2020 was an excellent year for Twiga despite the global pandemic throwing sand in the gears of economies in much of the world. Just look at these summary charts from their 2020 financial report and you will see a steadily growing business on all fronts:
This strong track record can be attributed partly to the excellent leadership of the company’s Managing Director, Mr Alfonso Velez, who has just been awarded Executive of the Year in 2020 by the International Cement Executive magazine. He started his role in Twiga in 2016. At the time, he already had 20 years of worldwide experience in the cement industry to bring to the table and had most recently worked in Benin in West Africa.
Under the guidance of its parent company, Heidelberg Cement, which owns 69% of Twiga, the company consistently delivers great performance for all parties involved: its customers, partners, and shareholders.
After the company’s “best ever year” in 2020, I was pleased that Twiga’s management responded positively to the question I raised during their recent Annual General Meeting held online on 25 May: things are tracking slightly better in 2021 so far, compared to 2020.
According to them, shareholders can also expect the same dividend rate of 390 per share going forward barring any major unforeseen negatives. Twiga’s management thought long and hard about raising it from 290 to 390 because once done they expect to keep it there. At the current market price of 3,200, that translates to a superb 12.2% gross yield or 11.6% net, after Tanzania’s modest 5% dividend withholding tax.
Earlier investors, like African Lions Fund and my business partner, Peter Tan, will be receiving up to 18.7% dividends, net of withholding tax. In fact, Peter’s dividend income alone has paid for a full year’s rent of his new home in Singapore.
Last year, demand for cement grew by 7% as Tanzania builds more roads, highways, bridges, and expands its ports (especially in Dar es Salaam). This trend has been going on for the past six years and there’s no reason for it to slow down.
The huge Nyerere hydro-electric dam and standard gauge railway (SGR) projects are also using hundreds of thousands of tons of cement.
Twiga is determined to keep its position as the market leader and to do that, it is implementing a volume growth strategy. The company’s production capacity is currently at 2.1M tonnes of cement per annum. And they have already planned capacity expansions of 13%, which are all internally funded. If everything goes as planned, capacity will grow to 2.3M-2.4M next year and 3M by 2023-2024.
Excess cement capacity in the country of approximately 5M tons per annum means pricing power is weak across the industry. Most of that excess capacity, however, is in parts of the country further away from the sources of demand.
Twiga’s huge competitive advantage is its location in Dar es Salaam. Most of the demand is there. And, it is more efficient to supply to different parts of Tanzania from there, as well as neighbouring countries.
Management continues to execute well. Apart from setting goals to increase production and promote the health and safety of its employees, the company also seeks to be socially responsible especially in its own community. There has been a long-standing issue with squatters occupying land at one of the company’s limestone quarries. A settlement has now been reached on this and the company agreed to give up 135 hectares of land in return for a modest amount of compensation from the government. (I previously wrote about this in my African Lions Fund Telegram Channel, when the news first broke).
Four thousand people squatting on this land will now be allowed to stay. The company has moved on and secured more limestone reserves elsewhere. They have approximately 100 million tons and aim to always have about 40 years’ worth of reserves.
Twiga is trading on the Dar es Salaam Stock Exchange and while it’s not easy to open brokerage accounts here as a foreigner, it is not impossible. If you would like to give it a go or have someone do it for you, I’m happy to give you my contacts who have helped me get started in the Tanzanian market.
Or if you wish to gain exposure to the profit opportunity in Twiga and other high-quality businesses in sub-Saharan Africa (bar South Africa) that are still undervalued, my African Lions Fund is still accepting investments from investors who have received a private offer. If you would like to know more about it, visit africanlionsfund.com. Currently, just under 8% of our portfolio is allocated in Twiga, with the rest spread throughout the region in 16 other companies which are all on top of their game.
From what I see, the investment climate in Tanzania is improving. I’m not alone. Most business people I speak to here on the ground agree. The newspapers have recently been full of job advertisements and procurement notices and tenders.
Nigerian billionaire, Aliko Dangote, Africa’s richest man, and majority owner of Dangote Cement was in Tanzania this week to meet with President Hassan. Dangote complimented her on the immediate changes her administration has made in the country to encourage investment and cut red tape. Dangote has built a 3M tonnes per annum cement plant and associated thermal power plant fired by natural gas at Mtwara in Southern Tanzania. He mentioned he is looking to add a fertilizer plant.
The late President Magufuli’s stern hand on foreign investors had kept investors like Dangote at bay for several years. That was great for Twiga, as it consolidated its leading position in the country’s cement market.
But now, Dangote sees the opportunity in Tanzania once again, as the investment climate becomes more friendly. The business magnate has stated that he will promote investments in Tanzania wherever he goes.
For Twiga Cement, any boost to economic growth in Tanzania from further investment activity will be beneficial. Dangote Cement is the big boy of the African cement industry, but this doesn’t faze Twiga.
Alfonso Velez tells me that one of the big advantages Twiga has is that it enjoys excellent relationships with its distributors and end users. A weak point of Dangote Cement in Tanzania has been that it falls down in the customer relations department. Mr. Dangote will no doubt be hoping this improves as he re-engages with Tanzania.
More importantly, given Dangote Cement’s remote location in the country, which I talked about in a previous blog, Twiga continues to have the upper hand.
As a global value hunter, I’m not looking for stocks that will double, triple or quadruple in a week, a month or even a year. I’m looking for stocks in blue chip companies that are undervalued and out of favour with Mr. Market, whose businesses I know will do very well no matter what the stock market’s fickle short-term verdict might be.
With these types of stocks, it’s only a matter of time before they get noticed and as a result, their share price eventually catch up with fundamentals. And while waiting, I like to enjoy the high dividend yields they offer. Twiga has already gone up over 50% since I first talked about it last year, and I think there is a lot more where that’s coming from.
African markets overall are enjoying a moderately-paced rise and so far have not been affected by the recent jitters seen on global markets. It’s a totally different world out here, one that I am happy to be witnessing.
If you have invested, are looking to invest in Twiga, or simply have feedback about this article, don’t hesitate to email me at email@example.com. It’s always a pleasure to hear back from my readers.
Until next time,
Global Value Hunter
African Lions Fund