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Africa Market and Lombard Fund News

December 2017 Report

16 Jan 2018

Dear Investors

Last month, I warned that December volatility in Africa can test even the most experienced investor. These words proved even more prophetic than I had expected when I wrote the report. The volatility was precipitated by crises and surprises. The result was as roller-coaster event for fund profits.

However, as a fund that focuses on value imbedded in African equities to drive investor returns, we continue to drive positions in commodities and the Africa growth story while looking through the short-term trials and market movements.

With the majority of fund managers on leave and most of the African markets trading very thinly we publish a shorted version of our month end report.

South Africa

There were two major talking points that kept us on our toes in December.

Firstly, Steinhoff, the largest furniture manufacture in Africa and the second largest in Europe revealed in a surprise statement mismanagement and accounting fraud that dates back as far as 2015. The CEO has resigned and admitted to being involved in fraudulent transactions involving with the company. As we hold investments in Steinhoff and STAR, the team quickly assessed the little information that we had and decided to exit the Steinholff position. While substantial losses had already occurred, the decision was correct as the price continued to fall and is currently at less than 1/3 of our exit level. We have taken a decision that STAR does not appear to be involved in any of these irregular transactions and the market reaction to this company is unfounded. We maintained our position in STAR in anticipation of more clarity in Steinhoff providing additional investor confidence in STAR. We are watching developments closely and once new information is released by the forensic auditors we will update you.

The second big SA news story was the ANC elective conference in mid-December. The most business friendly candidate won the position of head of the ANC. This position will result in him becoming the new President of SA. We are cautiously optimistic of a turn-around for the SA flagging economy. However, the relief rally in equity prices appearing to be overdone in the short term. We have maintained our short positions, while exiting some on the long positions into the rally. We will monitor this very fluid situation. Again, this fund considers the fundamentals, which in the lead up to the February budget statement appear fully valued. For now, we are cautious to invest in SA domestic plays preferring the earnings diversity of global players that are leveraging off the skill base only found in SA. We have exited three of our long domestic plays banking the profits and will look to re-enter when valuations are more attractive. For now, we do not expect to increase any exposure in SA and will instead focus our attention on other regions showing promise.



The effects of the currency flotation on inflation have started to wear off paving the way for an increase in interest rates. We have maintained our existing positions in Egypt as valuations have increased but are not yet expensive.



  1. with is dominant market share of 72% has been assured by the regulator that they will not force the company to split into separate companies. A split would have offered the competition a boost at the expense of Safaricom. We are confident that this position will continue to show good earnings growth into the new year.

Our decision to remain out of Kenyan banks is again proving correct as Moody’s looks to further downgrade their ratings.

Looking forward to our next communication and an even better 2018.


Derek Seely

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