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

Thanks to its fast-growing economy,
Tanzania’s two dominant banks just reported
third-quarter profits up as much as 77.9%

Tanzania's two major banks, CRDB and NMB at the International Airport in Dar es Salaam
Tanzania's two largest banks side by side, welcoming arriving passengers at Dar es Salaam International Airport.

I’ve written before that I believe Tanzania will most likely be the world’s second-fastest growing economy in 2020, behind Guyana. Guyana is a special case, given massive new oil fields have come online and into production there for the first time this year, dwarfing the prior level of economic activity, sending GDP up by over 60%.

The IMF isn’t as optimistic as me. It places Tanzania at number 9. But it’s interesting to note that 5 other African Countries – Benin, Egypt, Ethiopia, Rwanda, and South Sudan are also in their list of Top 10 fastest growing economies for 2020 at this stage. See: (Only two Asian countries, Bangladesh and China, make the Top 10).

Other data sources have even more African countries in the Top 10, but fail to include Tanzania – erroneously, in my view. Time will tell.

Unlike Guyana, Tanzania’s source of growth is not oil, it’s the absence of any extensive coronavirus-related economic lock down. President Magufuli and his advisors decided – wisely, or fortuitously, depending on your political persuasions – to keep the economy going as normal.

It doesn’t really matter what you think of that decision; the fact is Tanzania’s economy has continued to grow strongly this year. As an investor that’s what matters to me. From what I am seeing here on the ground, businesses are enjoying robust growth in sales and profits.

Where else in the world are banks
growing profits at such incredible rates?

I have written previously about the impressive rates of growth enjoyed by Tanzania’s banks, the two main ones being CRDB Bank (CRDB on the Dar es Salaam Stock Exchange) and NMB Bank (NMB on the Dar es Salaam Stock Exchange), thus far in 2020.

Today both banks published their third-quarter results. They were extremely strong.

  • CRDB’s earnings per share rose by 30.6% for the first three quarters of 2020 vs. 2019.
  • NMB’s earnings per share rose by 77.9% for the 9 months year to date versus the same 9 months in 2019

For CRDB, I estimate 2020 EPS of TZS 65. With CRDB shares trading at TZS 170 today, it’s still trading for only 2.5 times this year’s likely earnings. And, if the dividend payout ratio is one third, it trades on an indicative yield of more than 12.7%.

That is why I have been an aggressive buyer of the stock for African Lions Fund Ltd. (starting at lower levels).

I project NMB could earn as much as TZS 380 per share this year. But NMB shares are more difficult to buy as the company is tightly held, and not many shares ever trade via the DSE. The last offer price on the DSE is TZS 2,340 on market. However, blocks of shares have traded this year in pre-arranged, off-market block sales at prices ranging from TZS 700 (yes, crazy!) to 1,500.

I tested the market today and had no luck finding any sellers at TZS 1,500. I understand there may be sellers at TZS 1,900.

I personally have exposure to NMB shares via a small investment company in Tanzania. It derives over 90% of its value from a large position it holds in NMB Bank shares. Incredibly, it sells for an 85% discount to its net asset value. It’s absurd.

It’s too small and illiquid for my African Lions Fund to invest in, and it doesn’t fit my investment mandate, being a “special situation” or “deep value” stock.

However, I am considering setting up a way for other investors to access this incredible value investment with me. It pays dividends, too. Based on the dividends it receives from its NMB investment, the indicative yield for the current year could easily be as high as 12%.

If you think it’s something that may interest you, please let me know.

Until next time, from Tanzania,

Good investing!

Tim Staermose
Global Value Hunter &
African Lions Fund

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