Listed multiples across the Latin America (LatAm) and BRICS markets have moved in sync with developed markets in the last few years, with a clear upward trend. African markets have diverged since the beginning of 2015, creating a large disparity from multiples across the rest of the globe.
Multiples in African markets have dropped significantly from their 2014 levels and have continued to drop into 2017. Most African countries experienced falling EV/EBITDA multiples; where most multiples ended 2016 at below 8x. Contributing to this is investor sentiment and the resultant flow of capital towards investment opportunities in markets that have a more stable outlook than African markets.
Multiples in Kenya have decreased the most, at 38% over the year; its average EV/EBITDA multiple moving from 8x at December 2015 to 5x at December 2016, becoming the lowest in Africa. Multiples in Ghana and Francophone West declined by 34% and 35%, respectively.
Nigeria’s average EV/EBITDA multiple fell 16% to 6.2x at the end of 2016. The country’s economy slipped into recession during 2016 due to economic shocks, security issues, currency depreciation, rising inflation and inconsistent monetary policies. This shows diminished investor confidence towards Africa’s once largest economy.
In 2016, there was a small increase in multiples in South Africa and Southern Africa as well as in the Maghreb region.
Multiples in Francophone West Africa (the BVRM) have shown significant volatility and reached exceptionally high levels over the past two years. This market consists of a small sample of stocks, most of which are based in Côte d’Ivoire. As an exceptional case, there seems to have been significant increases in share prices which is not equally supported by earnings growth. As this exchange is within the West African Monetary Zone, it is traded in CFA, a currency used in West and Central Africa, which is pegged to the Euro. One reason for this boost in the BRVM’s performance could be that the use of the CFA has made the exchange a haven from the currency volatility plaguing other markets.
Overall, multiples in African markets ended 2016 trading from 5x to 11x EV/EBITDA, a wider range compared to at 2015. The divergence of African multiples from the rest of the world in increasingly integrated markets suggests a correction may be coming.