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Stock market investors who bought shares in 18 internationally based companies that invest in Ethiopia have registered exceptionally high average returns than the usual trend, the newly released Access Capital research shows.
According to Access Capital that released several Ethiopian based economic research studies in the past few years, stock market investors who bought shares in the 18 “Ethiopia-invested Global Stocks” have enjoyed double-digit annual returns over both a one-year and three-year time horizon.
“Investors who bought their stocks three years ago have seen an average annual stock return of 13 percent. Focusing on just the past year, the average return for an investor who bought into the 18 “Ethiopia-invested Global Stocks” was a particularly exceptional 44 percent,” the research clarified.
The research further showed that the 18 foreign based companies have strong credentials and represent companies across a varied range of economic sectors in the country. These global companies’ stocks are openly available for purchase on international stock market for those able and willing to do so.
Companies from five sectors; oil exploration and distribution (Africa Oil, Tullow Oil, Marathon Oil, Total), mining (Ethiopia Potash Corp, Allana Potash, Nyota Minerals), agriculture (Karuturi, Yara International), manufacturing (Elsewedy Holdings, Pittards, Pretoria Cement), fast-moving consumer goods (Tiger Brands, Unilever, Proctor & Gamble), and beverages (Diageo, Heineken, SAB Miller) has suggested that investors can get bigger returns than the usual.
According to Access’ research, as pioneer investors in an economy that is not yet on the radar of most international investors, this group of 18 “Ethiopia-invested Global Stocks” arguably represent a highly forward-looking and strategically positioned sub-set of companies focused on seeking attractive long-term returns.
“For virtually all these companies, the contribution of their Ethiopian operations to their overall revenue and profits is currently miniscule. However, in a few select cases, particularly among the mining and agricultural companies, Ethiopia-specific developments may soon have a material impact on their growth outlook and hence on their near-term stock prices,” the research explained.
The research in the headline ‘Investing in the “Ethiopian” Stock Market’ has stated that Ethiopia is currently the only one, of the world’s 15 most populous countries that does not have a stock market.
Moreover, with domestic policy initiatives focused on other priorities, the probability of a stock market opening up in the next few years is—in our view—very remote, the research emphasised. “This does not, however, mean that it is impossible to profit from Ethiopia’s strong growth momentum via stock market investments; in fact, there are plenty of indirect opportunities to do so...,” it added.
The research is specifically showing the 18 Ethiopia-invested global companies delivering impressive stock returns based on their sector.
The oil companies’ returns stand on higher ground than other sectors, according to the research. It indicated that the average one year return of the oil companies that invest in the country is 195%. Among these companies, Africa Oil delivered an astonishing seven-fold jump in its stock price (714% to be precise) just this past year, making it the top performer in the Access Capital list of 18 Ethiopia-Invested Global Stocks.
The other two active oil exploration companies in Ethiopia—Tullow Oil and Marathon Oil—have also seen as much as a 40 percent run-up in their stock prices this past year.
The two potash producers (Allana Potash and Ethiopia Potash) as well as one gold producer (Nyota) make up the set of international listed mining stocks with large operations in Ethiopia. Given their large stock price declines, these three mining companies stand out in our list of 18 Ethiopia-invested Global Stocks, but this reflects in part the broader sector performance of most non-oil mining companies worldwide, the research explained.
For the Ethiopia-invested mining companies, there is arguably a strong case to be made that the recent stock price declines are only a temporary setback. “Allana Potash, for example, is one company where its long-term operations are substantially under-valued by the market: according to the company’s project appraisal (available on its website), the net present value of its Ethiopian concession is more than 1.8 billion dollars but the market is only attributing it a 100 million dollar valuation,” the research explained.
According to the Access paper, the huge discount applied by the market suggests a sharp run-up in the stock price is possible once production prospects are clearly solidified in the coming months. “Moreover, the current low stock valuation does not reflect—in our view—the high national priority accorded to the project, including government plans to build a dedicated railway line to a Djibouti port for this very sector,” it emphasised.
From agriculture sector, the research has emphasised Karuturi’s activity. After a 163 percent run-up in its stock price between January 2009 and January 2011, Karuturi faced a large stock price drop in late 2011 following disastrous flash floods (costing some 15 million dollars) on its Ethiopian farm, one of the few cases where developments in Ethiopia materially impacted a company’s externally listed stock price. “The stock price has not recovered much since then, but will likely do so—possibly substantially—once the company’s ability to deliver its first harvest is recognized by the markets,” the research indicated.
The research indicated that the one year return from manufacturing companies have shown an average 7 percent increase in their stock prices.
Two global fast moving consumer goods providers—Proctor & Gamble and Unilever—are both active in Ethiopia, though for the moment this is not via manufacturing facilities but rather through local agents. The stock prices of these two companies are up by an average of 12 percent this past year. A third FMCG producer, Tiger Brands, is one of Africa’s biggest producers of consumer goods and is already engaged in manufacturing in Ethiopia via a partnership with the East African Group. The stock price of Tiger Brands is up 13 percent in the past year and a remarkable 68%—in cumulative terms—over the past three years.
The three Ethiopia-invested beverage companies are some of the giants of the global beverage business, including Diageo (a FTSE-100 company), Heineken (Europe’s biggest brewer) and SAB Miller (the world’s second largest brewer). By buying up previously state-owned firms, these three companies have established themselves as among the biggest foreign investors in Ethiopia.
For those prescient enough to have bought the stocks of these three Ethiopia-invested global beverage companies, they would have enjoyed an average return of 42% last year and 99%—in cumulative terms—over the past three years.
In reviewing the impressive recent record of most of the above Ethiopian-invested global firms, it is clear that the Ethiopian operations did not drive these results in any meaningful way, as local sales are still just a small part of their worldwide total, and given that many of the companies started their local operations only recently. “Still, there is in our view an important signal conveyed by the decisions of these companies to make large-scale investments in Ethiopia,” the research explained.
“In particular, by being so bullish on Ethiopia even during some of the worst periods of the recent global crisis, these 18 global companies have clearly distinguished themselves as strategic risk takers, as early movers in their respective sectors, and as firms oriented towards long-term value—all key differentiators that should help them outperform their peers in the “frontier markets” universe,” the research concluded.
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