Sub-Saharan Africa Stock Markets 2010 Review & 2011 ... - Imara

Market Outlook for 2011 Top Picks for 2011
Global economic recovery to dictate the pace in 2011.
It is important to note that Namibia’s economy is hinged
on the global commodity cycle. The economy is heavily
dependent on the extraction and processing of minerals
for export. Mining accounts for 8% of GDP, but provides
more than 50% of foreign exchange earnings. Rich
alluvial diamond deposits make Namibia a primary
source for gem-quality diamonds. Namibia is the fourthlargest
exporter of non-fuel minerals in Africa, the
world's fifth-largest producer of uranium, and the
producer of large quantities of lead, zinc, tin, silver,
and tungsten. As the global economy recovers, the
Namibian economy should benefit accordingly. Real GDP
growth is expected to have recovered to 3.8% in 2010,
following the contraction of 0.8% in 2009. In 2011, we
expect growth to accelerate to c4.0% as the global
economic recovery gains momentum.
Inflationary threats are minimal in 2011. Consumer
inflation remains subdued with the inflation rate for
November 2010 at 3.4% Given the subdued inflation
environment, the Bank of Namibia (BON) continued
with its monetary easing (in line with SARB) by cutting
interest rates by 75 bps in December 2010. However,
rates remain 50 bps higher in Namibia than in South
Africa. This implies that the Bank of Namibia has room
to cut rates by a further 50 bps.
The key predicament relates to unemployment. In our
view, Namibia's rising unemployment is the main
challenge to the Namibian government. Recently,
indications were that unemployment levels rose to a
startling 51.2%. Evidently, an independent Namibia
inherited a highly segmented labour market, with a
major underlying factor being unequal access to
education and sometimes, total lack of access to
education for locals.
NSX shares should continue to track the JSE in 2011.
While the global economic recovery is proceeding
broadly as expected, the recovery still remains fragile as
strong policies to foster internal rebalancing of demand
from public to private sources and external rebalancing
from deficit to surplus economies are not yet in place.
The WEO expects global activity to expand by 4.8% in
2010 and 4.2% in 2011.
Given the fact that the NSX comprises mostly dual-listed
shares (FTSE or JSE/FTSE) and that the NAD is pegged,
one-to-one against the ZAR (under the CMA agreement),
prospects on the NSX are hinged mainly on global
factors.
COMPANY Price P/E P/BV Recom.
Hist T+1 T+2 Hist T+1 T+2
FNB Namib. 12.25 8.1 7.7 7.3 2.0 1.8 1.7 BUY
N.A.M . 0.25 6.6 6.4 6.3 0.0 0.0 0.0 BUY
Nictus 1.05 4.7 4.5 4.4 0.6 0.5 0.5 BUY
Trustco 0.60 4.8 4.7 4.6 1.1 1.1 1.0 BUY
The 2011 Hot Stocks
Local stocks are “lekker” when it comes to value. Our
focus has mainly been on the local stocks, given the
exciting growth prospects. We like FNB Namibia because
of its diversified income base. The group is an excellent
example of a successful business with profitable,
diversified operational divisions. FNB is changing this
trend by showing that other diversified operations can
also contribute successfully to a bank’s profit line. These
are basically non-interest income (fees and commissions)
and insurance premium income. On a relative basis,
FNB’s earnings yield (EY) of 13.9% and dividend yield
(DY) of 5.6% outperforms all the other local banks. In
addition, a PER of 8.1x is undemanding relative to JSE
banking sector PE of 13.62x.
Another interesting stock is Namibia Asset Management
(NAM), the only listed asset management firm in
Namibia. The company manages funds on behalf of the
largest pension funds in the country. NAM has also been
growing its retail assets aggressively. In addition, NAM’s
fully discretionary best house-view portfolios have been
ranked third in the Alexander Forbes Survey for
Namibian Funds.
Trustco Group Holdings (TUC) continues to register solid
growth as it expands its operation not only in Namibia
but also in the region. The company ventured into the
Zimbabwean market through a partnership with
Zimbabwe’s Econet Wireless. In addition, Trustco's
subsidiary, Trustco Mobile (Pty) Ltd, is pursuing an
expansion strategy into Africa. We recommend investors
tap into Trustco’s strong growth story.
We also recommend exposure in Nictus, a diversified
group operating in South Africa and Namibia. The
company is involved in retailing furniture, motor and
carpet, wholesaling carpet, immovable property, shortterm
insurance and financing. Ratings are also
undemanding at a PER of 4.7x and PBV of 0.6x.
Policies should continue to favour local stocks. Local
stocks should continue to be benefit from the domestic
investment requirements (DIR). In addition, given an
anticipated growth rate of c4.0% in 2011 on the back of
global economic recovery gains, local stocks are likely to
benefit from a recovery in consumer demand.
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