The African Continent, One Year Review

June 28, 2020    Portfolio Idea Africa Magic Formula

This month, I’m reviewing my Africa portfolio and preparing a new one.

The results

Symbol Name Percentage
EQX Equatorial Resources Ltd 125.78%
MLBAT Batla Minerals SA 2%
TBG Tiso Blackstar Group SE -31.58%
AEE African Equity Empowerment Investments Ltd -48.42%
BUI Barbara Bui SA -27.52%
CMB Cambria Africa plc -63.24%
ERBOS Erbosan Erciyas Boru Sanayii ve Ticaret A.S. 42.9%
IEC Intra Energy Corporation Ltd -66.67%
LON Lonmin Plc (acquired by Sibanye-Stillwater) 137.35%
SVB SilverBridge Holdings Ltd 18.18%
  Total 8.88%

Overall, the portfolio did quite ok. Nothing spectacular, but I could live with this every year.

As predicted, the portfolio results are all over the place. Two companies did extremely well, others did spectacularly bad.

Lonmin was acquired for a very good price (1 LON = 1 SSB), which is why they did so well.

ADR (American Depository Receipt)

Last year’s portfolio was a nice selection of African companies, but it was a pure simulation and did not take into account that you may actually want to buy the stock. Most of the stock is on the Johannesburg stock exchange, which is not exactly easy to access for most people.

This year, I wanted to fix that issue. After some deliberation, the best solution seems to be to look into African stock that has an ADR or similar DR that is traded on an easier accessible stock exchange.

J.P. Morgan has an extensive list that I used as my basis. I did some pruning on that list to only keep the ADRs that have a reasonable trading volume. I also only kept companies for which I could easily find some of their financial numbers.

Changing parameters

Last year, I used Joel Greenblatt’s magic formula to select the top 10.

This year, I’m going to replace the second parameter with something slightly different:

  • Earnings Yield: The earnings per share (also known as EPS) compared to the share’s price. We are looking for companies that make a lot of money, but can be bought cheaply.
  • Return on capital: we want firms that can use capital to their advantage. They can take a little bit of capital and turn it into a lot of revenue. This year, I’m going to use the CashFlow vs Capital Expenditure ratio, or how easy is it for the company to pay for their investments and how much leeway does it have to jump onto opportunities as they arise.

This Month’s Portfolio

With that in mind, here are the criteria for this month’s selection:

  • African companies with a DR in the US or Europe.
  • Take the 20 highest CashFlow vs CapEx ratio.
  • From those, select the 10 with highest EPS.
Symbol Name Current price
MDC M.D.C. Holdings, Inc. 32.73
IVTJF Investec Plc 2.03
SGBLY Standard Bank Group Ltd. 5.92
TBLMY Tiger Brands Ltd. 11.05
EXXAY Exxaro Resources Ltd. 7.45
BDVSY The Bidvest Group Ltd. 16.57
KIROY Kumba Iron Ore Ltd. 9.08
MRPLY Mr. Price Group Ltd. 8.55
ANGPY Anglo American Platinum Ltd. 11.72
MONDY Mondi Plc 36.6

This month, I started to automate some of my portfolio management using IEX Cloud. This is an affiliate link, so I will make a little bit of money if you sign up using that link. IEX Cloud is an easy to use API that can be quickly integrated into, for instance, Google Sheets. You can use the “IMPORTDATA” formula with any of their datapoints very very easily.

My philosophy: If you want to invest and your goal is to try to beat the market, you need a system. You need a system that can decide for you what to buy, when to sell and not to panic when things go down. Everything starts with selecting stock. You should not just select random stock here and there based on whims or things you read. No, create a system that suites your style and follow it. These posts give you example of what such a stock selection could look like.

Disclaimer: Don't believe anything I say or write. Always do your own research before making any investment decisions.