Something interesting happened last week! While global markets suffered another horrible week, African markets seemed to belong to another world.
Have a look at the table below. I have deliberately selected a snapshot dated Friday May 7, when global markets seemed to be in shambles after a fairly destructive week. If you look at the MTD numbers, you will see that while Egypt and South Africa were dragged downwards, other key markets such as Nigeria, Kenya, Morocco, Tunisia and Ghana did either well or remained stable.
In terms of currencies, the commodity currencies (South Africa) and those more correlated to the Euro (Morocco) dropped in value vs. USD. Also worth pointing out are Egypt and South Africa are constituents of the emerging market indexes, which partly explains why they moved in tandem with the majors.
We think the recent steadiness of African markets amid the turmoil in the developed and major emerging markets will not go by unnoticed and it is fair to expect more investors to further explore and invest in this region.
This week we’d like to focus on a development that has been taking place on the Moroccan market. Youssef Lahlou, our Casablanca-based portfolio manager, tells us what our local perspective is on the de-listing of 2 major companies, ONA and SNI.
A Blessing in Disguise?
On March 26 the Casablanca Stock Exchange woke up to the news that ONA and its parent company SNI announced their plans to de-list from the exchange and merge into a new holding company. Casablanca is Africa’s third largest stock exchange in after South Africa and Egypt and has a Market Capitalization of around 54 billion Euros and 77 listed companies.
The delisting of two of the most important and influential companies in Morocco was initially considered as a negative development as it would shrink the market capitalization by more than 4 billion Euros (or just over 8%). While in the short term it would boost the market upwards due to an abrupt change of supply and demand in one of the continent’s most institutionally driven markets, there was concern about Morocco losing yet another MSCI EM index constituent (ONA); this would be the 3rd ‘drop out’ in the last 6 months (BMCE and CGI were dropped in November 2009). How would this affect the way foreign investors see the Moroccan market? As mentioned before, we believe this development is a blessing in disguise…
Let’s have a look at the background of both of these companies. Omnium Nord Africain (ONA) is the leading industrial and financial group in Morocco, structured into 5 business lines: mining, agribusiness, distribution, financial activities and growth businesses. The mining segment operates through Managem, a mining and hydrometallurgical group engaged in the production of cobalt, basic metals and metallic derivatives. The agribusiness segment provides products such as sugar, biscuits, milk and dairy products, mineral water, plastic packaging, greases and sea products. The distribution sector operates in such areas as car dealing, commercial malls and equipment distribution. The financial activities are covered by its affiliates, Attijariwafa bank and Agma Lahlou Tazi. Wana (telecoms) and Nareva (energy and environment) are the two subsidiaries in charge of its new growth line. ONA’s main shareholder is its parent company SNI.
On the other hand, Société Nationale d’Investissements (SNI) is a leading Moroccan investment company. It is principally engaged in holding and managing portfolios of listed and non-listed companies. Société Nationale d’Investissements ’s main shareholder is Copropar which in turn is 100% owned by Morocco’s King through his holding company, SIGER. Copropar holds a stake just over 60% SNI.
The first manoeuvre of this de-listing exercise will be to effect a buy-back through a public offering at MAD 1,900 for SNI shares (+3.7% premium from 25/03/2010 closing price) and MAD 1,650 for ONA share (+24.5% premium from 25/03/2010 closing price).
Even though a timeline for the operation remains undisclosed, the Casablanca Stock Exchange witnessed a burst in momentum both in volumes and performance with a number of keys stocks showing double-digit performance gains within the first month since the initial announcement. Daily trade volumes saw a doubling of their Q1 averages to about 50 million Euros. Most of this momentum is based on assumption that the market expects to see a liquidity injection of at least 1 billion Euros resulting from the premium investors would get from the buy-back, not to forget Morocco’s compelling recent economic figures also did their part in helping the Casablanca exchange to new highs.
Morocco’s recent economic success story isn’t a coincidence, it is the result of a well executed ‘big picture’ strategy by those who run the country. In recent years there has been evidence that there is a serious ambition to make the Kingdom a modern, functional and leading regional economic power. We believe that this operation is no exception in the larger scheme of things. The medium term perspective (18 months) of this operation is the high likelihood that the new consolidated group will seek separate listings for a number of the companies it controls. This would not only offset the sudden drop in market capitalization but it will also increase the diversification and hence the appeal of the Moroccan stock market to both local and foreign investors. Some of the potential public offerings are the much anticipated supermarket chains Marjane /Acima along with other companies that currently belong to both holding groups.
Our weekly fact sheets and updates can be found on our website, www.silkinvest.com. They will hopefully provide you with more detailed insight into what is going on in the markets and economies of Africa, The Middle East and Central Asia.
We look forward to keeping you updated.
With kind regards from the Silk Invest Team
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