Diversified Industrial Companies in Africa: 1 leading and three others lagging

Dear Africa Interested Individuals: 

                                                        In the current world market of low commodity prices and strong dollar which negatively impacts the natural resource rich continent of Africa, diversification of business interests may just be the best route to survival.  Is it or is it not?  

I selected a diversified industrial company in the major economy of Southern, East and West Africa (South Africa, Kenya and Nigeria) and Mauritius for having the best bank performance weighting relative to size of the economy in my recent article.  The companies reviewed are:

1. Gamma Civic for Mauritius

2. Beige Holdings for South Africa

3. Centum Investments for Kenya

4. UAC for Nigeria.  

1. Gamma Civic is into building materials, construction, investments, property (residential and resorts,) and lottery gaming.  The company's fiscal year end is December.  

The company made an operating loss as at June 2015.  H1 pre-tax income margin was -7.3%.  There was an improvement in revenue generation from Q1 - Q2 2015.  Free cash flow margin was 0.2% for FY 2014.  Cash at the bank relative to current liabilities was 39%.  Net income margin (2-yr average) was 3.27% (company made a loss in FY 2014).  Revenue declined by 53.5% from H1 2014 to H1 2015.  Profit attributable to shareholders declined by 574% from H1 2014 to H1 2015.  This diversified company is clearly going through a difficult period.  The diversification appears to be a burden presently rather than an asset.  

2. Beige Holdings engages in contract manufacturing, distribution of cosmetics, soaps, household products, toiletries, laundry soaps and body care products.  The company also manufactures herbal, homeopathic and pharmaceutical products in addition to providing injection and blow molding packaging technologies for producing bottle and jar packaging products.  The company's fiscal year end is June.   

The company achieved a 2% revenue rise from Dec. 2013 - 2014.  The company made an operating & net income loss as at December 2014.  The company also achieved negative operating cash flow.  H1 December 2014 pre-tax income margin was -15.4%.  As at June 2014 year end, cash at the bank covered 5.2% of current liabilities.  Net income margin (2-yr average) was -1.53%.  The company has made two consecutive fiscal year end losses.  Two board members resigned on June 30th, 2015 which marked the end of its fiscal year for 2015.  This is another diversified company going through a difficult period.  

3. Centum Investments is an investment channel providing investors with access to a portfolio of inaccessible, quality, diversified investments.  The company operates across the following business lines: Real Estate & Infrastructure, Financial Services, FMCG, Power, Education, ICT, Agribusiness and Health.  The company's fiscal year end is March.  

Net income rose 160% from March 2014 - 2015.  Management said the company can do even better as there are a strong pipeline of opportunities not yet contributing to the bottom-line.  The company will continue to maintain businesses in disparate business areas.  The company also achieved a 142% rise in income over the same period.  Net income from September 2013 to September 2015 rose 38%.  Net income for fiscal year ended March 2015 came in at $81.4m.  The company is affiliated to the Industrial & Commercial Development Corporation of Kenya.  This is one diversified industrial company in Africa that is doing well from a financial performance and portfolio investment perspective.  

4. UAC Group is a diversified industrial with operations in foods, paints, logistics and real estate.  The core business of the company is Foods which has been struggling in recent years as revenue and profit (the latter more so) declined.  The struggle continues despite selling a 49% stake in UAC Foods and Restaurants to Famous Foods and Tiger Brands respectively which are prominent South African companies.  The paints and logistics part of the business have shown progress but not enough to significantly ositively impact group numbers.   

As at FY 2014 end, cash at the bank covered 19% of current liabilities.  Net income margin (2-yr average) was 7.36% and the company made a profit in both fiscal years.  The company also achieved a 9% rise in revenue over the period.  The company is 3X levered which is higher than other diversified conglomerates at 2X.   As at H1 2015, the leverage has come in line with other African diversified companies at 2X approximately.  Kudos to the CEO and his team for pulling this off within six months.  

As at H1 2015, pre-tax income margin was at 6% while revenue declined 7% and net income attributable to shareholders declined 62%.  Management said "it remains resolute in the pursuit of its strategies despite the current challenges and remains focused on the opportunities that will emerge in the near term."   The net income of UAC as at December 2014 year end was $58.5m which is 28% less the net income achieved by Centum Investments. 

UAC management needs to invest in more disparate business areas to strengthen its group profit accretion.   The restaurant and real estate model need to be overhauled.  Supermarket and travel/tourism are areas of opportunity.  

Centum Kenya is the most diversified of the four and the most profitable.  It also sees its eight business areas as opportunities to invest first and NOT manage.  The others see opportunities to manage first.  There is a clear difference and it is showing in the bottom-line of Centum.  Kudos to Centum and Kenya.  The sun continues to rise in the East.   

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