Picking the best low-hanging fruit where few others look -- for cents on the dollar

Stunning earnings results from leading blue chip companies in the “Singapore of Africa,” despite Covid-19

Comparison of aerial views of Singapore and Rwanda

Bordering Tanzania, Uganda, Burundi and the Democratic Republic of Congo, Rwanda is a small land-locked country in the Great Lakes Region of East Africa.

The country is infamous in the West for its 1994 genocide, and famous for its magnificent mountain gorillas. Volcanoes National Park is a bucket-list destination for many wealthy baby boomers around the world. Made famous by naturalist Dian Fossey, it is the best place in the world to get up close and personal with the biggest species of great apes.

Famous naturalist, Dian Fossey, and a mountain gorilla in Rwanda

For an economist and stock market geek like myself, however, Rwanda is most famous for its can-do attitude to economic development, lower than normal levels of red-tape and corruption, and its cleanliness.

President Paul Kagame is an intellectual disciple of Singapore’s founding father Lee Kuan Yew and has modelled Rwanda’s economic development path as best he can after that of South East Asia’s most successful economy.

Like Singapore, Rwanda is geographically smaller than its larger, and less well governed neighbours. Just as Singapore is a tiny speck in a neighbourhood dominated by its more politically volatile neighbour Malaysia, and giant, resource rich and less stable neighbour Indonesia, Rwanda sits next to a giant unstable neighbour in the Democratic Republic of Congo, and another less stable neighbour in Uganda.

That doesn’t seem to be adversely affecting Rwanda. It has one of the best recent economic growth track-records in all of Africa and continues to make major strides towards President Kagame’s cherished ambition to propel his country to developed country status.

Kagame recognizes that, like Singapore, Rwanda has to be outward-looking and build products and services for export to the wider world, where the markets are unconstrained by the country’s small size and relatively small (for Africa) population.

Rwanda is particularly focused on software and the digital economy. After all, as a land-locked country, were it to seek to export manufactured products it would be reliant on transport corridors through Tanzania or Kenya to the ports at Dar es Salaam and Mombasa.

I’m actually more interested in the domestic economy than in exports. That’s fortunate, as it happens the domestic economy is well represented on the stock market, even though the stock market in Rwanda has only five local companies listed, along with some cross-listings from Kenya and South Africa.

But there are some quality names. There’s Bralirwa, Rwanda’s leading beer and soft drink company, a subsidiary of Heineken; as well as BK Group, the dominant bank in the country; and Crystal Telecom, the biggest mobile phone network operator. They are are all on my watchlist of stocks to buy for my newly launched African Lions Fund.

Recently, the Rwandan government was also able to sell part of its stake in Cimerwa the country’s leading cement company to the public via the stock exchange. But the valuation multiple it trades at is way too high to interest me. I’d much rather invest in Twiga Cement in Tanzania. It is both a bigger, stronger company, and much more attractively valued, at little more than six times projected earnings for 2020, and on a 13.2% dividend yield.

First half profits growth as much as 70.6%

Back in Rwanda, BK Group’s first-half net profit grew 10.6% compared to the same period in 2019. Bralirwa, reported after-tax profit of 3.9 billion Rwandan franc (Rwf) compared to Rwf2.3 billion of the first half of 2019, or 70.6% growth, due mostly to impressive expense reductions.

Pandemic or not, these companies are powering ahead. Both are on my BUY list.

Unfortunately both stocks are tightly held, with very few sellers around. But, we can afford to be patient.

According to Bralirwa’s financials, beer volumes sold in the first half of 2020 rose by 3.8% to 674,767 hectolitres from 650,202 hectolitres in the same period last year. But sales volumes of soft drinks dropped 23.6%. So, it’s been a mixed bag this year, with Rwandans evidently preferring to drown their coronavirus sorrows with a beer or three.

A visit to Rwanda is high on my agenda when I get back over to East Africa soon, in the fourth quarter. But it will be dependent on what border closures are in effect at the time.

I’m excited that there are so many high-quality businesses to consider buying for my African Lions Fund. And it amazes me how well many of them are doing this year, despite the pandemic.

It’s another good reminder to IGNORE the media headlines, and read the actual first hand statements by companies to the stock exchange, if you want to know what’s truly going on.

Kenya, Uganda, and Malawi are also on our bargain hunting destinations list in East Africa. I’ll have more to say on those markets in upcoming missives…

Until next time,

Good Investing!

Tim Staermose

Globalvaluehunter.com and, African Lions Fund.

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