Africa’s growing consumerism and urbanization
Despite the continent’s economic gloom, Africa’s growing consumerism and urbanization is something that has the potential to result in substantial growth for the region. “Discerning wealthy Africans are certainly seeking out the best as levels of wealth across the continent increase,” says Philip Faure, the Global Head Wealth Advisory at Standard Bank Wealth and Investment.
Particularly, countries in East Africa such as Kenya, Rwanda, Tanzania, and Uganda are increasingly driving growth in Africa as they benefit from cheap oil, slowing inflation, lower interest rates, improved regulatory regime, and increased investment in transport links and telecommunications.
In the US, exchange-traded funds such as the iShares MSCI South Africa ETF (EZA) and the VanEck Vectors Africa Index ETF (AFK) provide exposure to African equity.
Sectors showing advancement in Africa
Africa is already ramping up its activities in the motor vehicle manufacturing sector. Auto Component manufacturer, Metair Investments Ltd (JSE: MTA) has returned 6.8% to investors in the year so far. The company trades at an attractive forward multiple of 9.5 times earnings. Countries such as Uganda, Ghana, and Nigeria have all developed home-grown transport solutions.
Technological advancement, fintech, and growing digitization of Africa’s middle class throwing up multiple opportunities for both local and global retailers. Ghana is already a focus point for South African retailers such as Shoprite (SRGHY), Massmart (MMRTY), and Woolworths (WLWHY). These companies are currently trading at a forward price multiple of 17.4, 21, and 14.5 times earnings, respectively. ADRs of these companies have yielded 21.86%, 47.45%, 10.35% at US’ OTC market, YTD (as of March 6). Compared to these, Lewis Group (JNS: LEW), a credit retailer of household furniture and electrical appliances is up 6.3% YTD, 9.4% over 6 months, and trades at an attractive valuation of 9.6 times earnings.
Moreover, international fashion brands such as Bata, Nike (NKE), Puma (PUM.DE) and Mango have entered to tap the growing middle class and affluent elite in Africa. E-commerce is now a rapidly growing segment of the African retail market.
Billionaire Christo Weise is an Africa optimist
Christo Weise, who has a net worth of $6.6 billion, is an Africa optimist. This South African business magnate owes his wealth to consumer retail. Weise is currently Director at and 44% owner of Pepkor, the discount clothing chain.
Weise owns about 16% of the $8.2 billion ShopRite (SRGHY), Africa’s biggest grocer; and 23% of the $23.4 billion furniture and home goods retailer, Steinhoff International (JSE: SNH) (SNH.DE). Weise’s recent attempt at Steinhoff acquiring Shoprite in a share purchase transaction broke down as the relevant parties could not reach an agreement with respect to the share exchange. The deal, if it had gone through, could have made Steinhoff the largest retailer on the continent.
Steinhoff currently trades at a forward multiple of 13.8 times earnings, while Shoprite is trading at a 17.4 forward (P/E) multiple. Considering that the average forward valuations for the consumer staples and consumer discretionary sectors together, stands at about 17.11, Steinhoff is a still a cheaper bet. Shoprite stock is up 11.9% so far in 2017, while Steinhoff is down -2.5% at the Johannesburg Stock Exchange.
The emerging market consumer focused index, the Dow Jones Emerging Markets Consumer Titans 30 Index is heavy South Africa, with 23.11% of its allocation into the region. Naspers (NPSNY) and Steinhoff figure amongst the top ten components of the index. Africa’s most valuable company Naspers, which is a global media company, is a mainstay in top emerging market funds.