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The African super-seven companies

Created:

15 August 2008

Updated:

26 October 2009

Written by:

David Stevenson

David Stevenson outlines his pick of seven African companies to watch.

Africa Opportunity Fund

This Aim-traded offshore fund is run from Boston by Robert Knapp and is perhaps the easiest way of buying exposure to Africa. The management firm has been investing in Africa for over seven years and the fund has an eclectic mix of African equities, debt and currencies. Top holdings include West African mobile phone firm Sonatel, Ivory Coast state debt, offshore oil rig debt, plus loans to Katanga Mining and shares in Artumis, a Tanzanian natural gas producer and power generator. Over the past year, the net asset value has risen by 2.6 per cent yet its (dollar denominated) shares have fallen back to $0.93 (against a net asset value of $0.992).

Lonhro

The one-time London and Rhodesian Trading Company has come a long way from its colonial roots in Southern Africa and is now something approaching a publicly listed private equity fund. It takes key stakes in management-led and part-owned firms with experienced Africa hands at the helm. The development process of turning the companies into profitable, separately listed firms can take years, and most of Lonrh's key investments are still at a fairly early stage. So the mini-conglomerate is likely to keep using up its cash resources for the foreseeable future as it nurtures its investee companies.

But, in the medium term, Lonhro has the great advantage over fund management firms of actually owning the trading companies. Africa has been a graveyard for western investors who thought they could just waltz in and treat an investment in African equity like any western equity. Lonhro also has a diverse range of assets – everything from transportation and ports through to agriculture and microfinance – which could it give strength if commodity prices suddenly take a dive. Nonetheless, some Africa hands question whether Lonhro is too diverse. "It spreads itself too thinly and doesn't have the capital firepower to compete with the really big private equity firms now turning their attention to Africa," says one analyst.

New Star Heart of Africa Fund

Jamie Allsop's new fund has created a huge amount of publicity in the personal finance press – it's the only exclusively SSA unit trust and is aimed at sophisticated, risk-friendly investors willing to accept a minimum investment of £12,500 via a lump sum. A value investor by background (he runs the hidden value fund for New Star), Mr Allsop was pulled to Africa by the abnormally large number of well-run, cash-rich companies with relatively lowly share prices – his main target in the new fund is mid-to-large cap "growth at a reasonable price" shares. Crucially, it's a stock-picking fund and doesn't attempt to track any index. The total number of holdings is fairly concentrated at between 40 and 60. That said, there's a fairly diversified set of companies, sectors and countries and no company is worth more than 5 per cent of the total portfolio, unlike its rival, the listed Africa Opportunity fund, whose top three holdings account for just under 30 per cent of the value of the fund.

Katanga Mining

The Toronto-listed mining play is owned by both African Opportunity Fund and Jamie Allsopp's New Star Heart of Africa Fund. It operates a large-scale copper/cobalt project with substantial high-grade mineral reserves and integrated metallurgical operations in the Democratic Republic of Congo (DRC). It's just restarting the KOV copper and cobalt mine and is widely tipped to be a potential mining giant of tomorrow.

Tullow Oil

Tullow Oil is probably the best bet on Ghana's booming economy, although its shares are still very highly priced. Last year, it discovered oil offshore (550m barrels) with unproven reserves possibly three times this. Tullow is also big in Uganda through its Lake Albert operations on the border with the DRC.

PME African Infrastructure Opportunities Fund

This listed investment fund aims to invest its $180m in African infrastructure. It has started carefully and has not thrown its weight around. It’s only committed $45m to two projects to date and is taking its time to choose its investments. That $139m or so of cash underpins the valuation ($0.71 per share compared with the current $0.85). You also get two very interesting investments in the mobile telecoms space in Tanzania and Uganda thrown in.

Bolloré

Canny investors might do well to look to the French market to explore plays on West Africa – countries such as Ivory Coast and Senegal are rich in agricultural resources (such as rubber, cocoa, palm oil and coffee). One interesting play is Bolloré, which is run by French businessman Vincent Bolloré. It controls most of the port facilities in the Ivory Coast capital city of Abidjan.