As the world industrialises, Africa remains the last continent with the greatest latent potential for growth. If you’re interested in tapping into this potential, UK-listed companies Old Mutual (LSE: OML), Hikma Pharmaceuticals (LSE: HIK) and PZ Cussons (LSE: PZC) all have substantial exposure to African markets.
Old Mutual
Established in South Africa in 1845, Old Mutual is an investment, savings, insurance and banking group. The company is a member of the FTSE 100.
In 2014, 68% of Old Mutual’s revenue was earned in Southern Africa, while 25% came from the UK, which is the group’s second-largest market. Within the Southern Africa region, South Africa dominates, but Old Mutual continues to extend its reach beyond its historic homeland, as it seeks to become “an African financial services champion”.
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Old Mutual trades on a current-year forward P/E of 11.5, falling to 10.5 next year. With forward earnings growth per annum expected to run at around 10% (and to support strong dividend growth from a starting yield of 4.3%), the shares seem to offer good value.
Hikma Pharmaceuticals
Founded in 1978 by a Palestinian-born former marketing manager of US drugs heavyweight Eli Lilly, Hikma Pharmaceuticals’ growth has been impressive; in fact, so much so that the company has just been promoted to the FTSE 100.
The US is Hikma’s biggest market by revenue (51%), but the company also earns substantial revenue from the Middle East and North Africa (43%). Hikma’s North African markets extend all the way from Morocco across to Egypt, and down the Red Sea to Sudan and Somalia.
Hikma posted 9% revenue and earnings growth for 2015, but analysts are expecting a more subdued 2015, partly because of currency exchange rates. Hikma trades on a forecast P/E of about 23, with a dividend yield of less than 1%. On the face of it, not particularly good value, but the company does have the resources to make earnings-enhancing acquisitions (as it has in the past).
PZ Cussons
The origins of FTSE 250 firm PZ Cussons can be traced back to a trading post set up in Sierra Leone in 1884. The personal care, home care and foods group continues to maintain a strong presence in Africa, centred on Nigeria, Ghana and Kenya. Revenue by geographical region breaks down as: Africa 40%, Europe 34% and Asia 26%.
Investing for African growth is a long-term affair, and recent events in and around Cussons’ biggest single market — Nigeria — highlight the turbulence that can be expected along the way. The Ebola outbreak, disruption by violent Islamist movement Boko Haram and a devaluation of the Naira are all currently impacting on Cussons’ overall group performance.
Analysts are forecasting a modest decline in earnings for the company’s fiscal year ending 31 May. However, they also expect a return to high single-digit/low double-digit growth for the year to May 2016, putting Cussons on a P/E of 18 with a dividend yield of 2.5%. This seems reasonable value against peers in the highly-rated consumer goods sector.
Companies with powerful brands — such as Cussons — are among my personal favourites as buy-and-hold investments. But it occurs to me that Old Mutual (with its strength in Southern Africa), Hikma (with its North African markets) and Cussons (with its focus on West and East Africa) together offer exposure to different growth themes across the continent that could all pay off in the long term.
