Re-born Lonrho starts to capitalise

Following three years of restructuring, refinancing and investment, Lonrho is finally starting to capitalise on its portfolio of strategic assets spread across 16 African nations, where its strategy is to develop a portfolio of service industries that help people do business in Africa.

The Lonrho brand retains credibility and value from having invested in Africa for a century. Although a shadow of Tiny Rowland's conglomerate of the 1980s, the re-born Lonrho is now starting to rebuild a significant presence.

The rapid growth of many African economies is attracting keen investment interest and the group diversifies its interests geographically to mitigate the heightened political risk of operating in Africa. It seeks to secure board and financial control and several of its investments are maturing into value-generating businesses with substantial growth potential.

Luba Freeport in Equatorial Guinea is one of Lonrho's most exciting investments and, at $70m (£49m), is its largest to date. This project is all about Equatorial Guinea's 1.1bn barrels of proven oil reserves. The country is sub-Saharan Africa's third largest crude oil producer and, significantly, the USA aims to secure a quarter of its oil imports from the Gulf of Guinea region by 2012.

Lonrho makes money by charging major oil companies for cargo handling, storage and other services, and it also plans to build a refinery at the port. Luba is the largest deepwater harbour in west Africa and is a free trade zone. With 350m of quay space, it also offers potential for container shipping. Operations are cash-positive and there is huge growth potential given that only 15 per cent of Equatorial Guinea's licence blocks have so far been awarded.

The group's main agricultural interest is Rollex, a business that packages food at Johannesburg airport, from where it is shipped daily to European customers including Marks & Spencer, Tesco and Carrefour. The produce arrives by air or in one of a fleet of 38 modern refrigerated trucks. Up to 40 tonnes of packaged produce is shipped daily from Johannesburg and a new fish processing plant in Walvis Bay, Namibia, is exporting 15 tonnes of fish per day to Gatwick and Frankfurt. The group is building a new facility in Malawi to deliver produce to the Middle East and increase volumes to Europe. The sales totalled $54m when Lonhro first invested in the business in mid-2008, and it expects current year revenues to reach $100m.

The group's target is to source 40 per cent of food inputs from own-managed production. It signed an agreement to develop 25,000 hectares of agricultural projects in Angola and is also evaluating land projects in Malawi (25,000 hectares) and Mali (100,000 hectares). Lonrho recently acquired the Angolan distributorship for John Deere, the leading agricultural equipment supplier. John Deere has little African representation outside South Africa and Lonrho could gain further agencies.

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Lonrho has also invested in Fly540, a company developing the first international standard airline to provide north-south, east-west services within Africa. The first hub in Nairobi, Kenya, is already profitable and cash-positive. The airline will shortly open a second hub in Angola, Africa's fastest growing economy, with a third hub in Ghana planned for later in 2009. Other Lonrho investments include hotels, bottled water and mining.

To date, analysts estimate it has invested over $150m (£107m) in various interests in Africa, having raised over £35m in three equity issues in July (at 26p a share) and November 2008 (at 5p a share). However, the shares have been in freefall in part on news that Lonzim, a Zimbabwe-focused investment company in which Lonrho holds a 24 per cent stake, was suspended from the Alternative Investment Market after it failed to disclose the purchase of 60m Lonrho shares, including 55m in Lonrho's November fundraising. This hit investor sentiment hard, but it has created a buying opportunity with the shares trading at an all-time low of 2.4p, valuing a debt-free Lonrho at only £18m.