TIDMAOF
RNS Number : 2988Q
Africa Opportunity Fund Limited
29 August 2014
29 August 2014
AFRICA OPPORTUNITY FUND LIMITED
("AOF" or "the Company")
INTERIM RESULTS
The Board of Directors of Africa Opportunity Fund Limited is
pleased to announce its unaudited results for the 6 month period to
30 June 2014.
Highlights:
-- AOF's ordinary share net asset value per share of US$1.108 as
at 30 June 2014 decreased by 9% from the 31 December 2013 net asset
value per share of US$1.222.
-- AOF closed a share placing which raised US$29.2 million through the issue of C shares.
-- AOF's Ordinary Shares and the C Shares were admitted to
trading on the London Stock Exchange's Specialist Fund Market
("SFM") effective 17 April 2014. Concurrent with the listing on the
SFM, the Ordinary Shares were cancelled from admission to trading
on AIM.
-- As at 30 June 2014, AOF's investment allocation for its
Ordinary Shares was 73% equities, 27% debt.
-- AOF's Ordinary Shares net asset value per share as at 31 July 2014 was US$1.115.
-- AOF's C Share net asset value per share as at 31 July 2014 was US$0.972.
C Share Issue and Listing on the SFM: AOF closed a share placing
which raised $29.2 million through the issue of C Shares on 17
April. As part of the placing AOF moved to the Specialist Fund
Market ("SFM"), the London Stock Exchange's specialist market for
specialist investment funds.
Management Fee- Revised to be calculated as 2% on the first
US$50 million of Net Asset Value and 1% of the Net Asset Value in
excess of US$50 million. The Q3 effective rate (based on assets
under management as at 30 June 2014) was 1.66%.
Dividend Policy- Amended to pay out all earned income net of
fees and expenses annually, commencing in Q1 2015.
Life of Fund- There will be a continuation vote in 2019, with
the expectation that shareholders wishing to realize their
investment will be provided the opportunity to exit at or near
NAV.
Board of Directors - a new independent Chair of the Board was
appointed, Myma Belo-Osagie, along with two new independent
directors Vikram Mansharamani and Peter Mombaur.
Market Conditions: AOF's Ordinary Share NAV decreased 9% during
H1 2014. By comparison, in US dollar terms in H1 2014 the S&P
rose 7%, South Africa rose 9%, Egypt rose 16%, Kenya rose 8%, and
Nigeria rose 1%.
Portfolio Highlights: The H1 decline in AOF's Ordinary Share NAV
was precipitated primarily by the collapse of Ghana's Cedi. The
Cedi depreciated against the Dollar by 8% in May alone, 20% during
Q2, and 29% during H1. To compound the Cedi's depreciation over
that period, the share price of Enterprise Group declined 4%.
Ghanaians and foreigners alike have lost confidence in the Ghana
government's fiscal sobriety. AOF has resisted the urge to flee
Ghana for two reasons: most of its capital in Ghana is invested in
industry--leading financial service operators which over the long
term have unequivocal records of strong earnings growth and
dividends in US dollars. Standard Chartered Bank's H1 2014 profits,
for example, only declined from US$41.4 to US$40.7 million. The
interim results for the Enterprise Group however, disclosed that,
despite a decline in investment income from US$8.8 million to
US$8.4 million, overall net profits fell from US$10.6 million to
US$1.6 million due to a flat performance of its equity portfolio in
2014 versus strong results in 2013. Listed equities accounted for
24% of its portfolio at year--end and the Ghana stock market was
down 22% in US dollars at the end of Q2.
Elsewhere in the portfolio our largest holding Sonatel reported
pleasing H1 2014 numbers, with an EBITDA margin of 51%, return on
equity of 32%, and net profit margin of 25%. Subscriber numbers
rose 22% to 24 million, revenue rose 12%, year on year, and profits
rose 7%. The presence of Naspers, our fifth largest holding, with
its sky--high P/E ratio of 83 demands an explanation. It is part of
a paired trade in which AOF is short Tencent, its impressive
Chinese internet affiliate. We established this investment when
Naspers was trading at a discount to the value of its holding in
Tencent, meaning that synthetically we purchased the non--Tencent
business for free. What is this business? It is the dominant
African pay--TV franchise, with 8 million subscribers, which
generated US$1 billion in EBITDA and $420 million in net profit in
the last financial year. The fact that the South African market is
assigning no value to Naspers' pay--TV business is astonishing to
us.
Shoprite's Zambian listed shares declined by 14% as a result of
the weakening Kwacha, leaving the discount of Shoprite's Lusaka
share price to its JSE price at approximately 33% at the end of
June 2014. We continue to work towards obtaining confirmation of
AOF's title to its Shoprite shares and may potentially initiate
judicial proceedings in the second half of 2014.
Ordinary Share Portfolio Appraisal Value: As of 30 June 2014,
the Manager's appraisal of the economic value of the Ordinary Share
portfolio was US$1.37 per share. The Ordinary Share market price of
US$1.14 per share at 30 June 2014 represents a 16% discount. The
Appraisal Value is intended to provide a measure of the Manager's
long--term view of the attractiveness of AOF's Ordinary Share
portfolio. It is a subjective estimate, and does not tell when that
value will be realized, nor does it guarantee that any security
will reach its Appraisal Value.
C Shares: The NAV of the C Shares declined 3% to the end of June
2014. We have begun to invest this new capital separately from the
capital underpinning AOF's ordinary shares. As of the end of June
2014, 25% of that capital had been invested, with 19% in debt, and
6% in equity. Nigeria, South Africa, Zambia, and Zimbabwe have
received the majority of the C Share's invested capital in sectors
like insurance, real estate, industrial mineral and oil and
gas.
Outlook: Ghana's macro-economic challenges and the economic,
social and health consequences of the Ebola virus in West Africa
may harm the business environment for West African companies in
AOF's portfolio in the second half of this year. The rise of
Ghana's producer price inflation data from 33% in June to 47% in
July, juxtaposed with consumer price inflation of 15.3% in July
could be a harbinger of severe margin compression for the Ghanaian
business sector, slowing economic activity and a growing danger of
non-performing loans. The spread of the Ebola virus is not only a
human tragedy for countries at its epicentre like Guinea, but also
a source of lower GDP growth in West Africa because of quarantines
imposed for preventive or curative medical reasons.
We believe that AOF's portfolio possesses undervalued companies.
The Ordinary Shares top 10 holdings (including the Naspers paired
trade) combined offer a weighted average dividend yield of 5.8%, a
P/E ratio of 13.5X, a return on assets of 5.2% and a return on
equity of 11.3%. Despite the difficult period experienced by the
portfolio during the first half of 2014, we are excited by these
attractive valuation metrics and remain optimistic about AOF's
prospects.
Responsibility Statements:
The Board of Directors confirm that, to the best of their
knowledge:
a. The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company.
b. The Interim Investment Manager Report, and Condensed Notes to
the Financial Statements include:
i. a fair review of the information required by DTR 4.2.7R
(indication of important events that have occurred during the first
six months and their impact on the financial statements, and a
description of principal risks and uncertainties for the remaining
six months of the year); and
ii. a fair review of the information required by DTR 4.2.8R
(confirmation that no related party transactions have taken place
in the first six months of the year that have materially affected
the financial position or performance of the Company during that
period).
Per Order of the Board
29 August 2014
AFRICA OPPORTUNITY FUND LIMITED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2014 TO 30 JUNE 2014
For the period For the period
ended 30 ended 30
Note June 2014 June 2013
--------------- ---------------
USD USD
Revenue
Dividend income 995,397 932,097
Interest income 722,152 337,420
Net exchange gains on bank - 486,340
Profit on financial assets at fair
value through profit or loss 5(a) - 7,391,461
Profit on financial liabilities at
fair value through profit or loss 5(b) 71,392 246,236
Other income 331,193 -
2,120,134 9,393,554
------------ ----------
Expenses
Losses on financial assets at fair 5,068,917 -
value through profit or loss
Placing and admission fees 1,075,141 -
Management fee 573,403 435,441
Net exchange losses on bank 290,869 -
Custodian, secretarial and administration
fees 136,917 120,976
Interest charges and other fees 145,103 102,569
Dividend paid 86,475 20,754
Operating expenses 86,111 44,072
Brokerage fees 64,156 239,871
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