Nigerian banks and some Abu Dhabi based lenders are key stock picks for 2011, managers at HSBC Global Asset Management’s New Frontiers fund say.
Nigeria’s government has created the Asset Management Company of Nigeria (AMCON) to take on bad loans from the nine institutions it rescued under a $4 billion bailout last year and a number of banks are already returning to profit.
Andrew Brudenell, a manager at the fund said: “Now we see an interesting opportunity in the banking sector. You have got some banks in the stock market that are trading below book value, some are between one and two times, with ROEs (return on equity) that are recovering.”
He said: “There has been a significant clearing out of the loan book of the banks and the better banks have been shown to be better banks but are not necessarily being valued as differently as they should be.”
He said attractive stocks in the sector include Guaranty Trust Bank, Zenith Bank and Access Bank.
Andrea Nanini, the senior manager at the fund also believes lenders in the UAE offer some opportunities due to cheaper valuations following last year’s debt crisis in neighbouring Dubai.
Nanini said: “The margins are slightly sort of beginning to improve, the worst of the (debt) restructuring has happened even though there might still be a little more to come.”
He said they like banks in the Abu Dhabi emirate because they had been dragged down by the problems in Dubai even though the home emirate has healthier fundamentals.
He said: “Abu Dhabi banks is one sector where we think there is a lot of value. Dubai banks we are still a bit more cautious about.”
The fund has already bought shares in Abu Dhabi’s First Gulf Bank, according to its latest monthly report, which was for October.
Brudenell said firms in other sectors in Nigeria like fast moving consumer goods and infrastructure also have good prospects.
“There is large potential in terms of cement demand (in Nigeria) going forward,” he said, citing Lafarge Cement WAPCO and Nestle Nigeria.
He said: “If the political changes happen and if the reforms continue and get extended into other areas of the economy, there is a large need for infrastructure improvements including roads and buildings and therefore cement.”
The fund managers said they also like Zimbabwean stocks and have bought into mobile operator Econet, mainly due to its strong market position.
Brudenell said: “They are going to be able to offer sophisticated services to people far more quickly than anybody else so obviously when corporates come back in, which they are doing, those are the people who will spend more on their telephony.”
He said the political agreement between President Robert Mugabe and Prime Minister Morgan Tsvangirai and the adoption of the dollar as the main currency of use last year had improved the chances of a recovery in the deeply troubled country.
Meanwhile they sold their shares in Kenya’s leading telecoms firm Safaricom earlier this year due to valuation concerns and growing competition after India’s Bharti bought Zain’s assets in Africa.
But the fund still holds a stake in Kenya’s East African Breweries due to its growing regional reach following the acquisition of a controlling stake in Serengeti Breweries in Tanzania and as cross border trade opens up.
Five states in east Africa started a common market in July this year, creating a potential single market of 120 million people.
Brudenell said: “There are certainly some opportunities there.”
Of the New Frontiers fund’s $84.91 million, 12 percent is invested in Africa, while 43.8 percent is invested in the Middle East and North Africa.
The fund is up 22 percent so far this year which compares with a 14 percent rise in the Frontier Markets section of the MSCI Emerging Markets benchmark, according to Lipper, a Thomson Reuters company.
Nanini said the fund’s investments in the Middle East and also in Africa are likely to rise next year.
He said: “(Africa’s allocation) is likely to increase rather than decrease, we have a very positive fundamental outlook on sub-Saharan Africa. Given where we are in terms of valuations and what we expect in terms of growth, I would be very surprised if that allocation goes down.” (Reuters)
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