mr zin bekkali - african investment opportunities
DESCRIPTION
Silk Invest CEO, Mr. Zin BekkaliTRANSCRIPT
Silk Invest - African Investment Opportunities September 2011
Page 3
The “case” for Africa
Investment opportunities
Food sector
Conclusions
3
Contents
4
The world is turning upside down...Again
11% 8% 4% 3% 4% 4% 4% 7%
10% 4%
2% 1% 2% 3% 4% 5%
61%
61%
36% 23% 22%
33% 40%
49%
9% 18%
42%
52% 57% 49%
41% 26%
8% 9% 16% 20% 15% 11% 11% 13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1000 1500 1870 1913 1950 1980 2010 2030
Breakdown of GDP (%)
Africa Middle East Asia W Eur & US Rest of world
Source: The World Economy Historical Statistics, Maddison & Angus, ; World Bank; Silk Invest
Twice the level of
FDI of India
5
Africa’s place in the world
Source: African Alliance; IMF; World Bank; Silk Invest Note: Market Cap as of July 2010; Average FDI in 200-2008; Population and GDP numbers as of 2008
3% 4%
7%
15%
18%
4%
8%
17%
28%
20%
17%
9%
4%
7%
11%
17% 18%
2%
0%
5%
10%
15%
20%
25%
30%
GDP 1990 GDP 2010 GDP 2030 Population 2010 Population 2030 FDI 2010
Share of World
Africa China India
6
Forget commodities…Profit from the consumer
Source: World Bank; IMF; Silk Invest
194 243 272 318 322 312 293 267 230 181
264 291 340 379 456 545 654 775 911 1,051
35 35
43 46
63 85
105 129
152 185
-
200
400
600
800
1,000
1,200
1,400
1,600
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
African middle class on the rise (Population by income group)
Below Poverty Line Above Poverty Line & Below 5k GDP per capita Above 5K GDP per capita
•Around 20% of worlds’ population will live in Africa by 2025 •Total Africans above poverty line will go to 1.23 billion...close to 500 million new consumers
7
Africa’s institutions are developing
Source: World Bank; WEF; IMF; Silk Invest Note: 1 is bad and 10 is extremely strong
3.9
7.0 6.7
5.4
3.3
6.6
5.9
5.0
2.8
6.6
7.3
5.6
2.7
6.3
5.4
4.3
2.5
6.3
5.6 5.9
2.2
5.9
6.6
3.9
2.2
4.6
5.3
3.9 3.6
6.1 6.7
5.6
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Corruption Protection of minority shareholders’ interests
Strength of auditing and reporting standards
Judicial Independence
Institutional Strength Ratings
Ghana Morocco Egypt Ethiopia Nigeria Kenya Russia China
o Countries like Somalia are as much an exception in Africa as North Korea is an exception in Asia o We invest in countries which have shown a track record of improving their institutions
Source: IMF Note: Debt is total of public and private debt; Reserves are IFS Reserves ex. Gold
8
Low leveraged economies
159
218 224 235
59 50
13 20 15 3 1
20 14
39 48
18
-
50
100
150
200
250
World EU US Japan LATAM Emerging Asia
Middle East & North Africa
Sub-Saharan Africa
Financial reserves and total debt as % of GDP (%)
Debt as % of GDP Reserves as % of GDP
Page 9
The “case” for Africa
Investment opportunities
Food sector
Conclusions
9
Contents
10
Equities – Strong long term returns...
4%
7%
10%
14%
14%
15%
16%
19%
19%
12%
2%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Nigeria
Kenya
Botswana
Tunisia
Morocco
Ghana
South Africa
Mauritius
Egypt
Emerging Markets
World
10 yrs annualized returns USD (%)
Source: Silk Invest,; Bloomberg Note: Data as of 20 September
o African markets have outperformed global markets in last 10 years
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Equities – ...and more upside potential
81%
69%
62%
52%
42%
34%
24%
76%
69%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
South Africa
Morocco
Botswana
Ghana
Kenya
Egypt
Nigeria
Emerging Markets
World
Current value vs. 5 yr peak value USD (%)
Source: Silk Invest,; Bloomberg Note: Data as of 20 September
o On average markets are at 40-50% of their peak values vs. 70% globally
o PE ratio in most markets is at around 9 while Div. Yield is at 7%
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Source: Silk Invest
1.1%
7.5% 6.1%
9.2%
10.9% 11.0% 12.0% 12.2%
1.2%
8.0% 8.9%
11.4% 12.8%
13.8% 13.5% 13.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Japan South Africa
Morocco Mauritius Ghana Egypt Nigeria Zambia
Indicative Yields in Local Currency
5 year 10 year
Bonds – Africa’s bond opportunity...
o Africa represents a unique opportunity to get access to high yielding bonds o Investors can diversify across the continent to build up their portfolios
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Bonds - ...with attractive YTM across duration range
o Universe of available securities is developing and investors can take duration bets o Attractive yields are possible both on short dated and long dated paper
Source: Silk Invest
4.00
6.00
8.00
10.00
12.00
14.00
16.00
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00
Yiel
d to
Mat
urity
(%)
Duration
Yield Vs Duration
14
PE - Far from overcrowded...
Source: Silk Invest,; EMPEA
o Limited competition for deals allowing investors to source their own deals o Sufficient opportunities enhanced by lack of options for local entrepreneurs
1.13
0.90
0.44
0.23 0.16
0.06 0.04
0.00
0.20
0.40
0.60
0.80
1.00
1.20
UK US India Brazil China Sub-Saharan Africa
North Africa
Private equity penetration as measured PE investments/GDP (%)
2010
PE – ...with limited access to capital for companies
1%
3%
8%
9%
11%
11%
14%
20%
UK
Morocco
Egypt
South Africa
Ethiopia
Ghana
Nigeria
Kenya
0% 10% 20% 30%
Interest Rate Spread (%)
Source: World bank; Silk Invest Note: Interest Rate spread is defined as lending rate minus deposit rate
212%
96%
78%
172%
38%
33%
27%
40%
UK
Morocco
Egypt
South Africa
Ethiopia
Ghana
Nigeria
Kenya
0% 100% 200% 300%
Credit provided by banks (% of GDP)
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Great opportunity but there are challenges…
•Potential inflation •Political instability •Most can be diversified away
Macro risks
•Time horizon and asset class •Consumer vs. Commodities •Selection among 54 countries
Definition of African opportunity
•Operational set-up and management of liquidity •Benchmark approach vs. non benchmark •Internal research capabilities
Public markets
•Sourcing of deals •Structuring transactions according to local regulation •Securing attractive exits
Private equity
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17
...which require a multi-national talent pool
o Local presence o Team member from country
Page 18
The “case” for Africa
Investment opportunities
Food sector
Conclusions
18
Contents
19
22.9
13.8
17.4
18.4
18.7
21.4
21.5
21.6
21.9
29.8
39.6
Average
Financials
Consumer Services
Oil & Gas
Industrials
Telecommunications
Utilities
Health Care
Basic Materials
Technology
Food & Consumer goods
- 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0
ROE of African listed stocks by sector
Source: Silk Invest Note: Data as of 2010
Choosing the right strategy is important
African consumer spends mainly on food
20 Source: Various sources; Silk Invest
10
27 33
46 46 48
73 75 79
-
10
20
30
40
50
60
70
80
90
United States
Mexico Turkey Morocco Kenya Egypt Nigeria Ghana Ethiopia
Food spending as % of total expenditures
o Formalization: Food sector in Africa is rapidly growing from a low base and packaged goods sold in formal retail shops account for less than 20% of market
o Branded products: Rapid transformation from non-packaged non-branded to packaged and branded food products
o Import substitution: Local branded products are replacing more expensive imported products
o New products: Expanding middle class demanding new product categories (e.g. Baby food, and different types and flavours of yoghurts and cheeses)
o Modern retail distribution: Local supermarket chains in collaboration with foreign partners are increasing their footprint into Africa.
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…and is upgrading his food basket
1 7
38 35
57
48 64
36
14
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sub-Saharan Africa North Africa South Africa
Breakdown of Food sales channels
Supermarkets Small grocery shops Traditional Markets
Source: Various sources; Silk Invest Note: Estimate as of 2009
22
Food spending is developing from low base
5% 10%
13% 13%
47%
55%
21%
32%
0%
10%
20%
30%
40%
50%
60%
Beverages Dairy products Canned food Meat
Food spending per capita vs. South Africa (%)
Sub-Saharan Africa North Africa Source: Various sources; Silk Invest
Recent transactions - Egypt
Egypt - Confectionary
•Status - Executed •Opportunity •Confectionary business with product heritage since 1881 and which went into a successful restructuring in 2008-2010
•Growth capital to allow the firm to move business to more scalable infrastructure and to fully leverage its new product lines in especially spreads business
•Challenges •Egyptian political situation is moving but still volatile
•Asset stripping exercise will change the company’s asset base
•Structuring •40% ownership + Convertible loan to be converted allowing us to get majority shares
•5x EBITDA valuation 23
Recent transactions - Nigeria
Nigeria – Quick Service Restaurants •Status – Final stage of legal execution •Background •Professional restaurant chain with a number of profitable outlets in Abuja and Port Hartcourt, two bakeries and a catering division
•Company has identified a clear market segment for itself as a high quality indigenous restaurant business and is seeking growth capital to scale up
•Challenges •More constrained exit options with capping of equity in the firm at 40%
•Property investments to scale up and need to secure debt from local banks
•Structuring •30% ownership + Rights to secure business and exit control
•4.5x EBITDA valuation 24
Sales & Distribution • National Coverage • Distribution Channels • Logistics • International Expansion
Finance & Governance • Working Capital, Debt & Equity • Management & Quality Processes • People • Financial & Business Control
Product & Marketing • Pricing • Renovation/Innovation • Capacity Extension • Packaging & Branding
Value Chain & Partnerships • Vertical / Horizontal Integration • Margin Management • Technical Partnerships • Acquisitions
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Four focus areas to add value
Page 26
The “case” for Africa
Investment opportunities
Food sector
Conclusions
26
Contents
Conclusions
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o Africa has undergone dramatic changes in the last few years
o Equity markets have done well and outperformed other markets
o Bond markets represent an attractive yield opportunity
o Private equity industry is under developed
o Food sector is the most relevant consumer play in Africa
o African food companies are profitable and are growing
Thank you
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