Top 5 and Bottom 5 Frontier Market Stocks in 2014
The end of the year is fast approaching. As writers, we feel compelled to somehow provide a summation of the year that is in some way, both useful and interesting. We will probably fail, but we do hope you find this post interesting.
Of the Frontier Markets we cover; see our dashboard, we thought it would be useful to see what the top 5 and bottom 5 performing stocks were across this universe in 2014. We have looked at this on USD terms, though we provide local currency returns as well. We only look at companies with a market cap above $50mm as is our standard practice.
Let’s start with the bad news, see the table below for the 5 worst performing stocks in our universe.
Al Kamil Power Company
Al Kamil is listed in Muscat, Oman. It has a market cap of approximately $77mm as at the end of November with an average monthly turnover of $10mm. It is a subsidiary of GDF Suez, one of the world’s largest power companies.
Al Kamil as you can see has returned -89% since the start of 2014 and -44% annualized over the last three years.
The company operates a 285MW electricity generation station at Al Kamil which generates power from Natural Gas. Profits are down, they have an unexpected tax bill and the board is in turmoil.
CAP SA is an iron ore miner as well as making finished steel products. The company is down -63% YTD. If you’ve followed the news you know that iron ore is down -50% YTD and has few prospects of improving. CAP SA is a relatively high cost miner and neither industry it operates in is doing well.
They have had negative cashflow since 2013 and have had -$74mm in negative cashflow year to date. They are currently studying expansion of their iron ore assets, when they really should be shutting down some mines and reducing production.
Trada Maritime TBK PT
Trada Maritime is an Indonesia oil services company that is focused largely on the offshore oil & gas sector in Indonesia. The company has lost -80% YTD and has provided an annualized return of -27% over the last three years.
The company has been a bottle of disaster since its FSO (floating storage unit) caught fire in September 2011. Their insurance claim did not pay out what they thought it would and since then they have defaulted on a whole host of debt. Oh, and they were allegedly involved in fuel smuggling. There is really no rational reason to own this stock.
Garda Tujuh Buana TBK PT
Staying in Indoensia, Garda has lost -73% YTD but has still provided a 31% annualized return over the past three years. This is a case of a stock that got ahead of itself and corrected. The reason, like CAP SA is quite obvious. They are principally a thermal coal miner with some metallurgical coal mining. Both thermal coal prices and metallurgical coal prices are down about -35% over the last year. Garda being a relatively high cost producer has borne the brunt of the price fall in the form of margin erosion and negative cashflow.
Expectations are that the metallurgical coal market will begin a gradual recovery in 2H 2015. Until then, it will continue to be painful for Garda.
If you follow Southeast Asian news, you know Bumi. Really nothing to add here. The scandal-plagued company that has been entangled with virtually everyone from the Rothschilds to the Government of Indonesia. Stay far away. The stock is down -71% YTD and it really is a wonder that is still has value in it. Their investment arm has filed for bankruptcy, oh and on top of all of this, they are primarily in the coal business. Certain analysts like them, those analysts have larger risk appetites than we do.
This year has actually been a pretty good year for Frontier Market Equities. Our equal-weight index is up 7.7% in nominal currency terms, but down -0.6% in USD terms. Numerous EM countries have struggled with the strength of USD.
There were however, a number of great companies. We highlight the top 5 below.
Island Information and Technology
The company was originally incorporated as Island Oil Company to engage in oil exploration in the Philippines and somehow in 2000 they decided to change everything they do to information technology. It has a market cap of only $66mm, but then again it was only $3mm at the end of 2013.
We have no idea what they actually do. Their website is terrible and information is scarce. But hey, they are up 1,643% YTD so we have obviously missed something significant.
Pelayaran Tempuran Emas TBK
Pelayaran is up 863% YTD. The company is one of the major cargo shipping companies in Indonesia. They started with using rented ships and moved on to owning their own fleet. The company has a market cap of $188mm, but again was only worth $19mm at the end of last year.
The company is generating strong cashflow and strong revenue growth. While expensive today, it still has a strong future ahead of it. The current Indonesian government is keenly focused on improving sea transportation and using sea logistics to improve the distribution of goods in Indonesia. The company is highly levered with strong growth prospects.
Premium Leisure is up 722% YTD. The company invests in everything; gaming, property development, pay-per-view entertainment and IT (because, why not). The company has a market cap of $1.6bn which makes it a large cap in Frontier Markets.
Investors are attracted to the growth potential of the company’s gaming line of business. Manila is fast growing with particularly strong growth in the gaming sector. The company was cheap and investors have enjoyed the recovery. Asian/French investing giant CLSA is a recent investor in the company. They were attracted by their license to build ‘City of Dream’s in Entertainment City, Manila.
The stock remains attractive if you need a Filipino gaming company in your portfolio. We do not.
Atlas Honda is up 404% YTD. The company is a joint-venture between Atlas Group and Honda. The company manufactures motorcycles, cars, scooters, and parts for the local Pakistani market. The company makes approximately 750,000 vehicles/motorcycles and operates two plants in Pakistan.
The company’s revenue continues to grow despite a dominating position in the market. The company trades at an attractive valuation and continues to have attractive growth prospects. It has a market cap of $286mm at November 28.
CEM SA is up 185% YTD and has a current market cap of $73mm. The company makes gas-powered appliances and it is very good at it. Many of these products are used by rural populations in Chile as well as the natural resources sector.
The company is thinly traded but was shot upwards this year by a tender offer from the global heating/cooling company, Rheem. Rheem offered 150 CLP for the company which was three times higher than the market price. The deal has not closed yet, so we see the price slightly lower than the 150 CLP deal price.
Below we highlight all 10 companies market capitalization and turnover as at December 1, 2014.
As always if you have any comments or questions we would love to hear from you.