Special Report Podcast: Roelof Horne - portfolio manager at Investec - Boardroom Talk with Alec Hogg

Special Report Podcast: Roelof Horne - portfolio manager at Investec - Boardroom Talk with Alec Hogg

Why everyone wants to invest in the African continent.

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ALEC HOGG: It’s Wednesday January 18 2012 and in this Boardroom Talk special podcast, Roelof Horne, portfolio manager at Investec and the man that, well, that big group looks at when they’re considering investing in the African continent, joins us now. Roelof, before we go into some of the interesting aspects that were introduced through the interview that I had this week with Johann Rupert of Richemont, how long have you been focusing on the African continent?

ROELOF HORNE: Well, Alec, I was born in Africa and I’ve worked in Africa my whole life. We sometimes make the mistake of excluding South Africa from that but if we’re talking about continent-wide it’s since 2005. It started, I guess, in 1996 when I ventured into the Botswana market and the Namibian market but continent-wide really since 2005.

ALEC HOGG: It was interesting to notice that when the Oppenheimers sold their USD5bn stake in De Beers, when Nicky Oppenheimer was on our programme I asked him what he’d be doing with all that money and he was very clear that it would be invested in this continent, into Africa. He was suggesting Africa north of the Limpopo. Now this is interesting because one would have thought we’ve seen other people make a lot of money in the past and take their money to Europe and other perceived safer havens. What might it be about Africa that is getting someone like Nicky so excited?

ROELOF HORNE: Well, Alec, I think that’s exactly right and that picks up very nicely on what Johann was saying. Basically he said, hang on, these big investors and businesses from India and China are looking at investing in Africa, what’s it that we’re missing? The way we see it really is that the BRICS are important and they’re big and you’ve got to be there but they’re the story of yesterday. That’s where the growth is but that’s also where the competition is tough but if you’re looking for tomorrow’s story it’s Africa and other similar small emerging markets and frontier markets across the world. That’s what exciting people that are saying, well, what’s the next story? Where do we go from here? What are people going to be writing about in all of the magazines and newspapers in ten years’ time? Let’s go there first.

ALEC HOGG: Interesting, Davos this year has got quite a good focus on the Africa story after being pretty quiet last year and I’ll tell you something interesting, Roelof, I think there were two sessions on Africa, they were both fully booked out and you had queues running around – not around the block because they don’t have blocks within the congress center – but that possibly gave an indication. I think there are five or six sessions this year, again an illustration.

ROELOF HORNE: Yes, no, absolutely interesting and I’m not surprised. We’re also starting to see…things have been tough, make no mistake, everywhere in the world, all emerging markets and 2008 happened and now we’ve got the European crisis. So, one sees that in the markets and you see the reaction from investors but I can see the interest starting to come into Africa and that’s from big investors as far afield as the Far East and Hong Kong and those places, as well as the United States. More and more of them are starting to travel to Africa to come and have a look for themselves.

ALEC HOGG: After we played the clip of the discussion with Johann Rupert, David Shapiro and I were discussing it and it seemed to boil down, in David’s opinion anyway, the real place to or the only place to put your money into Africa was mining and maybe a few of the retailers. Is it broader?

ROELOF HORNE: Yes, I think the big thing, the big story maybe that David did not comment on is the consumption spending, which was sort of mentioned with the comment on Shoprite but maybe it’s worthwhile mentioning a few other companies in South Africa that are seeing this opportunity. What is that opportunity? Well, Africa is actually growing quite quickly, the real economic growth in Africa, outside of South Africa, is between 5% and 6% in most of the countries. So, they’re not struggling with the growth headache that we have in South Africa where we’re trying to get to 3%. So, the African middle class is growing, the diaspora are returning, remittances that are around USD40bn now per annum is growing every year. So, African consumer spending is growing quickly. So, you spoke about Shoprite and their success in Africa outside of South Africa, I’ve been in their stores in Luanda and Lagos and I’ll tell you their main advantage is that they have no competition there. They provide the only modern supermarket shopping experience in those two cities with millions and millions of people. They’ve got a great head start but the other South African retailers are going to follow. Woolworths already has 46 stores in eleven countries outside of South Africa. Pick n Pay has announced their intention to follow. MTN earns more in Nigeria than in South Africa. Don’t forget South African Breweries has been there for years and years and some of their fastest growing markets are in Africa. Tigers has bought into Nigeria and Nampak is now in Angola. Stanbic has announced that they’re basically exiting their other emerging market businesses to invest more in Africa. So, it’s widespread.

ALEC HOGG: And it’s not just the big names, I was talking to Wayne Samson from Ellies and he said the reason why they are able to have a trading update to say profits up between 35% and 40% is because of Africa. They’ve got a subsidiary called Megatron, that’s the one that’s spearheading their drive into the continent. So, it’s also in those mid and even smaller caps.

ROELOF HORNE: No, absolutely, absolutely and that also brings to mind that these businesses…Africa is quite tough but don’t think that you can send your second class people there and your second class products or services there, African shoppers are discerning. At the moment a lot of people with money fly to Johannesburg and to London to go and shop. If you’re going to build a sustainable business there, do it properly, send your best people because it’s going to be tough but get them to build a business that’s going to be sustainable and the growth will be fantastic.

ALEC HOGG: That’s all the good news but today we had some very bad news coming out of presumably Africa linked, Impala Platinum is getting a rough ride in Zimbabwe, that’s no secret. Chief executive, David Brown, today resigned. There’s been no linkage between the Zimbabwean problems and Brown’s resignation but on the other hand, if things are going to get even worse in that country it is going to have a knock-on effect for those who are exposed to it. What’s your view?

ROELOF HORNE: Zimbabwe is going through a political transition and it’s a rocky road. Government is under huge pressure to grow their budget, to grow their income and it would seem that they are casting about and, yes, you’re right, I am an investor in Zimplats, which is the Impala subsidiary in Zimbabwe and they do seem to be getting it from all sides there. But I think what also typically happens is that we read the worst possible news in the media and then the eventual outcome is a negotiated outcome, which doesn’t necessarily get trumpeted out. So, yes, it’s tough out there, some countries are better than others and more investor friendly than others. Zimbabwe is not particularly investor friendly at the moment and it’s showing. That country is sitting with a lack of capital, their banks are under-capitalised, they want investment but every now and then they do something that chases away investors rather than attract them.

ALEC HOGG: So, you’ve got to be discerning in where you put your money on the continent?

ROELOF HORNE: Absolutely.

ALEC HOGG: What would be the countries to you if you were sitting in a head office of a multi-national based in Johannesburg and they were asking you questions of which countries to go into, what would be your pick?

ROELOF HORNE: It would really, as you said, you have to be discerning and there are different opportunities in different countries for different industries. If I look at Eastern Africa for example, Kenya is very well covered by, let’s say banks and retailers but Angola imports just about everything that’s consumed in that country. West Africa also imports a lot of things but there they’ve got families and old business that have been around for decades and decades in certain of the industries and it’s not going to be that easy to break into it. Even though everybody looks at Nigeria, it’s got 160 million people, it’s growing fast. But pick your country, do your homework and actually go where there is an opportunity and the opportunities are there because in most of these countries competition is limited to maybe one or two or three competitors, as opposed to the multiples that you would find in a more developed country.

ALEC HOGG: Roelof, if you believe the Africa story and you’re excited about the potential for the continent, what five stocks on the JSE would give you the best exposure? Or let me put it differently, what five stocks would you be able to tell me to invest in to give me an exciting ride, not necessarily the best exposure.

ROELOF HORNE: Yes, yes, you know Alec, I focus much more on finding companies that are listed in the African countries themselves. At the moment specifically I find that the South African companies that do give you exposure to Africa and the best exposure to Africa are relatively expensive to what I can find on the rest of the continent. So, my portfolio that includes some South African stocks with that kind of exposure, my exposure to South African companies is actually pretty low. So, my investments are all over the place elsewhere, from Morocco to Egypt to Nigeria, Kenya, Mauritius and very little in South Africa at the moment.

ALEC HOGG: So, I guess the best way would be to invest in your fund but if you do have access to those stock markets and if you are prepared to open the accounts and, I suppose, go through the processes that you had to, what are the top five holdings in the fund?

ROELOF HORNE: Well, I’ve already mentioned one that I think is hugely undervalued and that happens to be Zimplats. I also think that the Nigerian banks are, and particularly the good ones, are just hugely undervalued. Understandably so because they had a banking crisis in 2009 and we’re still sitting with the after effects of that banking crisis. But for what’s going to happen there in terms of growth and growth in their earnings and the quality of management and those banks’ balance sheets, they are just vastly undervalued. So, there I would think of a bank like Zenith, a company like Access Bank. There are some food companies in Nigeria that I also think are quite exciting. Tigers has bought into one, in UACN, they’ve got a joint venture with them. Then we also have Flour Mills of Nigeria that is expanding very quickly and I’m expecting big things from them. Then, of course, I’ve also got big investments in Egypt, there the political situation is undergoing huge change, as you know, the parliamentary elections has just been done, we’re waiting for the presidential elections to happen in June, so things are in a bit of flux there but that has also made the investments there very cheap, just about everything across the board is cheap there. One of my biggest investments there is a big vehicle company, they import and manufacture all kinds of vehicles, everything from motorcycles and three-wheelers to passenger cars right through to buses and trucks. So that’s GB Auto and that’s one of my big investments there.

ALEC HOGG: Well, we got your five then. Roelof Horne, portfolio manager at Investec Asset Management.


Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!