We’ve found there is a significant difference between listed EV/EBITDA multiples on the North African exchanges and the sub-Saharan African exchanges.
The listed EV/EBITDA multiples on the North African exchanges have been significantly higher than the rest of the continent and converged with the rest of the world* in the first quarter of 2019. This reflects the relatively advanced nature of these economies in comparison to other African countries and their strong links to Europe.
The Maghreb region is set to have a strong 2019, following positive investment reforms taking place in several countries.
The Maghreb region is set to have a strong 2019, following positive investment reforms taking place in several countries. Morocco and Egypt have continued to position themselves as high-quality African investment destinations. The global uptick in commodity prices will likely add further stimulus to the Egyptian economy.
In contrast, the sub-Saharan African exchanges have diverged from the rest of the world since the downturn in global commodity prices. However, slow signs of recovery in the past year suggest that a price correction is imminent and may have already begun.
African countries experienced a decline in EV/EBITDA multiples as most countries ended 2018 with multiples below 8x. The downward trend since 2016 in African listed multiples reflects how the investment and growth outlook remained challenging during 2018 as the commodity cycle started to turn again. The continued impact of the downturn on countries, and political uncertainty in some of Africa’s largest markets, continued to dampen listed market multiples.
EV/EBITDA multiples in Tunisia increased the most, at 10% over the year; with the average EV/EBITDA multiple moving from 10.28x at December 2017 to 11.4x at December 2018.
EV/EBITDA multiples in Tunisia increased the most, at 10% over the year; with the average EV/EBITDA multiple moving from 10.28x at December 2017 to 11.4x at December 2018. Ghana’s EV/EBITDA multiples decreased by 9.5%, while the multiple for Francophone West decreased by 0.05% over the period.
In Nigeria, EV/EBITDA multiples increased by 6%, from 5.25x at December 2017 to 5.57x at December 2018. So far, the Nigerian multiple remained relatively flat in 2019, as the economy is recovering from the economic headwinds faced in 2016. Higher commodity prices, lower inflation and monetary policy reform have all contributed to this recovery, which is beginning to reflect in the country’s listed multiples.
In 2018 the EV/EBITDA multiples in South Africa decreased by 15% over the year amidst political uncertainty and low levels of consumer and business confidence, while multiples in Southern Africa decreased by 3.5%. Multiples in the Maghreb region steadily increased by 3% over the period, whereas the Kenyan multiple decreased by 12%. The reduction in the multiple is mostly due to the poor performance of the trading multiples of several listed financial companies.
*Note: rest of the world* refers to US, UK, Japan, LatAm, BRIC markets as a proxy.
Fundraising activity on the continent remained relatively stable, most regions showed an increase in cost of equity, transaction activity is up since 2017, the upward trend in multiples continues and Information Technology and Consumer Discretionary remain the two sectors with the highest investment activity.
The overarching driving factor for the increase in cost of equity for the different African regions is the potential shift in investor sentiment, away from emerging and frontier markets to safer, developed markets.