Hard times in key African markets hit Nampak shares

NAMPAK shares have halved in value since their peak a year ago, highlighting market concerns about slowing economic growth in most African countries from which the packaging group derives income.

Trading profit from the rest of Africa makes up 38% of the overall group trading profit. The balance largely comes from the South African market, where growth prospects are set to remain dim in the foreseeable future.

The R15-billion company, which makes metal cans, glass bottles and a range of cardboard boxes and bags for products such as pharmaceuticals and food, is closely geared to economic performance. It is partly this that has dragged the share price down to R22.40 from R48.85 in November last year.

“Nampak has been sold off in recent times mainly because of the concerns surrounding Africa as a whole, and in particular the oil-dependent nations of Nigeria and Angola in which the company operates,” said Chantal Marx, an analyst at FNB Securities.

The slump in oil prices has weakened the currencies of the two countries, which rely heavily on oil to generate foreign exchange revenues.

Dianna Games, executive director at Africa@Work, said African oil producers were having a tough time with oil priced at less than $50 a barrel. Growth projections had been significantly affected.

“There have been other macroeconomic issues thrown up such as weakening currencies and rising inflation. This has a knock-on effect on consumer spending, which is likely to affect consumer companies looking for good growth in Africa’s petro states,” Games said.

Nampak is feeling the pinch via foreign exchange losses which are estimated at R141million in the 2015 financial year.

Other South African companies, among them Shoprite, suffered a similar fate when the weaker Nigerian naira and Angolan kwanza were translated into the rand.

The strategy on the continent is focused on metals and glass, the dominant packaging mate- rials for beverages. Nampak said it believed the two materials had the potential to produce desirable returns in the medium to long term.

Overall headline profit for 2015 is expected to be slightly down but management said it expected a better operational performance in 2016.

This is partly based on the resolution of capacity constraints in the glass division. It also anticipates benefits from restructuring and investment initiatives to start to flow through to the bottom line.

The first aluminium beverage can line, in Rosslyn, Gauteng, and a second line, in Angola, were set up last year, among other initiatives.

“Investing in Africa is a longterm play, firstly, and secondly there is still limited competition in the packaging sector in countries such as Angola and Nigeria and they continue to benefit from rising incomes in some consumer categories and strong population growth,” Games said.

But 2015 has so far proven a difficult year for shareholders, with the share price dropping 50%. The closest competitor, Mpact, has gained 26% in the same period.

Nampak will release its annual results for the year to September on Thursday.

There is still limited competition in the packaging sector [in Africa]