European markets are again wobbling now that the ‘training wheels’ (loan facilities) might again be taken off the financial institutions. The record large outflows from hedge funds may be a sign of capitulation but it is clear that amongst investors confidence is still missing. Then again, how can you expect good support for markets when sentiment is determined mainly by the magnitude of monetary stimulus? It is becoming hard to argue against the fact that developed markets will probably be range bound for the medium term as there seem to be no solid foundations on which further build out the mature economies.
What is clear is that investors need stories they can believe in to invest in for the long run and we are now seeing that more people are acknowledging the fact that they need to make space for frontier markets in their portfolios, now that they have realized that these markets hold the fundamentals they are looking for. The below chart should provide you with more perspective of the forces that underpin the growth of the African economies, which also happens to be the heartland of Silk Invest’s investment activities.
Despite the fact that the onset of summer is slowing things down, we are seeing new investors coming into the African and Arab markets. A good example of this was a large block trade that was being moved around the market this week by an investor who was trying to execute a large buying order in African equities, from the looks of it, this flow most likely comes from a fund manager. These kind of things are increasingly happening and it is especially good news for those that are already invested as demand is considerably outstripping supply. We are also learning about the setup of more new funds that specifically aim to provide investors with access to these markets. It is fair to say that, after a period of acceptance, investors are now ready to take action.
Another sign of strength is the announcement of more IPOs in the African markets. It would almost seem as if IPOs are things of the past in developed markets, this comes as no surprise as they are an undeniable barometer for the strength of investor demand.
In the frontier market space, even though foreigners are only getting started, the demand from local investors continues to swell, thus creating the assertive market conditions needed to attract more companies to the equity markets. Let us not forget, these local investors are increasingly oblivious of the issues in developed markets as they are seeing things from a place where growth fundamentals are solid and where people can look towards the future with confidence.
One of the more recent announcements is Ennakl’s IPO, the leading car dealership in Tunisia. As every week, we focus on a specific company to provide investors with more insight into the African and Arab markets. This week, Youssef Lahlou, our portfolio manager based in Casablanca, provides us with a special focus:
Ennakl is one of the major players in the car distribution in the country and with brands like Volkswagen, Volkswagen Utilities, Porsche and Audi. Ennakl also provides after sale services and the retail and wholesale of original spare parts. In 2006, Ennakl was privatized and totally bought out by a Tunisian private holding “Princesse Holding”. The Holding group, which is headed by Mr. Mohamed Sakher El Materi the son in-law of the Tunisian president Zine el-Abidine Ben Ali, is a holding company investing in various sectors such as automobile retailing, real estate and financial services.
The privatization process has clearly been a success because it has served as an incentive for Ennakl to meet international standards by upgrading its quality of services and technologies through an effort of modernization. Moreover, the company has invested heavily in training its staff, expanding product lines and developing its commercial network. As of the end of the first quarter 2010, the company has a network of 17 branches spread all over the Tunisian territory and plans to open seven more during the period 2010-2011.
Ennakl is now the market leader in Tunisia, with 21.40% market share just before its competitor ARTES (Renault, Nissan, Dacia), which holds a market share of 20.3%, the STAFIM (Peugeot) with 10.9% and ALPHA FORD with 9.9%. In the near term, Ennakl will be commercializing two new brands: SEAT and Skoda, which will enable it to target new segments of the automobile market. Ennakl is also considering enlarging its offer on its existing brands.
The Group has a solid financial position with good levels of profitability. The Group’s revenues reached 176 million Euros in 2009 up 20% compared to last year’s figure, its net income topped 12 million Euros, an increase of 8% compared to FY08 bottom line.
The business plan presented by the company’s turnover states a CAGR (compound annual growth rate) of 9.2% over the next five years, to reach 273 million Euros in 2014. This increase in revenues will impact the gross margin rate, which is expected to reach 13.8 % in 2014 from 13.0 % in 2009. Consequently, the operating margin as well as the net profit should follow the same trend.
Ennakl’s IPO will further stimulate the company’s development process, which will enable it to continue and strengthen its position of leadership in the Tunisian market. Also worth highlighting is the dual listing in both the Tunisian and Moroccan stock exchanges, this is a first for the Maghreb markets and could herald further dual listings in the region going forward.
Ennakl’s IPO so far has been a real success; the subscription period that was scheduled to be from the June 23rd until July 2nd was prematurely closed after only three days as all type of investors showed strong interest for the company. Silk Invest didn’t miss this opportunity subscribing for both the Africa Lions and Arab Falcons funds.
As always, if you would like to discuss this story in more detail, please don’t hesitate to get in touch with us.
We look forward to keeping you updated.
With kind regards
The Silk Invest Team
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