Finweek English Edition - - INVESTMENT -

EA­drian Sav­ille, CIO, Can­non As­set Man­agers merg­ing mar­kets are cap­tur­ing head­lines for eco­nomic growth, led by the likes of China and In­dia. Yet sub-Sa­ha­ran Africa is one of the world’s fastest grow­ing eco­nomic blocs and also one of the most over­looked when it comes to in­vest­ment op­por­tu­ni­ties.

Sub-Sa­ha­ran Africa of­fers ex­cit­ing prospects to in­vestors, given its low eco­nomic base, healthy growth and good com­mod­ity prices – fac­tors that in their own right make the re­gion at­trac­tive. But, in­creas­ingly, eco­nomic growth in sub-Sa­ha­ran Africa is be­ing fa­cil­i­tated by struc­tural driv­ers: this is now in the ar­chi­tec­ture of the re­gion and is not due to some good for­tune or growth off a low base. In the ar­chi­tec­ture, we find one of the most pow­er­ful con­trib­u­tors to sus­tained so­cioe­co­nomic progress, namely eco­nomic con­nect­ed­ness. This sug­gests that economies in the re­gion are open­ing up and en­gag­ing in in­ter­na­tional trade, in­ter­na­tional cap­i­tal f lows, the mo­bil­ity of peo­ple and the f low of data and in­for­ma­tion.

For in­vestors look­ing to build po­si­tions in sub-Sa­ha­ran Africa, we have found some in­ter­est­ing and in­trigu­ing prospects. One of them is Eq­uity Bank in Kenya, which fa­cil­i­tates small and medium-sized busi­ness de­vel­op­ment, as well as re­tail bank­ing. While their loans to small busi­nesses, in par­tic­u­lar, are grow­ing at a healthy clip, the bank is also very well cap­i­talised. In terms of ex­act num­bers, Eq­uity Bank has a cap­i­tal ad­e­quacy ra­tio of more than two times the statu­tory level, giv­ing it an ex­tremely solid bank­ing foun­da­tion. In turn, the bank’s bal­ance sheet is in­vested in healthy loans, ev­i­denced by a re­turn on as­sets of 5.5% and a re­turn on eq­uity of 30%, ver­sus in­dus­try bench­marks of 2.0% and 15%, re­spec­tively.

Con­sid­er­ing Eq­uity Bank’s man­age­ment, James Mwangi – the CEO and founder of the com­pany – won the Ernst & Young World En­tre­pre­neur of the Year award in 2012. He is the first African to re­ceive the award and, in ad­di­tion, he was named the 2012 Forbes Africa Per­son of the Year for “con­tri­bu­tion to busi­ness, in­clud­ing cre­at­ing em­ploy­ment op­por­tu­ni­ties and ap­ply­ing in­no­va­tive mind­set”. This lends two ad­di­tional ele­ments to the


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1 500 in­vest­ment case for Eq­uity Bank, namely ev­i­dence of busi­ness dy­namism, cou­pled with a high level of in­side own­er­ship.

The in­vest­ment case for Eq­uity Bank is aided fur­ther by the fact that the busi­ness sits on mod­est val­u­a­tions, in­clud­ing a rea­son­able price-to-book ra­tio of just over three times, a sin­gle digit earn­ings mul­ti­ple and a div­i­dend yield of 4.0%. On this last fac­tor, it’s worth not­ing that Eq­uity Bank has paid div­i­dends with­out in­ter­rup­tion over the last five years, hav­ing grown its div­i­dends by 44% per an­num over this pe­riod.

Look­ing at th­ese at­tributes, the busi­ness en­vi­ron­ment, the founders, the bal­ance sheet, the op­por­tu­ni­ties and the cur­rent pric­ing, Eq­uity Bank ticks all of those boxes and is worth con­sid­er­a­tion by in­vestors.

When look­ing to take ad­van­tage of the ex­cit­ing prospects of­fered by sub-Sa­ha­ran Africa, in­vestors should seek well-priced busi­nesses that par­tic­i­pate in the struc­tural shift tak­ing place in the re­gion. This in­cludes busi­ness en­ablers such as trade fi­nanciers, sup­ply chain firms, data and voice car­ri­ers, busi­ness fun­ders and the like. The case for Eq­uity Bank sat­is­fies th­ese cri­te­ria and, in this way, presents it­self as a great in­vest­ment op­por­tu­nity.

James Mwangi, CEO of Eq­uity


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