Analyzing Walmart's Head Start In The African Race - World Market Pulse

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Analyzing Walmart's Head Start In The African Race 0 comments

Sep 28, 2010 10:00 AM | about stocks: WMT, EZA

Ending all speculations of a possible acquisition in Africa, Wal-Mart Stores Inc's has become the first major retail giant to jump in the African market with a $4 billion acquisition for South African wholesaler Massmart. The move comes just a couple of months after World Market Pulse research report highlighted in its research report the beginning of growth period for the African continent

The move by the US retail giant one the hand highlights the company’s futuristic approach by betting on growth in the African continent but also suggest emerging patterns of moving away from the sluggish US markets for better international ventures.

There is no doubt that some African nations offer a tremendous growth opportunity for the investors especially for those looking at emerging economies outside the bric nations. Of course there are people who are skeptical of the kind of growth African nations can achieve but like South Africa showed with the successful completion of the Fifa World Cup Football 2010, the continent is ready to attain its lost glory.

Massmart, South Africa's third-largest listed store group by value owns chains such as Game and Makro and has been among the most aggressive South African outlets in expanding into the rest of sub-Saharan Africa, operating in 14 countries. Walmart offered 148 rand per share for Massmart, valuing it at 28.9 billion rand ($4.1 billion) or a premium of nearly 10 percent over the share price at Thursday's close of 134.75 rand. While it might take some time for the acquisition to make statistical sense most analysts are of the opinion that the retail giant with more than $10 billion in cash on the books at the end of July is well within economic business sense to go ahead on the African safari. Moreover its not the first time that the company has focused more on the international front as Wal-Mart's international sales rose about 11 % last year as the company started focusing on expansion outside the United States with international revenues accounting for about a quarter of the company's overall sales. Highlighting the company's international plans, the company has added more than 60% of its new international retail space in the first quarter of this year alone.

South African Growth Overview:

As much as the South African Reserve Bank lowers interest rates, consumer spending remains unchanging. Rather than being a consumer-driven economy South Africa thrives on a product-based economy. Materials production is at its highest. South Africa’s ports help transport the majority of the world’s oil. Apart from currency ETFs, the South African stock exchange operator JSE Ltd hopes to list a platinum exchange traded fund (ETF) on the bourse this year as it looks to capitalize on increasing investor appetite for commodity-based products. JSE was also looking at launching an Africa ETF in South Africa, which would trade blue chip firms from other big economies on the continent, particularly Egypt, Kenya and Nigeria.

South Africa ETF Options

The iShares MSCI South Africa Index Fund (NYSEArca: EZA) is considered the best play on Africa since South Africa is the biggest economy on the continent. This ETF follows the MSCI South Africa Index, an index that measures the performance of the South African equity market. This ETF’s 47 holdings focus primarily on the industrial materials (32%) and financials (27%) sectors. The fund invests in only large and medium market capitalization firms. While there is some overlap to AFK, this fund does not stray from a South Africa focus. The major holdings include large gold and platinum firms, with several banks and telecom companies thrown into the mix.

    TOP 10 HOLDINGS (59.86% OF TOTAL ASSETS)
    Company    Symbol    % Assets
    Anglo Platinum, Ltd.    N/A    2.85
    AngloGold Ashanti Limited    N/A    5.57
    Firstrand Limited    N/A    3.12
    Gold Fields Ltd. American Depos    GFI    3.96
    Impala Platinum Holdings    N/A    6.58
    Mtn Group Limited    N/A    10.48
    Naspers Cl N    N/A    6.96
    Sanlam Ltd    N/A    2.82
    Sasol, Ltd.    N/A    10.33
    Standard Bank Group Ltd    N/A    7.19

    EZA Sector Breakdown
    Sector     Percentage
    Industrial Materials     32.21%
    Financials     26.41%
    Telecom     10.74%
    Energy     9.57%
    Consumer Services     7.22%
    Media     6.07%
    Consumer Goods     4.53%
    Health Care     2.03%
    Hardware     0.00%
    Software     0.00%
    Business Services     0.00%
    Utilities     0.00%

According to a recent International Monetary Fund, report at least eight African countries were headed toward emerging market status when benchmarked against the founding members of the Association of Southeast Asian Nations, which were among the early emerging markets.

Although there has never been a better time to look at the African markets for the serious long term investor, it is advised that you keep your objectives, constraints and plans in mind at all times while you research, invest in, manage and monitor African stocks. And, consider getting professional advice when making investment decisions.

Disclosure: No Positions
Themes: South Africa, Investing In South Africa, Massmart, Wallmart acquisition South Africa, Wallmart Acquires Massmart, Game, Makro, Wall Mart Africa, Wallmart in Africa Stocks: WMT, EZA

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