Who’s Investing in Africa Now
You don’t have to open a brokerage account in Kampala or Accra to get exposure to the African growth story. Wall Street-listed companies are investing more on the continent with each passing week.
Here’s a roundup of some of the bigger deals I came across in these early days of April.
(P/E Ratio: 22.8; P/B Ratio: 7.4; Dividend Yield: 2.1%)
Quick! Outside of Ireland and Britain, what country consumes more Guinness than any other?
If you guessed Nigeria, you’re correct. But I’m thinking you cheated!
Few places outside the Old Sod appreciate a pint of Vitamin G more than Africa. In fact, 40% of all Guinness is brewed (and consumed) on the continent. And it’s only gaining in popularity. Guiness’s parent company, Diageo, announced this month that it would accelerate its 15% African sales growth by expanding into Angola, Mozambique, and the Democratic Republic of Congo. The company expects its liquor that retails in smaller, more affordable quantities than beer will drive sales growth in these new markets. Africa already contributes 14% of Diageo’s net sales.
(P/E Ratio: 16.2; P/B Ratio: 1.8; Dividend Yield: 3.4%)
GE announced that it will help keep the lights on in Nigeria by helping to build a number of power plants. It will retain a 10%-15% ownership stake in the projects that it helps connect to the grid.
The company is no stranger to Nigeria. It has already supplied 100 gas turbines to the country’s energy sector and 25 locomotives to its rail network.
GE derived 6.7% of its total revenue (nearly $10 billion) from its operations in the Middle East and Africa in 2011. Revenue from the region increased 9% from its 2010 total.
(P/E Ratio: N/A; P/B Ratio: N/A; Dividend Yield: N/A)
Money transfer agent Moneygram serves the huge number of Africans in the diaspora who send money back to the continent to support family or local businesses.
Africa is Moneygram’s fastest growing geographic segment. The company added nearly 6000 African locations in 2011, increasing its total count on the continent by 46%. Almost 7% of the company’s 267,000 money transfer agents are now located in Africa.
They’ve become a favorite on the continent for their low fees. You can transfer money virtually anywhere in Africa in a matter of minutes for $9.99. Its main competitor, Western Union, typically charges more than double that amount.
Western Union has, however, pioneered international money transfer via mobile phone through its partnership with Kenya. This is the wave of the future and Moneygram will need to ride it in order to stay competitive in this market.
(P/E Ratio: 18.7; P/B Ratio: 3.1; Dividend Yield: 3.1%)
The packaged foods giant, Nestlé, announced this week that it would invest $14.5 million in Zimbabwe to improve the nation’s dairy production. A special focus would be to develop the capacity of small-scale farmers, those that own two dairy cows and produce 50 liters of milk per day. The company plans to distribute 4000 cows as part of the program.
Zimbabwe is the company’s third largest market in its Equatorial African region, but it has had a tense relationship with President Robert Mugabe and his political party ever since it refused to purchase milk from the president’s personal herd.
Nestlé’s African sales totaled $3.6 billion in 2010, and it plans to boost sales from emerging markets from 30% today to 45% by 2020.
(P/E Ratio: 13.5; P/B Ratio: 1.4; Dividend Yield: 4.5%)
Sanofi has a big problem. Patents have nearly expired on many of the French pharmaceutical company’s most lucrative drugs, including Ambien, Plavix, Docetaxel, and Lovenox. Soon, generics will be pushing them off pharmacy shelves. It’s not unusual for sales of brand name drugs to plunge 50% or more in the year after patent expiration.
So, Sanofi plans a big push into emerging markets to transform this “patent cliff” into a “patent downslope.” Management announced last month that it intends to generate 40% of its sales from emerging markets by 2017 — up from 30% today.
Africa will be a big part of this expansion plan. It will soon begin the manufacture and sale of HIV/AIDs anti-retrovirals in South Africa. In total, the company plans to invest $157 million in Africa over the next five years.
But Sanofi is no Africa newbie. It has invested $107 million on the continent since 2007 and now operates seven factories in six countries. The company sold over $1.2 billion worth of drugs in Africa last year, roughly 3% of the corporation’s net sales.
(P/E Ratio: 10.9; P/B Ratio: 1.9; Dividend Yield: 2.8%)
German industrial giant Siemens signed a $20.8 million deal to improve Kenya’s electricity transmission network, allowing the country to tap sources of renewable energy in the Rift Valley.
Few corporations have a longer history in Africa than Siemens. It first got down to business on the continent in 1857. In 2010, its South African sales totaled $767 million. Nigerian revenue came in at $124 million.
[Disclosure: I have no position in any stock mentioned in this article, and I have no intention of taking any within the next 72 hours.]