Africa Opportunity held back by hedging and C Share meger costs – Over the course of 2017, Africa Opportunity’s net asset value per share (for its ordinary shares) rose by 16.9%. Superficially, this looks like a good return but, to provide some basis for comparison, South Africa rose 34%, Nigeria rose 30%, Kenya rose 35%, and Egypt rose by 35%. 2017 marked the tenth full year of operation of Africa Opportunity Fund. It marked also the merger of the “C shares” with the original issue of shares.
The manager says “There were three main reasons for the Fund’s 2017 performance. The Fund’s investments in top members of national or continental African oligopolies, represented by companies like Enterprise Group and Copperbelt Energy Corporation, delivered strong returns. Those companies enabled the Fund’s performance to keep pace with the general inflow of funds into the larger and more liquid African markets. The second reason was our currency hedges (principally the Fund’s longstanding Euro hedge), suffering losses from a weakening Dollar. Finally, the merger of the Fund’s two share classes came with some unique event-specific costs.”
Debt holdings were cut from 25% of net asset value, at the beginning of 2017, to 7% at year-end 2017. The proceeds of those bond disposals were reinvested in national oligopolies and companies with large assets ignored by capital markets. Enterprise Group (17.9% of the portfolio) provided the largest returns, amounting to 5 cents per share. Enterprise Group is a holding company with majority and wholly-owned operating subsidiaries in six Ghanaian fields: a 60% life assurance subsidiary with the largest market share in that field; a 60% property and casualty insurance subsidiary which has the second largest market share; a 60% pensions administrator subsidiary which has the largest market share in Ghana’s new private pensions industry; a 100% owned property development subsidiary; a 60% indirect subsidiary in the funeral services field; and a majority-owned life assurance subsidiary in Gambia. Enterprise’s end of 2017 market capitalization was $109.7 million, valuing it on a Price/Book ratio of 2.2x, with a return on average shareholders’ equity of 24% and a return on average assets of 9%.
Other key investments mentioned in the report are Copperbelt Energy (now sold), Lydec (a Moroccan energy company), Naspers (Africa’s largest stock by virtue of its stake in Tencent) and the ongoing Shoprite litigation.
AOF : Africa Opportunity held back by hedging and C Share meger costs