for the year.
Aviat Networks (AVNW:US)
Aviat makes the equipment that’s required by wireless companies wishing to upgrade their 2G and 3G networks to 4G. Given that Africa’s wireless data usage is forecast to expand 790% by 2017 and that Aviat is a preferred provider to MTN, we should see Nigeria’s 21.3% share of the company’s revenue expand significantly.
[Note that there are also lots of US oil companies that do significant amounts of business in Nigeria, but I’ve excluded them because extractive industries are not the focus of this blog.]
Investing in Nigeria via the London Stock Exchange
If you have access to the London Stock Exchange, perhaps via an ETrade or Interactive Brokers account, you have a few more targeted options open to you.
PZ Cussons (PZC:LN)
PZ Cussons makes all sorts of consumer goods; soaps, detergents, pharmaceuticals, even refrigerators and air conditioners. The company has a long history in Nigeria, where it collects roughly 33% of its total revenue. It recently wound up construction on a new palm oil refinery in the country, a nice step toward vertical integration which should begin paying dividends immediately.
Guaranty Trust Bank (GRTB:LI)
Here we have a pure play. Nigeria’s largest bank in terms of market capitalization trades as a Global Depositary Receipt (GDR) on the London Stock Exchange. It’s big but growing fast. Merrill Lynch analysts expect revenues to increase 17% this year and 21% in 2014.
Diamond Bank (DBPA:LI)
This up and coming Nigerian bank has made a name for itself by focusing on small and medium-sized enterprises and an active retail banking segment. Unfortunately, the Sahel is more liquid than its GDR. Worth keeping an eye on, but if you’re dead set on buying the stock, you’ll likely need to open a local brokerage account.
Zenith Bank (ZENB:LI)
The newest Nigerian GDR, Zenith Bank boasts the second-largest market share of the banking sector. It’s growing extremely rapidly. Earnings are up approximately 50% through the first nine months of the 2012 fiscal year, yet the GDR trades at eight times trailing earnings and yields 4.5%.
Investing in Nigeria via the Nigerian Stock Exchange
Finally, if you’re an expert level Africa investor and/or ready for a little adventure, you can invest directly on the Nigerian Stock Exchange via a local brokerage account. I won’t walk through the steps of opening a Nigerian trading account in this article, but you can find them here.
It’s Your Turn
Do you know of other ways to invest in the rapid growth of Nigeria’s consumer economy? Let us know in the comments!
[Disclosure: I have a beneficial interest in Guaranty Trust Bank and Zenith Bank through my work with Africa Capital Group.]