Oxstones Investment Club™Ke Nako – “It’s Time”
Thinking back to World Cup fever that swept the globe several years ago, I found the official slogan, Ke Nako, as intriguing as the footballers’ skills. Simply meaning, It’s Time, one would be remiss in neglecting this message when considering investment opportunities in African markets. While the mainstream financial press continues to focus on the growth opportunities of the BRIC nations, a growing faction of intrepid investors has set its sights on the emerging African continent.
So how does one navigate a group of economies that boasts a greater household spending total greater than that of India or Russia? The majority of research covering the African markets that you will find online has taken a more holistic approach to the continent. A great reference, which I will refer to in forthcoming pieces, is McKinsey & Company’s Lions on the Move: The Progress and Potential of African Economies.
In what I aim to be an ongoing column, I would like to offer a closer look at some of the companies that will not only change the landscape of the African continent, but also the makeup of global portfolios. So let’s get started!
Today I’d like to take a look at Sasol Limited (symbol: SSL, $44.47, 5/7/13), an ADR that trades on the NYSE. Sasol is an integrated energy and chemicals company. The Company mines coal in South Africa and produce natural gas and condensate in Mozambique, oil in Gabon and shale gas in Canada. In South Africa, it refines imported crude oil and retail liquid fuels through its network of 406 Sasol and Exel service stations, which include five Sasol branded integrated energy centers, and supply gas to industrial customers. It has chemical manufacturing and marketing operations in South Africa, Europe, the Middle East, Asia and the Americas.
A large cap stock with a current market capitalization of $28.7B, Sasol recently celebrated its 10 years anniversary on the NYSE. However, current institutional ownership is running around 3% suggesting this global player is still flying under the radar on many screens.
Despite global economic uncertainty and labor unrest in South Africa, Sasol has jumped +11% since its YTD low of $39.94 in April 2013. Currently trading at a P/E ratio of 10.08x, SSL is relatively cheap compared to its integrated oil & gas peers. Furthermore, SSL offers a nice added benefit with an attractive 4.4% dividend yield.
SSL recently closed a $1B bond issuance with a tenure of 10 years and a fixed coupon of 4.5%. The issuance was oversubscribed by 3.47x, suggesting investor confidence in the future of this company – Current D/E is 0.17, consistent with the industry average.
Softening global economic conditions, weaker chemical prices, and regional labor concerns will add pressure to short term growth prospects. However, SSL’s strong balance sheet coupled with attractive capital investment projects makes this company one to keep on your watch list.
Bonus: Interested in gaining exposure to SSL, take a look at these ETFs holding SSL. EGShares Beyond BRICs (symbol: BBRC, $22.78). SSL makes up 3.8% of the fund. Additionally, iShares MSCI South Africa Index Fund (symbol: EZA, $64.69) holds a position in SSL.
Tags: Africa, frontier market equities, frontier markets, frontier stocks, oxstones investment club, Sasol, south african energy company, south african stocks, SSL