African Investor Relations

Checklists provide tangible guidelines how Directors can improve governance. We like checklists. Especially when they relate to IR.

The IoDSA has established the Governance Assessment Instrument (GAI), an automated web-based tool which will serve as both a measure and an enabler of good corporate governance structures and practices. The tool has different modules catering for all business sectors, including listed companies, SMMEs, state-owned entities, medical funds, pension funds, NPOs, etc.

The GAI facilitates implementation and also serves as a rating mechanism of governance and will officially be launched at a cocktail event on Wednesday, 10 March 2010 in Durban.

I have not seen the new corporate governance appraisal platform in its current form. I would like to see how the product deals with the King III Code’s governance requirements relating to communications as the statements within the King III Code are too fuzzy to have any meaningful impact.

If you are not already a member of the IODSA I thoroughly recommend it. It’s value for money. Click here to join.

I am not sure an African version of the GAI has been developed – it’s probably too early for this given the levels of distraction executives are enduring at the moment. I think that it’s going to take a high level corporate collapse or some form of litigation relating to disclosure to sharpen executives’ attentions.

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Christopher Hartland-Peel, Exotix’s senior African Equity analyst, and Ashley Bendell met with numerous investors across 4 U.S. cities last week to present and discuss Exotix’s recent TOP 30 Africa report. Here is an extract of their feedback

“We also addressed MIT’s Sloan School of Management on Wednesday in Boston, and a group of 25 individuals (Public/Private Equity investors, and representatives of the World Bank and consultant community) in tandem with allforafrica.org on Thursday evening. The majority of these (EM, Frontier, and Africa fund managers) maintain African Equity holdings within their portfolios.

The key trends that we picked up (in tandem with other recent client conversations) are;

SUMMARY

• Nigeria remains one of/ if not the most favored African/ Frontier stock-markets
• Investors interested in, but not hung up on Nigerian political situation
• Zimbabwe not as compelling as in 2009
• When will Ghanian and Ugandan oil come on stream, and how will it impact West /  East Africa ?
• Liquidity remains a key constraint to larger funds,  yet appetite has increased over previous 6 – 12 months ago
• Frustration at a lack of IPO’s / Secondary Issuance
• Institutional firms preference for a Frontier trading ‘conduit’
• More Frontier/ Africa funds expected in 2010
• There is no common thread between size and style of Frontier/ Africa fund and their ability to raise capital
• Large student (MBA) interest in African  [Private]  Equity

OVERVIEW

Nigeria remains one of/ if not the most favored African/ Frontier stock-markets

All investors were compelled by the Banking Sector opportunity and expect significant upside in 2010. Most veer towards the well capitalized “good” banks (that  passed the Central Bank’s stress tests) with a slight preference  towards the largest banks by Mkt Cap’, (GTB, UBA, First Bank) versus the most undervalued (<1 P/Bk  - ETI, Access Bank), all of which remain attractive and close to 5 year lows. Banking sector reforms incl. potential consolidation, and the formation of an asset management company, as well as forthcoming FY 2009 results expected towards the end of February 2010 should act as catalysts. Having spoken with the Head of Financial Markets for the leading (London based) IR company in Nigeria this morning, we can expect improved transparency, and detail within these results, whilst continued improvements are necessary and expected throughout 2010 and beyond.

Investors interested in, but not hung up on Nigerian political situation

Many conversations revolved around the Nigerian banks (given their size, liquidity and valuations) which led on to questions about the political situation.  Even before this week’s lower House (of the Assembly) support of VP Goodluck Jonathan [as Acting President in President Yaradua's continued absence for health reasons in Saudi Arabia] investors were generally passive with regards to any political instability, or civil unrest, to which we agree. Whilst not fully constitutional, there does appear to be a return to stabilty within the country’s leadership as supported by Nigeria’s 36 Governors.  In addition, some questioned the Central Bank’s ability to move banking reforms forward since Yar’adua drove Governor Sanusi’s appointment. As you’ll see from today’s news – http://af.reuters.com/article/nigeriaNews/idAFLDERAFS12320100211?sp=true
- reforms appear fluid, well supported, and forward thinking.

Whilst the Kenyan coalition Government was rarely discussed, one client was particularly nervous about potential violence leading up to and during the next election [2011], and the current coalition government’s ability and willingness to act progressively.

Zimbabwe not as compelling as in 2009

The minority of fund managers that maintain an appetite for this end of the risk spectrum appear to have already invested throughout 2008 & 2009. Others appear to view more compelling opportunities elsewhere (see above). Ofcourse recent news, suggesting that President Mugabe will  transfer foreign ownership [to locals], will clearly act as a deterrent for the moment.

When will Ghanian and Ugandan oil come on stream, and how will it impact West /  East Africa ?

An important theme expected to drive double digit GDP growth from 2011 in Ghana and Uganda (and indirectly across the East African community incl. Kenya) are the recent Tullow [TLW LN] oil finds. A common question remains unanswered for the moment;- Will the Governments effectively manage these inflows and their distribution to the real economy.  We expect this to be well managed given the relative political stability, and timeframe to set effective protocol.

Liquidity remains a key constraint to larger funds,  yet appetite has increased over previous 6 – 12 months ago

Nigeria, Kenya and Mauritius are the most attractive markets for many institional funds given their liquidity and inclusion with MSCI’s Frontier Mkt Index – MXFM . The majority of stocks within our TOP 30 report (that trade > USD 500k  per day are listed within these markets) and will remain the go to names for institutional funds and those with an emphasis on liquidity. However, on this trip, versus
last July’s, it was apparent that a greater number of investors were now happy to move down the liquidity scale for a “compelling’ opportunity.  The second tier of [liquid] markets include Botswana, Zambia, Zimbabwe, the BRVM, and Ghana, and remain attractive to the smaller Frontier hedge fund community.

Frustration at a lack of IPO’s / Secondary Issuance

The Equity IPO pipeline has provided scant opportunity since Safaricom’s 2008 summer IPO, whilst we have seen a steady flow of (Sovereign, State, and [less so] Corporate) debt issuance across many markets within the last 12 months. Whilst this has undoubtedly been a factor contributing to the stockmarket [under] performance amongst these [less liquid] markets we foresee increased corporate Equity/ Rights issuance going forward, and the proposed medium term privatization of some of Kenya’s assets.

Some investors understandably remain frustrated at the lack of new liquid, sizable (by Mkt Cap) public investment opportunities.  Whilst a common African stock exchange is a LONG way off we may see potential [cross] listings in South Africa, or London in tandem with a GDR/ ADR program which would increase international appetite, diversify the ownership structure and provide additional impetus for primary listings. With all this said, expect these markets to develop slowly over the short-term.

A positive note is that the relatively small African Private Equity community (lead by large, and well established firms like, Actis, Helios, Kingdom Zephyr and ECP) is thriving and attracting a growing number of talented graduates pushing for roles across African Private Equity. They will help to develop opportunities that should ultimately benefit the public investor in the not to distant future.

Institutional firms preferance for a Frontier trading ‘conduit’

Institutional fund managers on the whole prefer to trade through international firms offering ‘one stop’ access to these markets, such as Exotix. Without dedicated Frontier / African trading coverage the international investment banking/ brokerage community is likely to see the lions share of volumes from the frontier/ EM community due to – , common delays in communication, unfamiliarity with trading protocol, often required hand holding, and settlement delays. With that said, anecdotal evidence suggests that the African stock markets are operationally more straightforward than their Frontier counterparts. This ties in with some managers [relative] frustration at the administrative requirements of setting up [custody] in new African markets. With all this said, day to day execution is well managed in tandem the right trading partners, and focus.

More Frontier/ Africa funds expected in 2010

These are split fairly evenly across the larger institutions, and new hedge fund launches (which are being set up by distinguished (ex instituional) Emerging markets investors). Expect 3-4 more in H1 2010 across the USA, and similar growth across Europe.

There is no common thread between size and style of Frontier/ Africa fund and their ability to raise capital

Frontier funds are in marketing mode,  and are beginning to see investors bite, having awaited a [slow] return of risk appetite. The larger institutional/ hedge funds clearly have a significant [in house] marketing presence, whilst the smaller funds (< USD 50m AUM, which have been performing well versus the MSCI Frontier Index, whilst underperforming the MSCI EM index) are competing within an increasingly congested space (relatively speaking of course) . Are there enough Frontier $’s swishing around ?  I think there will be, as we are seeing a trend of interest develop across the ‘Frontier’ in general, but how quickly is difficult to predict.

Large student (MBA) interest in African Private Equity

As I mentioned in my end of year email (having presented at Wharton, Harvard, Columbia and NYU Stern in 2009), I continue to be inundated by highly capable (often MBA) students looking for opportunities across Private and Public Equity. Whilst corporate opportunities, and the [African] recruiters representing them, offer a great variety of opportunities across the continent, the world of investment doesn’t for the moment given the limited number of established PE (and Public Equity) firms focusing purely on the continent (less than 25 African Private Equity firms).  These PE firms are hiring, so expect the established firms to grow in size quicker than the number of PE firms.

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On Monday 22 February 2010 we release our African Online Investor Relations Newsletter. This has been a long time coming. We hope you like it.

Investor relations is a highly specialised field requiring experience in a number of fields: marketing, finance, communications, law etc.. The practice of investor relations in Africa is relatively new and limited to the big market capitalisation companies that have the resources to employ experienced people. We believe that there is middle ground between high-end investor relations activities and doing nothing. The internet is the forum for this compromise and this is what we, African Is Cool are about.

Much is made of good corporate governance principles in Africa. Seminar after seminar is held to discuss these fuzzy-wuzzy-feel-good-principles. Lots of talking is done. Very little happens thereafter because I believe Directors don’t know what to do, practically speaking.The main objective of our newsletter is to increase awareness of investor relations practices in Africa and to suggest practical means of improving the very undeveloped state of online communications.

I believe that governance codes need practical checklists for Directors. Each and every principle of good governance needs a “in order to achieve thus, “do this”, “do that” etc. Our experience in online investor relations has been “bottom up”. These “do this” “do thats” started off just as tasks to make information available online and to respond to feedback from our clients’ investment communities. Over time our processes have grown into sustainable communications strategies for our clients. Our IR initiatives have expanded beyond investor relations, into stakeholder relations and the bigger feel good things about corporate governance.

We are now able to reconcile every aspect of what we do online, to good governance codes and principles. We hope to provide some very specific checklists on how to implement good governance principles in future. Our newsletter is a start.

Our newsletter targets regulators, listed companies and investors and has mostly original content. We rarely use other material unless we feel that its technical and practical e.g. SEC guidelines on communication.

If you are active in African capital markets and have your own article or views to submit, or events that will broaden our cause, I am more than happy to publicise it on my blog so long as it’s pertinent to our goals.

Please submit your comments and suggestions on our newsletter after its released here or sign up here.

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Searching for annual reports on Africanfinancials.com has just got easier. A simple Google search bar now enables investors to search our portal directly and immediately.

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We have started covering all Zimbabwe corporate actions through our Twitter account. It’s our best attempt so no guarantees that we will pick everything up but we will do our best.

Twitter is what happens between emails and we like it because it has the potential to keep investors informed on developments in African markets.

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We do not know much about the African retail, or indeed institutional shareholder. Not many studies have been carried out in Africa. They should be.

In the USA studies into retail investors have shown high degrees of investor ignorance of even the most basic issues related to equity ownership. A common report in more than half of respondents to these studies is that the annual reports and other documents are “too complicated” to understand. No doubt the same issues apply to African investors, possibly on a greater scale.

I thought I would post access to the Plain English Handbook online. It’s a handbook prepared by the SEC’s Nancy M Smith, the Director, Office of Investor Education and Assistance, with many individuals and organizations at the SEC and in the private sector.

The handbook shows how you can use well-established techniques for writing in plain English to create clearer and more informative documents. Of course, when drafting a document for filing with regulators it needs to meet all legal requirements.

Download it here

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During our presentations we have chatted to numerous executives about that ensuring company’s stakeholders have a good working knowledge of why investors should invest in your company and the risks driving this message at all times.

One executive dismissed this as a clearly bad practice due to the possibility that this information could be beneficial to a competitor. This showed us that the executive, like most of people responsible for IR or indeed implementing IR policies, have little appreciation about what information they are supposed to be providing to the shareholders and prospective investors. This is the standard corporate presentation given in most situations in board rooms or analyst presentations:

“We have the best circuit boards in the world. Customers love our circuit boards; here are a few of their logos. We have a new secret recipe for circuit boards that we are very excited about. The circuit board industry is an $8 gazillion industry per annum. If you look at this map, I have placed red dots everywhere we have a manufacturing plant. Standing next to me are the geniuses I have hired that know a lot about circuit boards. I will now pass around some of our circuit boards for you to touch and feel. Please feel free to ask any questions that you may have.”

The presenters have little appreciation that everyone in the audience has their minds going 1,000 miles per hour through out the entire presentation trying to determine why they should invest by stacking the bits and pieces of information in their respective templates. It is a little like playing bingo with five cards, each card representing a different investment thesis, and every piece of information covers a spot on one or more cards until finally, BINGO! The faces on the audience members during these presentations can be fascinating. It’s like listening to a very long riddle where the person telling it doesn’t actually know the answer. An example of what they should have said:

“It is our goal to be an excellent candidate for the “Growth at a Reasonable Price” portfolio. This chart shows the steady positive industry growth being driven primarily by the following factors… Our current market share is approximately (x) which has grown steadily from approximately (x) three years ago, which has been driven primarily by the following factors… Based on peer analysis tools, here are the average ratios and growth rates of similar shares to our company as compared to our current ratios and growth rates.”

There is nothing in the second presentation that is of any value to a real competitor – this is all general knowledge to them. If anything, it’s the standard presentation that offers the potential for competitive insight. Okay, so what does this have to do with IR best practices?

• Push the information in the second presentation to the public in every possible format possible and by every means possible.
• Do everything possible to get the business cards (through online form or in person) of everyone who reads, listens, watches or consumes the information in any way.
• Update the information as necessary (but very promptly) to adjust for changes and to incorporate answers to frequently asked questions.

Submitted by a puzzled investment thesis bingo player.

“Competitive information rests in the companies’ products and services; investors don’t buy the company’s product or service, they buy into its investment thesis.”

Thanks to Troy Ussery of B2i Technologies for this article

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Stock exchanges in most countries are in a unique position: they are monopolies in the supply of trading data. They add value to that data, package it and distribute it real time and in other forms etc. for a fee. Fair enough. But what about the basic information that an exchange should make publicly available, daily, for free, in an easily accessible format? Try accessing a market capitalization report (shares in issue X share price) on any particular day in any of the African markets. The information does not exist other than through a broker. Even then with brokers there’s no assurance that the information will be given to you.

My question. If there were to be minimum data on a particular day made available freely by stock exchanges would it be the following:-

• Status of listed companies – suspended etc.
• Share price
• Corporate actions
• Indices
• Shares in issue
• Volume traded
• Corporate announcements

I am talking here of the most simplistic availability of core data. I realise that if this data is to be processed and value added there is scope for the exchange to be compensated for this.

Many African stock exchanges need to formalize their information dissemination practices and it would be useful to have a good practice template through which the IR fraternity can judge them.

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I though I would share a few insights into upgrading your existing corporate website, or its management or transferring your domain name to your name directly, instead of having it owned by your agents.

Firstly, your domain name is a strategic asset. Your local website company should not own your domain name on your behalf. You should transfer it into your company name and direct beneficial ownership and control and manage all of the passwords related thereto. Put the passwords into an envelope and then into a safe. Tell more than one person that those details are there.

Secondly, take out a 10 year term before you have to renew the ICANN fees. It’s amazing how quickly domain name renewals come up and you could lose the domain name if it is not renewed prior to expiry.

Thirdly, know that once you have told your existing website manager that they will no longer manage your account, you could be charged with excessive sums of money which need to be settled BEFORE the transfer of the domain name. Dig your heals in and the scene is set for a long hand-over. So ensure that steps 1 and 2 above are carried out before you give them the bad news.

Lastly, even if your current website manager continues to manage your website, be sure that if it goes down for some reason, the contact details of their support personnel are on hand. If you have not spoken nor heard of your website managers for ages, then get hold of their details. Taking your website more seriously does have greater risks when its unavailable.

Here is a “what can go wrong” list:-

• No-one in your organisation knows whose responsible for the website (this is in fact the norm in most companies)
• Your website company hears you are about to fire them then bills you excessive charges retroactively.
• The one-man website company you were dealing with has moved to Australia – your new site is good to go but you can’t bring down the old website.
• If you do not pay your website hosting fees your website host could post “this company has not paid their fees and should contact me soonest” on it,  as was the case in Nigeria for a leading bank

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Nicky, a highly opinionated long-time friend has matured past 40. Far from being her judgemental self as we knew her 10 – 15 years ago, she has mellowed. She knows there’s not much she can do to change the World. Her philosophy now: “It’s not right or wrong it’s just different” she says. This philosophy comes to mind in describing our objectives for the AIC 2010 Online Investor Conference. So what is an online investor conference? Basically it’s the following:-

• A group telephone call where callers listen to a presentation delivered by the CEO. The presentation appears online during this process typically in Powerpoint or similar software. Whilst this is happening anyone on the company’s corporate website can listen to the same conversation.
• Then after the presentation, the floor is opened up to questions from the callers which are answered live by the CEO. Receipt of questions by email is also possible during this time.
• Then the call ends and the audio file of the presentation and the transcript of everything that was said appears online for consumption by the general investment community. Email communications may still be ongoing after the live call.
• Repeat as above for all companies participating to provide a concentrated period within which investors get to hear and understand the investment messages of numerous companies.

Let’s have a closer look at the differences between an online conference and the traditional one-on-one conference:-

Both the physical and online conferences enable concentrated communications to a targeted audience. Both offer time and money saving opportunities. It’s only the large market capitalisation companies that can afford global road shows.

Will our 2010 Online Investor Conference be well supported listed companies? Probably not. Why? CEOs and management teams are unaware of the value of technology and generally ignorant of the hardcore benefits of communicating online with their investment communities. Will it be well supported by investors? Yes, absolutely. It’s something refreshing, new and meaningful.

Will our conference be a success? Yes, absolutely. We have seen the value of online communications in everything we have done over the past 5 years. The demand for robust African information straight from the horse’s mouth is high. Those companies that do dip into this new concept are expected to see value well beyond simple one way communication. In fact, we expect our online conference to be a defining time for companies in setting an IR strategy for the remainder of their year. A kind of “let’s get our message sorted for the year as well as all ensure investment data and interactivity availability”. Then they can concentrate on running their business knowing that the conference event has enabled direct introduction to new and existing investors. The decision however rests with the CEO and his team. And that rests on their knowledge of the benefits of online IR within good corporate governance practice. And that message rests with us.

Who should participate in the online conference? Any company with a robust investment message.

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I like this blog entry because there are simple clear parameters that can be used by a company in defining its investment message. It’s sourced from the company blog for Q4 Web Systems a leading provider of on-demand software for corporate and investor websites. The text below is a direct extract from Q4 Web Systems Blog, an excellent resource for IR best practices

“Today’s challenging economic environment has made building investor confidence a top priority for companies. The IR website still remains a leading source for the investment community to verify and gather company information. There are several things to consider for your IR website.”

First, it is essential that you consider your key audiences and provide entry points for potential, current and long-term investors.

Second, if you want me to have confidence in your company as an investor, I need a company snapshot in order to understand your industry and your position within that industry.

Third, the market opportunity (supported by reliable statistical information), must also be conveyed.

Fourth, I need to know that your company has defined its objectives for growth and that you have a clear strategy to execute on these objectives. I need to know that you evaluate this strategy on an ongoing basis to keep pace with market conditions.

Fifth, I need to know that your people are connected to your strategy and that they were chosen for specific knowledge and skills that make them ideally suited to execute the corporate strategy.

Sixth, add to this a robust “Why Invest” section that shows stable growth as indicated in your financials and when results are lower than expected, I need a sound explanation and to see that there’s a clear strategy to address this moving forward.

Finally, using technology that is suited to your business needs as well as integrating additional tools such as social networks will increase your audience reach, empower people to engage with your company and give them a better understanding of your investment proposition.”

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We have just completed some pretty comprehensive online IR research into 10 of Africa’s stock markets comprising 427 primary listed companies. The markets analysed below are Ghana, Mauritius, Malawi, Nigeria, Namibia, Kenya, Uganda, Tanzania, Zambia and Zimbabwe. The chart below shows the number of listed companies within the following US$ market capitalisation ranges (determined at the beginning of 2010) US$2bn means US$2bn and above, US$1bn means US$1 – 2bn, US$900m means US$900m – US$1 bn and so on. The figures in the Y axis are the number of listed companies appearing within the market capitalisation range on the X axis. The same X axis description applies to all the charts below:-

Almost 60% of sub-Saharan listed companies (over 250 companies) are less than US$50m in market capitalisation: our narrow definition of ”small cap”.  These 250 companies comprise less than 6% of the market capitalisation of the companies under review as illustrated in the following chart. Here the Y axis is the percent aggregate market capitalisation of the companies within the market capitalisation ranges for the 427 companies under review:-

Whilst small caps account for almost 60% of the number of listed companies they account for less than 6% of the aggregate market capitalisation.

So what’s the split of companies with an online presence to those without an online presence for the ranges of companies above? We define online presence as the existence of a domestic focused website or url. Why domestic? In a high number of instances listed subsidiaries of listed holding companies (Barclays, Standard Chartered, BAT are a few examples of these holding companies) just do not have any meaningful online presence for their subsidiaries - they are treated as the poor relatives with a remote section on the holding company website. Illovo is an example where there is no section devoted to its listed subsidiaries. SAB is an example of a mediocre effort in subsidiary IR through its holding company website. Our statistics therefore ignore those “websites” that are effectively just minor sections of the listed holding company website. The table below illustrates the existence of websites for the 427 companies in the respective market capitalisation ranges below where the Y axis represents the % of companies in the market cap. range with websites:-

77% of the 427 companies analysed had websites.  Not bad. As expected those smaller market caps have a lower incidence of a presence online. So it’s a nice table. But it’s meaningless. That’s because whilst there may be a website, the quality of the information posted on thereon is generally poor. The only meaningful activity for these websites is the distribution of the annual report and possibly contact us information. Here’s the prevalence of annual report dissemination on the companies in our 427 sample with websites:-

On average less than 30% of listed companies in our sample, by number, displayed their annual reports online. This percentage for small caps (as defined) is 17%. An unexpectedly low figure if you ask me. Our portal Africanfinancials.com bears testimony to the overall statistics.

Lets now look at a simple interactivity measure: a contact us form or email address? The majority of companies in our study had a sure fire way to ensure that as few people as possible contacted them and if they did it was to as an impersonal address as possible “info”@company.com or generalenquiries@company.com. Do we have the table for this? Yes….

Lets explain the tables above in a few short bullet points:-

• Websites and management thereof are a pain on an ongoing basis. Most organisations do not have a single accountable person with the broad range of skills needed to keep a website up to date with comprehensive data. Websites should therefore be managed by committee. But the website is not seen as a strategic asset so no chance that time can be devoted to this.
• Directors and managements are generally unaware of the availability of technology or the benefits on online communication. Call this ignorance. Its not bad, it’s just a fact. Directors and managements are generally of greying hairlines, they have not participated in the growth of the Internet in the past 5 years.
• IT skills in the markets under review have yet to mature. Technology is changing so fast that when your head is buried the chaos of everyday existence its difficult to exchange technologies or indeed concentrate on long-term strategy for your clients. An opportunity is being missed by website management companies – they should migrate to the SaaS model and add value to their clients rather than selling passive websites.

Small caps in Africa generally do not give any attention to their retail shareholders, preferring rather to think like venture capital investee companies looking for the day when they are swallowed up by an expanding company wanting to build empires.  Having an online investment presence in this case is just as important as a scenario where directors care about minority / retail shareholders. Investors of any type need the same information. Providing the opportunity for strategic investors, or any investors, to find you on the radar.So it’s about visibility.

My view of these statistics is that the state of online IR in Africa is nascent. For those that can take a little bit of time out to pay attention to the basics and go a little further on the interactivity side (here the technologies are already available for FREE) I see returns greater than the costs. Our feedback shows this. What is going to the catalyst to change these statistics positively? We have an idea though. Yes, Africa dances to the beat of its own drum but we hope to get the drum to beat quicker in celebration of the practice called investor relations.

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