In our view, the case for investing in an African Public-To-Private Equity strategy today is compelling;
A unique opportunity set in which market distortions have been amplified by the COVID-19 pandemic. Whilst many African stock-markets have seen a sharp rebound since the lows of the second quarter of 2020, the mid-small capitalisation companies across almost all African markets – most notably those with poor sell-side coverage, limited liquidity and high levels of debt – have not participated fully in the rally.
Such underperformance, compounded by a degree of financial stress, has led to a large number of listed corporates trading well below their intrinsic value.
African Private Equity…
“To us it seems anomalous that the African continent, which is set to represent more than 46% of the world’s population by 2100 (source: World Bank) has attracted less than 0.3% of global Private Equity funding (source: Prequin).”
Sandown Capital Limited
The majority of the world’s largest Institutional Investors remain ‘underweight’ African equities
Many institutional investors continue to have a broad aversion to emerging markets and conventional value-investing. Moreover, those that seek to achieve superior and uncorrelated returns in Africa continue to be frustrated by the relative shortage of high-quality and sizeable Private Equity funds across the continent.
Whilst the African PE market remains embryonic, over the past decade African PE returns have actually outperformed African public markets by an average of just over 4% per annum albeit with a higher degree of volatility (source: Bloomberg). Sandown’s analysis of Africa PE returns suggests that the poorest-return public and private investments have been in companies and sub-sectors that have suffered from poor levels of corporate governance and/or suffered from a myriad of external and unpredictable factors. Sandown’s proprietary screening process explicitly excludes such opportunities, thereby minimising portfolio risk.
Sandown’s investment process focuses on corporates that are exposed to medium-long-term consumption-driven characteristics, complemented by management teams reinforced by Sandown’s input. Sandown’s investment pipeline comprises more than 30 listed mid-small-cap African companies which are trading at near distressed levels of valuation, exacerbated by the COVID-19 pandemic.
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