Global Value Hunter

The most blindingly obvious opportunity in the
investment markets today

For the month of October, African stocks trounced US ones. The S&P BMI Sub-Saharan Africa Frontier Total Return Index that my African Lions Fund uses as a benchmark gained an impressive 5.6%. Meanwhile, the S&P 500 in the United States lost 3.2%.

An 8.8% outperformance by sub-Saharan African stocks versus their US counterparts is not something you’ll see anyone else writing about. But this kind of result is precisely why I started my African Lions Fund and have been urging investors to consider placing a part of their portfolio in African stocks alongside me.

I have been investing directly in Africa for over two years now. The reason is simple. It’s the only place in the world right now where I can buy a wide selection of “wonderful businesses” at, or below, what I think constitutes “fair prices.”

Everyone has a dozen or more reasons why they object to the idea of investing in Africa. Most are due to deeply rooted cognitive biases they have grown up with their entire life. I’m not likely to succeed in doing “missionary work” to convince people with deep-seated biases to join my African investing flock.

But for those who are a bit more open minded and willing to look below the surface, I think there’s a real opportunity here.

As I’ve said before…

Sometimes the most blindingly
obvious things are only evident in hindsight

Recently I spent four nights in Ruaha National Park in southwestern Tanzania. At the park entrance gate are several notice boards. One trumpets two newly discovered bird species in Ruaha in recent years. That’s quite a big deal. Completely new species are a rare discovery nowadays.

But that wasn’t what caught my eye. What I found amazing was that one of these two recently documented new species, the Tockus Ruahae or Tanzanian Red-billed Hornbill, is actually one of the most common birds you see in Ruaha. How could that be?!

Apparently, it was hiding in plain sight the whole time, incorrectly assumed to be a very similar hornbill found elsewhere in Tanzania, and not a unique species of its own. But when someone stopped taking the accepted view at face value and looked more closely for themselves, they found the truth. Both the eye-colour of the bird, and the orbital skin, devoid of feathers, around the eye are different colours to the other variety.

The most blindingly obvious opportunity in the investment markets today cover
Tanzanian Red-billed Hornbill (left), formerly one of four sub-species of the Northern Red--billed Hornbill (right)
Images sources: By DickDaniels ( - Own work, CC BY-SA 3.0,; Nevit Dilmen, CC BY-SA 3.0 <>, via Wikimedia Commons

It reminded me of the story my old friend Alun — who spent two decades as an institutional stockbroker in London and Singapore covering Asian stocks — likes to tell about the BHP-Billiton strategy department in the early 2000s.

Infamously, early in a decade where it became the global mining behemoth’s biggest single market by far, the company’s own forecasters failed to even mention China as a separate market. Instead it was bundled in with “other Asia” as a minor projected contributor to future growth, accounting for 11% of 2001 sales.

Like the Ruaha hornbill story, the BHP story sounded too far-fetched to be true. So, I sought out evidence. Sure enough…

BHP Billiton customer base 2001

Not once in the 40-page company presentation from which the above slide is taken was the word “China” even mentioned. China went on to become the company’s single-biggest market by a country mile inside ten years.

Which brings me to the most blindingly obvious opportunity I see in investment markets right now, which again is one that most people are completely ignoring, because of what I believe are erroneous cognitive biases and “accepted norms” that few people challenge.

I’m talking about dominant growth businesses in exotic, “frontier markets,” such as those in sub-Saharan Africa. It’s the only place in the world I can buy shares in high-quality, blue-chip growth businesses at value prices today. It’s not uncommon to find companies trading on African stock markets that:

  • completely dominate their industries,
  • earn impressive returns on capital in the 20% to 30% range,
  • sell on price-earnings multiples in single digits, and
  • pay double-digit dividends.

I’ve written before about my own biggest holding, Tanzania’s market-leading cement company Twiga Cement. Shares have rallied a bit of late, but still trade for only about 7 times projected earnings and yield more than 11%. My African Lions Fund this week acquired a significant block of shares, too.

Here I am grinning from ear to ear after a recent meeting with the CEO Alfonso Velez, after hearing lots of positive things about Twiga’s business.

CRDB, Tanzania’s biggest bank just reported that its 9-month earnings are up 31% versus the year ago period. Based on my projections for 2020, it trades for only about 2.5 times earnings, and on an indicative yield of more than 12%. My fund owns it too.

Tim with Alfonso Velez, Twiga CEO cropped

And over in West Africa, it has bought shares in the dominant telecommunications company, Sonatel, on a 12.5% yield. With a return on equity consistently in the high 20% range and selling on a price to book multiple of 1.9 times, this is also very good value.

The dominant bank in Rwanda, BK Group is another stock I’ve purchased for African Lions Fund. It trades on a price earnings multiple of less than 5 times and yields just over 5%. However, I’ve taken advantage of a rather big arbitrage opportunity by buying it in Kenya, where it is cross-listed, for about half the price it is quoted at in Rwanda. In effect my yield is therefore double (over 10% and the P/E is half, or just 2.5x).

I think in years to come, people will look back on this time, and face-palm themselves thinking “why on earth didn’t I buy?!”

What’s holding people back is likely that they’ve had it drummed into them incessantly from an early age that Africa, as a whole, is highly risky, corrupt, and dangerous.

No doubt, there are plenty of risks, and there many jurisdictions that I wouldn’t touch as an investor. But the blanket negative perception of Africa is an opportunity for the discerning investor who’s willing to do a little research and not succumb to the usual tendency to dismiss these markets out of hand.

Having done that, over four separate trips over the last 2 ½ years, I think the perception of the risks you face when investing in a place such as Tanzania, where I am now, is much worse – in my view – than the actual risks.

That can lead to incredible mis-pricings, and opportunities. Right now, is such a time.

I think it’s worth remembering that…

To make big profits in investment markets, you need:

  • a non-consensus view
  • conviction to make a meaningful commitment of capital
  • to be right

Everything I’m seeing in Africa now, makes me think I have all three of these things. I’ve backed myself by setting up African Lions Fund. Time will tell if I’m correct.

Until next time,

Good Investing!

Tim Staermose

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