Top 250 African Companies 2017: Recovery proves elusive for Africa’s major stocks

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Low commodity prices and devaluations have contributed to a 4% fall in the overall value of Africa’s Top 250 companies in our annual survey, but the changes have been far from uniform across the continent, as Neil Ford reports. 

The combined value of the 250 has fallen from $764bn in our 2016 survey to $732bn this year, a drop of 4%. To a large extent this is the result of currency devaluation and of some big companies dropping out of the listings because of restructuring and mergers.

On balance, although the big fall of 2016 has not been repeated, there is no sign of a recovery in our figures just yet. The biggest cause of the current frailty in African share values has been the prolonged trough in the prices of major commodities.

Hydrocarbons, coal, iron ore, copper and bauxite prices were all badly hit by lower than expected global demand. This obviously affected oil, gas and mining companies but also wider economic activity, as less of the commodity revenue that oils the wheels of so many African countries flowed through their economies.

This had the biggest impact in our table last year, with a massive 19% fall in the value of the Top 250, from $948bn to $764bn. However, there are signs of recovery in demand for many raw materials that may feed through into our results next year.

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Oil and gas prices remain relatively low but prices for thermal and metallurgical coal, copper and iron ore have all recovered. The markets are not entirely convinced and there have been wide price fluctuations during the first few months of this year but the prices of most commodities are higher now than they were 12 months ago.

There is one important sign of growing strength in this year’s survey. Moroccan insurance firm Atlanta needed a market capitalisation of $327m to take 250th position in our rankings, the highest figure yet.

This is a substantial rise on the $295m value achieved by Mauritian firm ENL Land to take the final spot in last year’s survey. This greater strength in depth is indicative of wider growth in the ranks of Africa’s biggest firms.

The value of all the companies listed in our table is calculated in US dollars. Most African currencies have fallen against the dollar, partly as a result of lower commodity prices, and so this has reduced the dollar value of the companies listed on their various stock markets.

The fall in the total value of our table is also partly the result of the disappearance of what was our biggest company last year. Brewer SABMiller was our top-ranked firm with a market capitalisation of $98bn but it was taken over by Anheuser-Busch InBev, creating by far the world’s biggest brewing company in the process.

The deal had to pass regulatory hurdles in markets around the world but was eventually completed for $103bn. Other changes include the breakup of Bidvest and Bid Corporation into separate companies and South32 being spun out of BHP Billiton.

All delisted or suspended stocks are excluded, while we obviously can’t include unlisted companies, even where they are among the biggest firms on the continent. This includes state oil companies, such as Algeria’s Sonatrach and Sonangol of Angola, plus South African parastatals Transnet and Eskom.

Naspers is number one

Our top-ranked company this year is South African media conglomerate Naspers, with a market capitalisation of $91bn, up a massive $30bn from last year. Although the South African economy is enduring a difficult period, Naspers has managed to maintain strong growth.

Indeed, our table reflects the fact that – despite the economic and political difficulties affecting the country – South Africa continues to possess big companies like nowhere else on the continent. An incredible 17 out of the 18 biggest companies are South African, with only Maroc Telecom in 10th position to break the monopoly.

Naspers has been successful in its core operations in its home market but the cause of its rapid rise lies much further away. The company bought a 33% stake in Chinese internet company Tencent in 2001 for $33m and the latter is now China’s biggest internet company, with Naspers’ stake valued at a massive $100bn, making it more valuable than the South African firm itself.

Ownership of such an asset is obviously welcome but can unbalance a company, so Naspers has invested heavily in South African e-commerce projects, including online retail and auction sites, over the past few years. Tencent dwarfs other parts of the business, including its loss-making e-commerce unit and its pay-TV operations.

Although the latter could take off in the long term, there are rumours that Naspers is considering selling off MultiChoice Africa, its non-South African pay-TV business, with MTN among the likely suitors.

Questioned by Reuters about the sale, Meloy Horn, head of investor relations at Naspers, refused to be drawn, but commented: “It is possible that, in time, we could consider the listing of some our operations/investments if there is a situation where they would benefit from market exposure, independence, valuation, etc. We will evaluate such opportunities if/when they are presented.”

Richemont, which is primarily listed in Switzerland but which also has a Johannesburg listing, takes second position, a long way behind Naspers, with $48bn, but it too enjoys a big lead on third-placed Steinhoff International with $23bn. According to Deloitte’s Global Powers of Retailing survey, Steinhoff was the sixth fastest growing retailer in the world, with average annual revenue growth of 44.5% over the five-year period 2010–15. Steinhoff sells household goods through its JD Group and Pepkor brands in South Africa, but now has big international ambitions.

Sasol holds steady

Sasol’s market capitalisation has risen slightly from $19bn in last year’s survey to $20bn in this year’s rankings, keeping it in fifth position. It has therefore performed relatively well, particularly with regard to its competitors in the oil and gas sector, but it might have been expected that it would enjoy even more success.

 Sasol is very different to most of the other companies that supply fuel in South Africa, in that it is a synthetic fuel producer, using coal and natural gas to produce motor fuel. It therefore benefits from low feedstock prices. However, the company is also an upstream operator in its own right, operating oil and gas fields as far apart as Mozambique and Canada. It also mines its own coal but output from its mines fell by more than 10% last year to 26.3m tons. This was in large part due to industrial action.

In a statement in May, Sasol reported: “We are continuing to focus our efforts on restoring coal stockpile levels through our own production, increased external purchases and improving labour productivity to ensure continuous supply to Secunda synfuels operations.”

It is too soon to tell what impact the blast at its Natref oil refinery, which it jointly owns with Total, on 22nd May will have on operations this year. The 108,000 b/d facility was shut down after 11 people were injured in the blast.

South Africa’s Vodacom Group moves up one place from eighth to seventh with a rise in value from $16bn to $18bn. This follows a jump from 12th to eighth last year.

Further growth is likely after it bought 35% equity in Kenyan operator Safaricom for the equivalent of €2.3bn. The share was transferred to Vodacom in return for new shares to be issued to British mobile giant Vodafone, which already owns a 65% stake in the South African company.

Presenting the company’s results in may, Vodacom CEO Shameel Joosub commented: “I think there are some other opportunities in the African context that are becoming more reasonably priced than they were a few years ago. We are keeping a watchful eye on some of those and there’s some renewed interest because prices have come down a couple of notches over the past few years.”

Maroc Telecom moves up from 12th to 10th with a rise in value from $10bn to $12bn. However, its most recent financial results paint a more nuanced picture.

Announcing its results for the first quarter of 2017, it recorded an 8.7% rise in net income to D1.5bn ($153m), but a 10.5% fall in profits, with both figures at constant exchange rates. It has suffered from a reduction in call termination rates in its home market.

Geographical breakdown

Different parts of the continent are experiencing very different changes in the value of their largest companies. The biggest proportion fall has been in the representation of West African companies in our Top 250.

The region’s representatives in our listings this year have a combined value of $38bn, down from $54bn in our 2016 survey, with big declines for the three biggest economies in the region: Nigeria, Ghana and Côte d’Ivoire. Nigerian companies in particular have been hard hit by the devaluation of the Naira against the US dollar.

North Africa is the only region to experience a rise in the value of the companies in our table, up $4bn to $88bn but this is largely the result of a partial rebound from the falls caused by political uncertainty and conflict in the region. Egypt is more stable now than at any time since the Arab Spring, although the underlying weaknesses in the economy and dangerous political tensions remain.

Libya remains a divided and conflict-riven country but the nature of its pre-war economy means that it was never a player in our rankings in any case. As we discuss in our North African section on page 52, Moroccan companies continue to dominate the regional rankings, with Egyptian firms making up all the rest of the North African table.

A lower contribution from South African firms has reduced the value of Southern African stocks in our Top 250 from $603bn to $586bn but given the effect of mergers, acquisitions and delistings on the Johannesburg Stock Exchange, it is surprising that the fall has not been greater. However, the impact of current political and economic instability in South Africa could see further falls in our 2018 table.

By contrast, the contribution of companies based in other countries in Southern Africa has risen over the past year, with big rises in the value of companies from Mauritius, Namibia and Zimbabwe listed in our table.

Perhaps the biggest surprise is the falling contribution of East African companies to the total value of the Top 250. The region has been largely sheltered from the fallout from low commodity prices, with Kenya, Tanzania and Rwanda in particular experiencing strong economic growth.

Nonetheless, the value of all the East African companies in our survey has fallen from $21bn to $19bn since last year. This could be the result of investor uncertainty over sub-Saharan stocks as a whole, including an inability to differentiate between the continent’s very different economies and economic circumstances.

Biggest sectors

The identity of one of the two biggest sectors represented in our ranking may be expected, but the other is something of a surprise. Banking leads the way with a combined sector market capitalisation of $93bn and given the size and number of listed African banks, this can be no surprise.

With a few exceptions, including in Egypt, state-owned banks are very much in the minority and as the results of the African Business Top 100 Banks survey demonstrates, there is increasing competition in an industry that is crucial to the continent’s economic health. This in turn is creating bigger, more highly valued banks.

However, the media is only just behind banking in terms of value, with $92bn. This is partly the result of Naspers’ rapid growth but is also indicative of greater maturity in the industry. Even 20 years ago, state-owned television channels and newspapers dominated the media sector in most parts of Africa, but deregulation and liberalisation have allowed greater competition and proliferation in the number of outlets.

While only some of those companies are big enough to qualify for our listings, there are many more small and medium-sized companies. While media freedom is still very limited in some countries, the situation as a whole has improved, creating a healthier sector, both journalistically and in terms of economic value.

The next biggest sectors in our survey by value are metals and mining; textiles, apparel and luxury goods; mobile telecoms; insurance and diversified financial services. Again, it might be expected that the telecoms sector would be bigger, given the boom in mobile communications that has occurred over the past 20 years, but many services are provided by companies without listings on the African continent.

The contribution of beverages to the total value of our Top 250 has collapsed from $115bn last year to $14bn in this year’s rankings, partly because of SAB Miller dropping out of table but also because of pressure on consumer spending. The total market capitalisation of metals and mining stocks in the table falls from $110bn last year to $66bn in our 2017 rankings, obviously because of lower commodity prices.

One of the fastest growing sectors is food and staples retailing, with all companies from the sector achieving $27.9bn in our Top 250 this year, up from $16.4bn in last year’s survey. They are dominated by the big South African supermarket chains: Shoprite, Woolworths, Spar Group and Massmart, ranked 18th, 32nd, 56th and 72nd in our table respectively.

While many African economies suffered a difficult time in financial year 2015–16, the Deloitte survey calculates that retail sector revenue in Africa and the Middle East grew by 19.1% over the year. The report stated: “The rising middle class in Africa has contributed to the modernisation of the retailing sector, and many African economies are transitioning toward consumption-driven markets.”

The biggest banks in our listings are continuing to expand their operations across the continent as the day when we will have truly Pan-African banks comes ever closer. Two of the most valuable listed banks, Morocco’s Attijariwafa Bank, which ranks 19th, and South Africa’s Standard Bank, rated 8th, are both investing in the rejuvenated economy of Côte d’Ivoire.

Attijariwafa’s local offshoot, Société Ivoirienne de Banque, generated a net profit of CFA17bn ($28m) in 2016, up 15% on 2015. In common with other big Moroccan banks, Attijariwafa is generating an increasing proportion of its revenue from its wider African operations.

Meanwhile, Standard Bank has been awarded a licence to operate in Côte d’Ivoire. The company now operates in 20 African markets and plans to use its Ivorian business as a launch pad for its expansion into the rest of the CFA zone.

 A note on methodology

The value of the companies in our Top 250 ranking is by market capitalisation in dollar terms as at 10th May 2017. Only listed companies are considered. Last year we included SAB Miller, but following its purchase by Anheuser-Busch InBev in 2016, we do not include it in this year’s ranking. Companies that are dual listed are considered, depending on the amount of business they do on the continent and the company’s standing. For example, First Quantum, with primary listings in London and Canada, was not included despite generating most of its revenues from mining operations in Africa. Steinhoff, on the hand, is a South African company with global interests, and has been included. Real estate investment funds were excluded, except where they were genuine property developers such as Growthpoint Properties.

 

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