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

Tanzania’s economy continues doing better than most;
World Bank forecasts 5.5% GDP growth in 2021

Tanzania: World Bank GDP growth forecast

I’ve been back in Tanzania for two weeks now. Life continues as normal here. Schools went back from Christmas holidays on January 11. Restaurants and bars are busy. I’ve heard live music almost every night from venues nearby where I am staying. There has been a circus in town.

The contrast with what I’m reading and hearing from relatives in the UK and Australia about new lockdowns and restrictions on normal social and economic activities could not be more stark. I’ve had two people enquire about temporarily coming to Tanzania to lead a normal life, rather than staying behind in countries with lockdowns and curfews.

Is it a trend? I don’t know. But I have observed a noticeable uptick in the number of tourists and visitors here in Dar es Salaam, after my return from Kenya.

Perhaps it’s just that it is the peak Christmas and New Year holiday season in Europe and people who had pre-existing bookings to come to Tanzania followed through with them, despite the pandemic.

Whatever the case, it bodes well for the Tanzanian economy, relative to the situation last year after the pandemic began, when tourists were very thin on the ground. Many Russian and Polish tourists visited Zanzibar over the Christmas and New Year holidays. Several chartered plane loads of people came and went.

I read they even ran out of beer in Zanzibar!

That perhaps augers well for one of the African Lions Fund’s largest investments here, Tanzania Breweries Limited (TBL). On the half-year results presentation analyst call last year, one of the regions singled out for mention by management as still seeing weak sales was the region encompassing northern Tanzania’s safari circuit and Mount Kilimanjaro, in and around the towns of Arusha and Moshi. It would clearly be helping the company’s sales if tourists are back and drinking places such as Zanzibar dry.

TBL paid an interim dividend of TZS 160 per share in December. I understand the level of marketing and promotional expenditure has also been ramped up.

Judging by management’s actions, they are feeling more confident of their future prospects and cash position. I’m expecting the company to report earnings which are better than consensus forecasts when they next release results.

The banks (CRDB and NMB are the two big ones, which I follow closely), and the Dar es Salaam Stock Exchange (DSE) should be out with their fourth-quarter and annual results prior to month-end. I am expecting good numbers from all these companies as well.

The CEO of the DSE, Moremi Marwa, published an article in the press recently and gave some statistics on last year’s performance by the exchange. As you can see from the tables below, bonds are the star of the show for now.

On the DSE, government bond listings surged 23%, and
secondary bond market turnover rocketed 95%

The exchange collects fees on all this, and it will have helped offset a slight decline in total equities trading turnover and value.

** All figures are in TZS bn

Equity Trading Turnover
y-y chg
Total Value of Equity Listings (Domestic)
y-y chg
Total Value of Equity Listings
(Cross-listed, and Domestic)
y-y chg
New Equity Listings
MUCOBA Rights Issue
Total Government Bond Listings
y-y chg
Government Bonds Secondary Market Trading Turnover
y-y chg

The exchange collects fees on all this, and it will have helped offset a slight decline in total equities trading turnover and value.

New Government Bond Listings
y-y chg

Increasing turnover for the DSE is great. But I’m a “side door of a barn” sort of investor. If the target is not that big and obvious, I usually don’t bother shooting at it.

And what makes the DSE so obviously undervalued right now is not its earnings stream. It’s that the company has cash and short-term fixed interest securities on the balance sheet that amount to nearly the same as its entire market capitalization. On my estimates…

When you buy shares in DSE for TZS 920 each,
you get net cash backing of about TZS 880

Given that earnings per share in 2019 came to nearly TZS 150, and should reach a similar figure again in 2020, you can see the value proposition. The company pays out as much as 50% of earnings each year as dividends, too, putting it on an 8%+ dividend yield.

More broadly, the Tanzanian economy should expand nicely again in 2020.

The World Bank just released its latest Global Economic Prospects report. It projects 5.5% GDP growth for Tanzania this year. That’s well ahead of the 2.7% GDP growth projection for Sub-Saharan Africa as a whole.

In 2020, the World Bank estimates Sub-Saharan African economies collectively shrank by 3.7%.

But as you can see from the table below, there is such a wide range of outcomes for Sub-Saharan Africa’s dozens of different economies that to talk about “Africa” as a whole is a bit nonsensical. You need to carefully analyze and discriminate between countries when you invest in this part of the world.

The Tanzanian stock market is my number one investment choice for now on the continent, because the economy is doing relatively well on the whole, the exchange rate is stable, inflation is both low and steady around 3%, and the entrenched, dominant businesses I own shares in have been shoring up their competitive positions even further as the government has made it relatively hard for outsiders to come in and compete.

For Africa as a whole, it’s important to note too, I think, that unlike many other regions of the world, Sub-Saharan Africa is projected to enjoy slightly better growth in 2021 than it did in 2018 and 2019. So, the impact of the Covid-19 pandemic is arguably not as dire as feared.

World Bank GDP growth forecast for Sub-Saharan Africa

If you’re still on the fence about investing in Africa, I think there’s a compelling case to at least consider it.

My African Lions Fund is up 13.4% since inception in October. It gained 2.94% in December. Those figures are net of all fees and expenses.

Until next time,

Good Investing!

Tim Staermose

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