TIDMAOF
RNS Number : 8964W
Africa Opportunity Fund Limited
12 November 2014
12 November 2014
Africa Opportunity Fund Limited ("AOF" or "the Company")
Interim Management Statement
This interim management statement has been produced by AOF to
provide additional information to shareholders to meet the relevant
requirements of the Financial Conduct Authority's Disclosure and
Transparency Rules. It should not be relied on by any other party
for any other reason.
This interim management statement relates to the period from 1
July 2014 to 30 September 2014 and contains information that covers
this period, and up to the date of this interim management
statement.
Market Conditions: AOF's Ordinary Share (listed on the SFM under
the ticker "AOF LN") NAV decreased 4.2% and AOF's C-Shares (listed
on the SFM under the ticker "AOFC LN") NAV decreased 1.3% during Q3
2014. By comparison, in US dollar terms in Q3 2014 the S&P rose
1.1%, South Africa fell 7.9%, Egypt rose 20.5%, Kenya rose 8.0%,
and Nigeria fell 3.1%.
Ordinary Share Portfolio Highlights: There were three primary
reasons for the Q3 decline in AOF's Ordinary Share NAV: a 7.5%
share price decline of Enterprise Group ("EGL") in US Dollars; the
August placing of African Bank Investments Limited ("African Bank")
into curatorship by the South African Reserve Bank; and the placing
of Triton Logging, a mechanical underwater logging harvesting
company, into receivership.
EGL's share price fall followed the steep decline in its
reported H1 2014 profits, reducing its market capitalization from a
peak of US$131 million in February to US$66 million at the end of
September 2014. More worrisome was an unanticipated 20% fall in
EGL's rolling 12 month operating cash flow as it struggled with
sales of its life and savings products in a tough Ghanaian
macro-economic environment. A natural question in the wake of a 50%
drop in EGL's market capitalization is whether its February market
capitalization was a reliable guide to its long term market value.
Sanlam of South Africa appeared to agree it was, offering 240
million Rand (or circa US$22 million) to acquire 40% of EGL's
general insurance subsidiary, thus valuing that subsidiary at US$55
million. The balance of EGL, including its majority stake in its
larger life subsidiary, has, by default, a current market valuation
of US$11 million on Ghana's stock exchange. By contrast, at
February's US$131 million capitalization, EGL's non-general
insurance stub was capitalized at US$76 million or, roughly, 2x the
embedded value of EGL's life assurance interests - an eminently
reasonable valuation for a life operation with excellent long-term
prospects and a record of strong growth. We think that EGL's long
term value is closer to its peak February valuation, therefore, we
expect the losses suffered by AOF this year to prove to be of a
temporary nature.
Regrettably, the same cannot be said for AOF's equity losses in
African Bank. In hindsight, we overestimated the cumulative net
operating cash flows generated from its loan book and were taken
aback by the large loan provisions that led to its demise in
August. Our fundamental mistake arose from a failure to heed a
simple truth: over long periods, a lender cannot grant credit to
borrowers at a faster rate than the growth of the borrowers'
disposable income without suffering an increase of bad debts.
African Bank's "good assets" will be listed in the first quarter of
2015 after imposing a 10% haircut on its senior unsecured debt
holders, while its "bad assets" were sold to the South African
Reserve Bank at a 60% discount to book value. The African Bank
senior bonds held by AOF are supported by African Bank's "good
assets".
Triton Logging is a development stage company which owns a
concession to harvest 350,000 hectares of trees under the Volta
Lake in Ghana. AOF has been invested in Triton since 2008. In spite
of demonstrating the technical viability of its patented underwater
harvesting equipment in Ghana, local Ghanaian fishermen prevented
Triton from operating for more than a year by brazen assaults on
Triton's employees and equipment. Triton has acquired new
harvesting contracts in South America but found it necessary to
file for receivership to restructure its balance sheet and raise
more capital. AOF wrote down US$660,000 of its Triton investment as
part of that restructuring.
AOF did enjoy some positive gains in the quarter. For example,
Tanzania Breweries ("TBL") experienced a 73% rise in market
capitalization to add 2.1% to AOF's June 30 NAV. The shares rose in
anticipation of foreign buying in TBL following removal of foreign
ownership restrictions on the Dar Es Salaam Stock Exchange.
With regard to the ongoing Shoprite dispute, AOF served Shoprite
with summons in the South African high court in September in its
quest to obtain judicial confirmation of its title to its Shoprite
shares. The case remains ongoing and further announcements will be
made in due course.
C Share Portfolio Highlights: This portfolio has exposure to 22
issuers. Continental Re, its largest holding with a market
capitalization of US$60 million, is one of four listed reinsurers
in Africa. It has earned underwriting profits in 5 out of the last
6 years, trades on a Price/Book ratio of 0.65x, a rolling P/E ratio
of 6x, and a dividend yield of 10.5%. Domiciled in Nigeria, but
expanding across Africa, Continental Re should benefit from rising
reinsurance premiums as insurance penetration deepens in Nigeria
and other African countries. Unfortunately, cash collection is a
weakness of Continental Re, resulting in receivables constituting
45% of net premium income and a modest return on equity of 11%. In
effect, AOF C shareholders get a free option on Continental's
prospects. Building our portfolio has taken more time than
anticipated, but our patience has been rewarded as recent market
turbulence has provided value opportunities.
Ordinary Shares Portfolio Appraisal Value: As of 30 September,
the Manager's appraisal of the economic value of the portfolio was
US$1.20. The market price of US$1.02 at 30 September represents a
15% discount. Note the Appraisal Value is intended to provide a
measure of the Manager's long-term view of the attractiveness of
AOF's portfolio. It is a subjective estimate, and does not tell
when that value will be realized, nor does it guarantee that any
security will reach its Appraisal Value.
C-Shares Portfolio Appraisal Value: As of 30 September, the
Manager's appraisal of the economic value of the portfolio was
US$1.07. The market price of US$1.01 at 30 September represents a
6% discount. Note the Appraisal Value is intended to provide a
measure of the Manager's long-term view of the attractiveness of
AOF's portfolio. It is a subjective estimate, and does not tell
when that value will be realized, nor does it guarantee that any
security will reach its Appraisal Value.
Interim Results: On 29 August 2014, the Company released its
Interim Results for the six months ended 30 June 2014.
Outlook: We believe that AOF's ordinary share portfolio
possesses undervalued companies. Its top 10 holdings (including the
Naspers paired trade) combined offer a weighted average dividend
yield of 4.5%, a rolling P/E ratio of 11.4x, a return on assets of
9.6% and a return on equity of 20%. Nevertheless, we view the short
term future with caution. This year's sell-off in commodity prices,
ranging from rubber to iron-ore to oil, although a boon for oil
importers like Kenya and Tanzania, is a harbinger of adverse terms
of trade for many African countries, stretched government finances,
weakening African currencies, and impaired valuations among African
commodity operators in general. On the positive side, African
consumers and farmers will be unequivocal beneficiaries of cheaper
oil and food. These developments produce not only potential
pitfalls but also numerous potential opportunities, particularly
when viewed from a longer term perspective. The C share portfolio's
cash levels enable it to take full advantage of those
opportunities. We remain optimistic about both AOF's ordinary and
C-share prospects.
C-Shares Conversion: AOF's C shares are to be converted into
ordinary shares of AOF when a minimum of 80% of the C share capital
has been invested and a satisfactory outcome has been achieved in
the Shoprite matter. The Board has determined that AOF should await
further developments in the Shoprite case before proceeding with
this conversion. Therefore, it is unlikely that this conversion
will be consummated in 2014.
Investment Objective: To earn capital growth and income through
value, arbitrage, and special situation investments in the
continent of Africa. Portfolio investments will include equity,
debt, and other interests in both listed and unlisted assets.
Listing: AOF was traded on the AIM market if the LSE until 17
April 2014 at which time it was admitted to trading on the LSE's
Specialist Funds Market.
Dividend Policy: An amount equal to the annual comprehensive
income of the Company (excluding net capital gains/losses),
commencing Q1 2015.
Fund Performance (as of 30 September 2014) - Ordinary Shares
NAV per share: US$1.062 Total Net Assets: US$45.3 mm
Share price as at 30 Sep 14: US$1.015 Market Capitalisation:
US$43.3 mm
Premium/Discount to NAV: -4.43% Shares outstanding:
42.6 mm
USUS$ Jan Feb Mar Apr May Jun Jul Aug Sep FY
NAV Return
% (Incl
Dividends)
------------ ---- ---- ----- ----- ----- ---- ---- ----- ----- ------
2014 2.3% 3.1% -4.0% -3.2% -8.0% 0.8% 0.6% -2.2% -2.6% -12.8%
------------ ---- ---- ----- ----- ----- ---- ---- ----- ----- ------
Top Ten Holdings Description % of
- Ordinary Shares NAV
------------------------- ------------------------------------------------ -------
Dominant Senegalese and regional mobile
Sonatel phone provider 16.6%
------------------------- ------------------------------------------------ -------
Ghana insurance company engaged in property
& casualty insurance, life assurance,
Enterprise Group and ownership of commercial and undeveloped
Ltd property 13.7%
------------------------- ------------------------------------------------ -------
Largest South African food retailer
operating over 1700 stores in 16 countries
Shoprite Holdings across Africa, while serving over 14
Ltd million shoppers annually 9.5%
------------------------- ------------------------------------------------ -------
A leading television and media company
in Southern Africa. It's China subsidiary
Tencent is hedged with a short position
(-6.9% of NAV), to isolate AOF's exposure
Naspers Ltd to Nasper's Africa broadcast media franchise 7.0%
------------------------- ------------------------------------------------ -------
Gold mining company focused in West
Africa, while also holding some South
IAMGOLD Corp 6.75% African and Quebec development & exploration
10/01/20 projects 5.7%
------------------------- ------------------------------------------------ -------
Tanzania Breweries Brewer and distributor of malt beer 5.3%
------------------------- ------------------------------------------------ -------
1(st) priority bond issued by a joint
venture of Eramet of France and Mineral
Deposits of Australia to develop the
Grande Cote Mineral Sands Project in
Senegal with the Tyssedal Titanium smelter
Tizir Ltd 9% 2017 in Norway providing collateral 5.0%
------------------------- ------------------------------------------------ -------
Standard Chartered
Bank Ghana Leading Ghana commercial bank 3.9%
------------------------- ------------------------------------------------ -------
Botswana based consumer finance lender
Letshego focused on government sector employees 3.5%
------------------------- ------------------------------------------------ -------
Specialist mining holding company with
investments primarily in manganese,
platinum group metals, emeralds, and
Pallinghurst Resources ruby producers in Zambia, Mozambique,
Ltd and South Africa 3.4%
------------------------- ------------------------------------------------ -------
TOTAL 73.6%
--------------------------------------------------------------------------- -------
Fund Performance (as of 30 September 2014) - C-Shares
NAV per share: US$0.959 Total Net Assets: US$28.0 mm
Share price as at 30 Sep 14: US$1.005 Market Capitalisation:
US$29.3 mm
Premium/Discount to NAV: 4.75% Shares outstanding: 29.2 mm
USUS$ Jan Feb Mar Apr May Jun Jul Aug Sep FY
NAV Return
% (Incl
Dividends)
------------ ---- ---- ---- ----- ----- ---- ---- ----- ----- -----
2014 N/A N/A N/A -2.6% -0.2% 0.0% 0.0% -0.8% -0.5% -4.1%
------------ ---- ---- ---- ----- ----- ---- ---- ----- ----- -----
Top Ten Holdings Description % of
- Ordinary Shares NAV
--------------------------- ------------------------------------------------ -------
Nigerian reinsurance company which offers
fire, marine & aviation, bond, auto,
Continental Reinsurance engineering, general accident and life
Plc reinsurance services 8.8%
--------------------------- ------------------------------------------------ -------
African Bank Investments South African consumer finance company
Ltd. 5% 2018 in restructuring 5.3%
--------------------------- ------------------------------------------------ -------
1(st) priority bond issued by a joint
venture of Eramet of France and Mineral
Deposits of Australia to develop the
Grande Cote Mineral Sands Project in
Senegal with the Tyssedal Titanium smelter
Tizir Ltd 9% 2017 in Norway providing collateral 5.2%
--------------------------- ------------------------------------------------ -------
Oil and gas exploration and production
Genel Energy Finance company, focused on the Middle East
Ltd 7.5% 2019 & Africa 5.0%
--------------------------- ------------------------------------------------ -------
Botswana based consumer finance lender
Letshego focused on government sector employees 4.3%
--------------------------- ------------------------------------------------ -------
A leading television and media company
in Southern Africa. It's China subsidiary
Tencent is hedged with a short position
(-3.2% of NAV), to isolate AOF's exposure
Naspers Ltd to Nasper's Africa broadcast media franchise 3.1%
--------------------------- ------------------------------------------------ -------
Oil and gas exploration and production
company, focused on West and East Africa
Afren Plc as well as the Kudistan Region in Iraq 2.9%
--------------------------- ------------------------------------------------ -------
Oil and gas exploration and production
company focused on Ghana & Offshore
Kosmos Energy Ltd West Africa 2.7%
--------------------------- ------------------------------------------------ -------
Moroccan phosphate & fertilizer product
OCPSA 6.875% 2044 company 2.5%
--------------------------- ------------------------------------------------ -------
Gold mining company focused in West
Africa, while also holding some South
IAMGOLD Corporation African and Quebec development & exploration
6.75% 10/01/20 projects 2.2%
--------------------------- ------------------------------------------------ -------
TOTAL 42.0%
----------------------------------------------------------------------------- -------
Fund Details
Bloomberg: AOF LN / AOFC LN Portfolio Francis Daniels
Reuters: AOF.L / AOFc.L Managers: Robert Knapp
Website: www.africaopportunityfund.com
Investment
Listing: SFM / London Stock Exchange Manager: Africa Opportunity
Partners Ltd.
Structure: Closed-end Email Address: funds@lcfr.co.uk
ISIN: KYG012921048 / KYG012921121 Broker: LCF Edmond de
Rothschild Securities
Euroclear/Clearstream Tel: +44 20 7845 5960
Fax: +44 20 7845 5961
www.countryfunds.co.uk
Inception: 26 July 2007
Domicile: Cayman Islands Auditor: Ernst & Young
Important Information
This document, and the material contained herein, has been
prepared for the purpose of providing general information about,
and an overview of, Africa Opportunity Fund Limited (the "Company")
and its operations. It is not meant to be a complete review of all
matters concerning the Company. This document is not intended as an
offer or solicitation for the subscription, purchase or sale of
securities in the Company.
The material in this document is not intended to provide, and
should not be relied on for accounting, legal or tax advice or
investment recommendations or decisions. Potential investors are
advised to independently review and/or obtain independent
professional advice and draw their own conclusions regarding the
economic benefit and risks of investment in the Company and legal,
regulatory, credit, tax and accounting aspects in relation to their
particular circumstances.
Whilst the Company and Africa Opportunity Partners Limited have
taken all reasonable care to ensure the information and facts
contained in this document are accurate and up-to-date, they do not
nor do any of their respective directors, officers, partners,
employees, agents or advisers make any undertaking, representation,
warranty or other assurance, express or implied, as to the accuracy
or completeness of the information or opinions contained in this
document. No responsibility or liability is accepted by any of them
for any such information or opinions or for any errors, omissions,
misstatements, negligent or otherwise.
No one can assure future results and achievements. No undue
reliance should be placed on forward-looking statements. The
Company and Africa Opportunity Partners disclaim any obligation to
update or alter any forward-looking statements, whether as a result
of new information, future events, or otherwise.
No warranty is given, in whole or in part, regarding the
performance of the Company. There is no guarantee that investment
objectives of the Company will be achieved. Potential investors
should be aware that past performance may not necessarily be
repeated in the future. The price of shares and the income from
them may fluctuate upwards or downwards and cannot be
guaranteed.
For further information please contact:
Africa Opportunity Fund Limited
Francis Daniels
Tel: +2711 684 1528
This information is provided by RNS
The company news service from the London Stock Exchange
END
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