Given Africa’s sustained growth rate of over 6% a year for the past 10 years, paired with slowdowns in some other emerging markets, global investors are paying more attention to Africa, and need to understand whether the continent has a place in their portfolios; and, if so, how they will access what the continent has to offer.
Answering these questions accurately depends on the availability of reliable data, a commodity that is sometimes in short supply. RisCura’s Bright Africa report, now in its second year, provides insights that help analysts and investors make informed decisions about both listed and private equity investments. Bright Africa 2014 shows that accessing Africa’s growth requires both types of investment to avoid missing out on important sectors and opportunities.
“While African markets develop, investors are using several channels to access African growth equity,” says Rory Ord, Head of Private Equity at RisCura. “Local listed markets give good access to financials, telecoms and consumer staples in certain countries, while private equity allows stronger exposure to consumer discretionary as well as industrials and materials, and niche sectors such as healthcare and education.” Certain other sectors such as some resources can further be accessed through foreign listed Africa focused companies.
Ord says that on the whole, investors can access African markets at reasonable multiples – a measure of the price of an investment, relative to the earnings of that investment. Listed market price to earnings multiples (P/E) average a little below the emerging markets average and are significantly below the developed market average. The consumer staples sector is the highest priced sector on the continent on a P/E basis across most markets, while other sectors are at lower levels. Private equity transaction multiples are still below global levels and are well below multiples observed in the BRICs. Private equity deal multiples are fairly consistent across major sectors in the 5-7x EBITDA range.
Private equity has become increasingly easy to access with over 200 regionally focused managers now active on the continent, providing on-the-ground knowledge. Pan African and sub-Saharan funds provide for larger scale investment. Furthermore, African private equity deals use significantly less debt than other parts of the world.
Merger and acquisition (M&A) activity on the continent is also included in the Bright Africa 2014 report. M&A deals have reached pre-financial crisis levels, showing increased confidence in Africa; Asia has tripled its investment in M&A on the continent from 2007 to 2013.
Since the financial crisis global flows of capital have been re-directed to emerging markets on concerns over developed market growth. Africa has benefitted from these flows as improved capital availability has helped to fund high levels of growth through FDI and portfolio flows into listed and private equity. There are now 8 African economies with GDP of over US$100 billion, and around 1000 mergers and acquisitions reported each year at a value of US$30 billion in 2013.
Earlier this year RisCura researched investor attitudes on Africa in a separate report, titled The Search for Returns. Respondents expect African markets to be significantly greater recipients of global capital than in the past.
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