Successful Investing in Africas Stockmarkets

1
Successful Investing in Africas Stockmarkets

• Increasing Capital Flows to Africa Conference
• September 29-30, 2004
• Michael Power, Strategist, Investec Asset
  Management

2
Africas Stock Markets,
from the Cape to Cairo

• North Africa
• Morocco, Algeria, Tunisia, Egypt, Sudan
• Southern Africa
• South Africa, Botswana, Namibia, Swaziland,
  Mozambique, Zambia, Malawi, Zimbabwe
• East Africa/Indian Ocean
• Kenya, Uganda, Tanzania, Mauritius
• West Africa
• Nigeria, Ghana, Unified West Africa Exchange (for
  francophone Africa, in Abidjan)

3
How the US dollar investor can make good money

• Understand the Currency
• To dampen volatility, build natural hedging into
  your portfolio by buying hard currency earners
• Invest in the country as much as the company
• the Macros are as important as the Micros
• Keep an eye on GDP growth, interest rates and the
  management of the economy (Finance Ministry and
  Central Banks)
• Understand local market cycles
• Good pula (rains) in Botswana are great for
  beer consumption
• Dont forget trading liquidity is nearly always
  very low
• If you truly believe in a company, you must be
  prepared to hold it for the long term
• Buying is easy when selling, dont be greedy
  and be prepared to take an exit hair-cut dont
  market time aggressively

4
What makes a listed African company attractive

• Improving Growth Dynamics
• Prefer companies well geared to their domestic or
  the international growth cycle
• Compelling Valuation
• Pick companies that are not overvalued in markets
  that are not overvalued
• Reasonable Stock Tradeability
• So what if it is a great company if it is
  uninvestible!
• Value Adding Managements
• Favour companies that aim to cover their cost of
  capital
• Appropriate currency exposure in its macro
  context
• What you win on the local swings, you often lose
  on the currency roundabout

5
Building a balanced and good long-term portfolio

• As core holdings, especially where currency
  weakness is a strong possibility, select hard
  currency earners
• The MAT formula Mining, Agriculture and
  Tourism
• Add companies who have a tight hold on their
  markets large market share, good franchise,
  tight delivery mechanism
• The BBC T formula Banks, Breweries, Cement
  Telecoms
• Supplement this with companies that service
  the core sectors of the economy
• The PRT formula Packaging, Retailers and
  Transport

The Da Ming Hun Yi Tu The oldest map of Africa
as a continent is Chinese and dates back to 1389
6
Understand the Impact of the Dragons Appetite on
Africa
China Saps Commodity Supplies. From steak to
iron ore to cotton to diamonds, China's rising
urban incomes, exports are reshaping the world's
commodity markets. The country's emergence as a
major importer of raw materials is driving global
prices higher and catching some suppliers
flat-footed. Wall Street Journal, 24.10.2003
7
African success stories

• Sechaba Breweries of Botswana
• New Mauritius Hotels of Mauritius
• Mobinil of Egypt
• Standard Chartered Bank of Ghana
• Common Themes
• Good country macros
• quality management
• good capital usage great franchises
• excellent management
• decent compound earnings growth
• good barriers to entry
• relatively concentrated industries allowing for
  decent pricing power

8
Concluding Thoughts

• Take the long view
• Never forget the currency
• Get the big themes right
• Dont be greedy
• Think China