Top 10 African Stocks 2022

Africa’s retail giant with 2,989 stores in 11 countries.

• As economies develop and become industrialized the demand for formal retail channels increases. Shoprite is based in South Africa but operates in 10 other countries throughout Africa. The group includes seven brands ranging from large hypermarkets, to furniture stores and smaller convenience stores.
• Operating a retail chain in Africa comes with unique challenges, but Shoprite has the most successful track record doing so. Between 2003 and 2022 the company’s net income increased 1,200% to ZAR 572 billion.
• Considering Africa’s middle class - Shoprite’s largest customer demographic - has grown drastically in number, the business is well positioned to continue along the path of strong economic performance. Shoprite’s like-for-like sales growth of 8.5% is the highest it’s been this decade and the company has recently posted its largest market share gain since its inception, figures the company will wish to continue replicating as its customer-base grows.

A global leader in synthetic fuel production, fuel conversion technologies and chemical production.

• Sasol is an important petrochemical and energy company in Africa, and around the world. The company’s proprietary technology is used to convert natural gas and coal into liquid fuels and other products. The liquid fuels these processes produce are cleaner burning than fuels produced from crude oil.
• Sasol is based in South Africa and also operates a gas powered power generation facility in Mozambique. Besides power generation and fuel production, Sasol is an important supplier of chemicals used in manufacturing, mining and agriculture throughout Africa.
• Outside of Africa, Sasol operates joint venture gas-to-liquid plants in Qatar and Uzbekistan, and is developing an ethane cracker plant in the US. The company’s chemicals division markets its products around the world.
• Africa’s strengthening economy will spur on a growing demand for Sasol’s fuel and chemical products locally. This is essential as local sales can offset the negative impacts of foreign exchange volatility and improve profit margins as logistics costs aren’t as significant. Furthermore, energy shortages across Europe help bolster healthy export prices for Sasol.

Africa’s largest mining company produces and exports iron ore, platinum, manganese, copper, diamonds, and nickel.

• Anglo American Plc is one of the world’s five diversified mining giants, and arguably the most diversified. The company is now headquartered in London, but still earns most of its revenue from operations in Southern Africa. Anglo American’s South African portfolio consists of 15 high-quality mining assets, accounting for an impressive 44% of their total portfolio. These assets are vital to the company as they contribute to over a third of the company’s global earnings.
• Anglo American owns 74% of Kumba Iron Ore (JSE: KIO), Africa’s largest iron ore producer, 85% of De Beers, the world largest diamond miner, and 79% of Anglo American Platinum (JSE: AMS), the world’s largest platinum producer.
• The bulk of the company’s revenue comes from platinum, iron ore, manganese and copper - all key commodities required by the global economy.
• While mining is traditionally seen as a parasitic industry, Anglo American has committed themselves to the local economy, bringing in R112 Billion in economic benefit to the South African economy since its inception. Filtering this money back through the African economy helps grow other businesses and benefits the wider community by beginning to push an emerging market to a developed economy.
• If Anglo American’s plan to invest R72 Billion over 5 years is fully realized, it should help stabilize an economy that was severely impacted by COVID-19 and hopefully reduce the high levels of unemployment South Africa faces.

Supplying cement across Sub-saharan Africa.

• Cement, and the other aggregates that combine to form concrete, are one of the most basic materials used in the construction of infrastructure and housing. An economy cannot industrialize without it.
• Cement producers benefit from private sector investment as well as fiscal spending programs which often focus on infrastructure development. Investing in cement producers is a good way to benefit from sustained long term growth of an economy.
• Dangote Cement is the largest cement manufacturer and distributor in Sub-Saharan Africa, with annual production capacity of 51.6 million.tonnes The company is based in Nigeria, but also operates in nine other countries in Africa.
• Given Sub-Saharan Africa is expected to experience population growth higher than anywhere else in the world, Dangote Cement can expect demand for construction materials to sky rocket off the back of a fundamental need for more robust infrastructure. Such demand should put Dangote in a position of power to realize higher prices for the end product and strengthen margins should rising costs revert to the mean.

West Africa’s consumer staples giant with a portfolio of well known brands.

• Nestle Nigeria is a 69% owned subsidiary of Swiss Food giant Nestlé S.A, and the fourth most valuable company on the Nigerian Stock Exchange. It’s also amongst Africa’s largest food and beverage companies.
• The company manufactures and distributes well known brands like NesCafe and Maggi in Nigeria and neighboring countries. Various iterations of the company have operated in Nigeria since 1969, so brand awareness is very high. This provides the company with a competitive advantage and allows it to maintain superior margins.
• Nestle Nigeria offers investors a combination of the defensive characteristics of a consumer staples company, with exposure to a rapidly growing economy.
• Generally, a developing economy means higher education levels, more skilled labor and higher income. A result of this is a shift in food sourcing from local agricultural markets to supermarket chains. The expansion of Africa’s middle class has already led to an explosion of stores all over the continent and the benefit should be realized by Nestle in the form of increased sales as their products are penetrating deeper into the market.

Africa’s e-commerce and fintech giant

• Jumia Technologies is a Pan African e-commerce platform with a marketplace which also provides logistical and payment services. The company was founded in Nigeria but now operates in 14 countries in Africa.
• E-commerce in Africa is still in its infancy, and Jumia has just 3.1 million active customers as of March 2022, so this is still an early growth stage business. Nevertheless the platform could potentially benefit from the twin tailwinds of increasing disposable income and the adoption of ecommerce across the continent.
• While Jumia has first mover advantage, it is still some way from profitability and does need to be treated as speculative.

East Africa’s highly profitable mobile network operator.

• Mobile telecom networks have played an even more important role in Africa than they have in other parts of the world. Prior to mobile phone networks, the majority of people in Africa had no landline, no bank account, and little access to media.
• Mobile phone penetration on the continent is now approaching 50%, and for many their phone is their only means of communication and access to media. In addition, for people in remote areas, mobile wallets and payment apps take the place of bank accounts. Millions of entrepreneurs rely entirely on mobile phones to run their businesses.
• There is also potential for further growth. While mobile penetration in Africa has grown rapidly, it’s still low compared to developed continents. Smartphone penetration is even lower and offers even more growth potential.
• Safaricom is the largest mobile network operator in Kenya and, with a net profit margin of 23%, is one of the most profitable companies in East and Central Africa. Safaricom also operates the M-Pesa mobile payments service which is used by more than half of Kenya’s population!

East Africa’s largest banking group.

• Growing economies are fuelled by credit. Consumers, corporates and infrastructure projects all require finance, which makes banks a relatively reliable way to gain exposure to any emerging economy.
• KCB Group is a financial services holding company and the most valuable company listed on the Nairobi Stock Exchange. The group owns Kenya’s largest bank, KCB Bank, as well as subsidiary banks in Rwanda, South Sudan, Tanzania, Uganda, and Burundi.
• KCB’s leadership position allows it to earn very high returns on capital and pay a dividend yielding 10%.

Powering East Africa with renewable energy.

• As economies become industrialized, their need for electricity increases. Countries with natural energy resources, and particularly renewable resources, and able to generate electricity cheaply and profitably.
• KenGen PLC, or Kenya Electricity Generating Company, supplies 75% of Kenya’s electricity with most of that coming from renewable sources. Hydroelectric, geothermal and wind power make up over 85% of KenGen’s output, with the balance coming from thermal coal power.
• The company is also developing distribution networks to neighboring countries and helping Djibouti access geothermal resources.
• KenGen’s earnings are somewhat lumpy, but the company has no debt and pays out a high percentage of profits as a dividend.

Financing Africa’s third largest economy.

• Egypt has been one of the fastest growing economies in Africa in recent years. Prior to the Covid-19 pandemic in 2020, its GDP growth was higher than 4% for five consecutive years. Banks provide services to all sectors, and offer investors broad based exposure to growing economies like Egypt.
• Commercial International Bank is Egypt’s largest bank and its most valuable company by market cap. The group offers a range of banking and financial services to consumers, high net worth individuals, corporates, and institutions.
• CIB’s position in the market and its diversified business model has allowed it to maintain enviable margins over the last decade.