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Africa Market and Lombard Fund News

Monthly Report- May 2018

09 Jul 2018

Dear Investors

It was a tough month for African markets, which opened the way for our fund to increase exposure to this growing continent.

South Africa

S&P affirmed South Africa’s sub-investment grade credit rating and kept its stable outlook. S&P rates the country’s foreign currency debt ‘BB’ and its local currency debt ‘BB+’. The stable outlook is based on the agency’s view that South Africa’s economic growth would move up over the next year following economic and social reforms undertaken by the new administration. Sentiment has turned positive on South Africa since President Cyril Ramaphosa has pledged to undertaken necessary fiscal and economic reforms. Inflation remains in the target range.

The fund has reduced positions in Sasol, as information began to surface that major global oil producers were in favour of increase supply. While we consider Sasol to be an excellent company, we will look to grow this position on weakness. Further, the position in Old Mutual was sold as the sum of the parts valuation was only marginally higher than the current share price. Most of the benefits of the unbundling appear to be priced in by the market. Finally, after a sustained slide in British American Tobacco, the fund took a position in the counter that now has a 40% discount to its imbedded value.


As suggested in last month’s communication, the fund has taken two positions in Kenyan banks. These positions were taken on the back of expectations that Kenya’s budget deficit will fall to 5.7% of GDP. In addition, central bank governor Patrick Njoroge reported that the economy has expanded by 5.8% in the first quarter of this year while the inflation rate remined in the middle of the official target range.


With the government of Nigeria driving treasury yields down to 12% from the previous level of 18%, Nigerian stocks took a tumble as investors digested this uncertainty. Blackrock, the giant US investor group, said that this sell off represents an excellent opportunity. The fund has taken its first Nigerian banking position in Zenith bank, with a view to grow the position, should weakness continue.


In addition to the position changes already mentioned, the fund took a position on Vodacom Tanzania and MM Group for Industry and international trade in Egypt, as we seek to invest in strong, stable, cash positive generative companies.


Looking forward to our next communication


Constant Capital

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